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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K10-K/A
AMENDMENT NO. 1

(MARK ONE)

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

FOR THE FISCAL YEAR ENDED JANUARY 2, 2000DECEMBER 30, 2001
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 GAMING, 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, 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:

NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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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. [ ]10-K/A. [X]

As of March 20, 200019, 2002, 10,637,953 shares of the Registrant's Common Stock
were outstanding. The aggregate market value of the Common Stock held by
nonaffiliates of the Registrant on such date, based upon the last sale price of
the Common Stock as reported on the NASDAQ National Market on March 20, 200019, 2002 was
$75,203,971.$64,575,854. For purposes of this computation, 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 May 3, 200029, 2002 are
incorporated by reference into Items 10 through 12, inclusive.

This amendment to Form 10-K is being filed to give effect to the restatement of
the Company's financial statements for the years ended December 30, 2001 and
December 31, 2000, as discussed in Note 13 inclusive.
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2to the Consolidated Financial
Statements.

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 Gaming, Inc., a Minnesota corporation, (the "Company"), 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 Gaming, Inc., a Minnesota corporation ("Lakes" or the "Company")
develops, constructs and manages casinos and related hotel and entertainment
facilities in emerging and established gaming jurisdictions. Lakes was formed in
1998 as the successor to the Indian gaming business of Grand Casinos, Inc.
("Grand Casinos"). 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:

o Lakes has a contract to be the exclusive developer and manager of an
Indian-owned gaming resort near New Buffalo, Michigan.

o Lakes and another company have formed partnerships with contracts to
develop and manage two casinos to be owned by Indian tribes in
California, one near San Diego and the other near Sacramento.

o Lakes and another company have formed a partnership with a contract to
finance the construction of an Indian-owned casino 60 miles north of
San Francisco, California.

o Lakes has also signed contracts with a Massachusetts Indian tribe 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 indicated that it will submit additional
information for reconsideration.

HISTORY

Lakes was established as a public corporation on December 31, 1998 viathrough a distribution
(the "Distribution")spin-off of its common stock, par value $.01 per share (the "Common
Stock") to the shareholders ofLakes'
shares by Grand Casinos, Inc. ("Grand"). Pursuant to the
terms of a Distribution Agreement entered into between Grand and Lakes and dated
as of December 31, 1998 (the "Distribution Agreement"), Grand shareholders
received .25 shares of Lakes Common Stock for each share held in Grand.

Immediately following the Distribution, Grand merged with a subsidiary of
Park Place Entertainment Corporation, a Delaware corporation ("Park Place"),
pursuant to which Grand became a wholly owned subsidiary of Park Place (the
"Merger"). Grand shareholders received one share of Park Place common stock in
the Merger for each share they held in Grand.Casinos. Lakes operates anthe Indian casino management business
and holds various other assets previously owned by Grand. The Company's revenues are derived almost
exclusively from management fees. Lakes currently manages two land-based,
Indian-owned casinos in Louisiana: Grand Casino Avoyelles, in Marksville,
Louisiana ("Casinos. Before the spin-off,
Grand Casino Avoyelles"), owned by the Tunica-Biloxi Tribe of
Louisiana (the "Tunica-Biloxi Tribe") and Grand Casino Coushatta, in Kinder,
Louisiana ("Grand Casino Coushatta"), owned by the Coushatta Tribe of Louisiana
(the "Coushatta Tribe").

Other assets previously owned by Grand that Lakes now owns through a
subsidiary, include certain interests in four contiguous parcels of land in Las
Vegas, Nevada, including the Polo Plaza Shopping Center. All or any combination
of these interests may be sold, held for sale or held for future development.
Lakes is currently evaluating the potential sale of these interests and in
connection therewith has entered into a listing agreement with a real estate
broker for the active marketing of these parcels.

For a portion of fiscal 1998, and prior to the Distribution, Grand alsoCasinos had management contracts for Indian-owned casinos located at Grand Casino Hinckley and Grand
Casino Mille Lacs, both Indian-owned casinos located in Minnesota. TheThese
management contract
atcontracts both expired in 1998. After Lakes' inception, Lakes managed
two Indian-owned casinos in Louisiana previously managed by Grand Casinos.
Lakes' historical revenues since its inception have been derived almost
exclusively from management fees for these casinos. Lakes managed the largest
casino resort in Louisiana, Grand Casino Mille Lacs expired at the end of the first quarter of 1998, andCoushatta, until the management
contract atexpired on January 16, 2002. For a portion of fiscal 2000 and prior,
Lakes also had a management contract for Grand Casino Hinckley ended November 30, 1998.Avoyelles, which was
terminated through an early buyout of the contract effective March 31, 2000.

Lakes also held several parcels of commercial property in Las Vegas at the
time of the spin-off from Grand Casinos. In December 2001, Lakes entered into a
contract for sale for a large portion of this property, subject to certain
post-closing conditions. Lakes continues to hold a portion of this property with
the intention of developing it. See Item 2 - "Properties".

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 will implementis 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 by continuing to provide high quality comprehensivethrough the growth of its Indian Casino

management servicesbusiness. As the successor to Grand Casino Avoyelles and Grand Casino Coushatta. Lakes
is dedicated to developing superior facilities and providing guest service that
exceeds expectations. The facilities managed by Lakes are staffed with
well-trained local casino employees and offer a casual environment designed to
appeal to the family-oriented, middle income customer. Lakes strives to offer
its casino customers creativeCasinos' Indian gaming selections in a pleasant, festive, smoke
and climate-controlled setting. Lakes' managed casinos also offer reasonably
priced, high-quality food, first class hotel rooms, video arcades and Grand
Casinos Kids Quest (SM), a professionally supervised entertainment and child
care center.

Lakes is prohibited by the Indian Gaming Regulatory Act ("IGRA") from
having an ownership interest in any casino it manages for Indian tribes. The
management contracts for Grand Casino Avoyelles and Grand Casino Coushatta
expire June 3, 2001 and January 16, 2002, respectively. The Coushatta Tribe and
Lakes have agreed on a five-year contract renewal beginning January 17, 2002,
subject to National Indian Gaming Commission ("NIGC") approval. Net
distributable profits, if any, under the new agreement will be determined in
accordance with IGRA and distributed each month 90% to the Coushatta Tribe and
10% to Lakes. There can be no assurance that the Grand Casino Avoyelles
management contract will be renewed upon expiration or the Grand Casino
Coushatta extension will be approved by NIGC. The failure to renew

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Lakes' management contracts would result in the loss of revenues to Lakes
derived from such contracts, which would have a material, adverse effect on
Lakes' results of operations. The Coushatta Tribe and the Tunica-Biloxi Tribe
each entered into tribal-state compacts with the State of Louisiana on September
29, 1992. These compacts were approved in November 1992 by the Secretary of the
Interior. The compact for the Coushatta Tribe expired November 4, 1999, and the
compact for the Tunica-Biloxi Tribe expired November 18, 1999, and the State of
Louisiana has delivered a written notice of non-renewal. The Governor and each
Tribe have agreed on a six-month extension which has been submitted to the
Department of the Interior for approval. The Coushatta Tribe and the
Tunica-Biloxi Tribe are actively negotiating with the State of Louisiana terms
for a new compact. Lakes' management agreements with the Tunica-Biloxi Tribe and
the Coushatta Tribe expire after November 1999. In the event the compacts are
not renewed, gaming may not be permitted at Grand Casino Avoyelles or Grand
Casino Coushatta. There can be no assurance that these compacts will be renewed
on terms and conditions acceptable to either of the Tribes.

Another way the Company plans to grow its assets is to grow the Indian
casino management business.business,
Lakes enjoys a reputation as an experienced anda successful casino management company for Native
American owned casinos with available capital and experienced management.

Lakes develops, constructs 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
complimentarycomplementary 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 newcasino 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. 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 family-oriented, 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.

The second business strategy has been to remove a number of uncertainties
surrounding Lakes since the spin-off in 1998. Consistent with this part of the
Lakes strategy, in 2000 Lakes entered into settlement agreements regarding
several significant shareholder litigation matters, for which Lakes is required
to indemnify Grand Casinos. Lakes paid a total of $18 million into escrow in
1999,2000, and this amount was distributed to the shareholder groups during 2001.
Lakes' indemnification obligations continue with respect to certain other
litigation matters, and $7.5 million paid into an escrow account for the development, constructionbenefit
of Grand Casinos is included as restricted cash on the accompanying balance
sheet as of December 30, 2001. 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 entered into a contract for sale for a portion of this site and certain
property rights to two partnerships which are not affiliated with Lakes. The
total sale price was approximately $30.9 million, including a $1.0 million down
payment received in January 2002 and two promissory notes for the balance. If
certain administrative post-closing conditions are not satisfied within six
months after the closing or waived by the buyers, the buyers have the right to
require Lakes to repurchase the properties. The post-closing period has been
extended through September 27, 2002. Certain of these conditions have not yet
been satisfied as of September 15, 2002. This transaction allowed the Company to
monetize a portion of its investment in property on the Las Vegas strip. The
sale will provide resources that are currently planned to be used in Lakes'
primary business, which is Indian gaming. See Item 2 - "Properties".

The other uncertainty facing Lakes relates to the proposed casino
developments. At two of the California locations, the tribes need to resolve
land issues related to their respective casino sites. At the third California
location, access to the proposed casino site is subject to certain regulatory
approvals. At the Michigan location, the Secretary of the Interior has accepted
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. At the
east coast location, the tribe is attempting to obtain federal recognition, but
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.

Diversification is important to Lakes' long-term success and is the third
of threethe business strategies. Lakes currently intends to buy or create new
Indian-owned casinos.long-term business opportunities through the use of cash, stock or debt to
complement its Indian casino management business. Substantial long-term growth
and low multiple values to generate high returns are just a few of the
attributes in companies or start-ups that Lakes is looking for in new
opportunities to help enhance shareholder value. As part of the Company's effort
to diversify, in March of 2002,

Lakes announced that it had signed a letter of intent with respect to an
investment in a joint venture with an experienced producer of televised poker
tournaments. The purpose of the joint venture would be to launch the World Poker
Tour and establish poker as the next significant televised mainstream sport.

CASINO PROJECTS AND AGREEMENTS

PARTNERSHIP TO DEVELOP AND MANAGE CASINO NEAR SAN DIEGO, CALIFORNIA. On May
12, 1999, the Company announced that it would form a partnership for the purpose
of developing a gaming facility on Indian-owned land near San Diego, California.
Under the agreement, Lakes has formed a limited liability company with Kean
Argovitz Resorts, LLC ("KAR"), a limited liability company based in Houston,
Texas. The partnership between Lakes and KAR holds a contract to develop and
manage a casino resort facility with the Jamul Indian Village in California. The
contract is subject to approval by NIGC. In 2000, California voters
recently approved an
amendment to the State Constitution which allows for Nevada-style gaming on
Indian land and ratifies the Tribal Compact.tribal compact. Development of the casino resort
will begin once various regulatory approvals are received.

DEVELOPMENT AND MANAGEMENT OF MICHIGAN CASINO. On June 22, 1999, the
Company announced that it has been selected by the Pokagon Band of Potawatomi
Indians (the "Band") to serve as the exclusive developer and manager of a
proposed casino gaming resort facility to be owned by the Band in the state of
Michigan. In connection with its selection, Lakes and the Band have executed a
development and management agreement governing their relationship during the
development, construction 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.

PARTNERSHIP TO DEVELOP AND MANAGE CASINO NEAR SACRAMENTO, CALIFORNIA. On
July 15, 1999, the Company announced that it would form a partnership for the
purpose of developing a gaming facility on Indian-owned land near Sacramento,
California. Pursuant to the agreement, Lakes has formed a limited liability
company with KAR, a limited liability company based in Houston, Texas. The
partnership between Lakes and KAR has been awarded a contract to develop and
manage a casino resort facility with the Shingle Springs Band of Miwok Indians
in California. The contract is subject to approval by NIGC and placement of the
land where the gaming facility is to be located into trust with the Bureau of
Indian Affairs ("BIA").BIA. In
2000, California voters recently 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.

EachJOINT VENTURE FOR FURTHER CALIFORNIA CASINOS, INCLUDING FINANCING OF
CLOVERDALE, CALIFORNIA CASINO. 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 liability company with MRD Gaming, a limited liability
company. 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.
Development will start as soon as various regulatory approvals are obtained.
Development is also subject to completion of definitive financing arrangements.
The joint venture also entered into a contract relating to the Paskenta Band of
Nomlaki Indians. However, in February 2001, Lakes announced its intention to
discontinue its involvement with the Paskenta project. Lakes had made loans
totaling $5.5 million to the joint venture (PCG Corning, LLC) for this project.
During 2001, Lakes wrote off approximately $1.0 million as uncollectible
relating to these loans. In October 2001, Lakes was repaid the outstanding
balance of $4.5 million on these loans.

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 180 days from the date of the
three new agreements require Lakesnegative finding to loan eachsubmit additional information for reconsideration. In
addition, community groups will have an opportunity to submit comments and
documentation. The tribe various
amountshas indicated that it will submit additional
information for reconsideration. If approval is received, the Nipmuc Nation
would need to be used for preliminary development and start-up costs at each casino
location. Total loan commitments, by Lakes, for the three projects are
approximately $100 million.

The second business strategy is to remove a number of uncertainties
surrounding the Company. To help accomplish this part of the Lakes strategy, the
Company continues to evaluate the potential sale or development of itsput land in Las Vegas. The Company hastrust and come to a gaming agreement with the state
where the land listed for saleis located before proceeding with a real estate broker
and is currently reviewing alternative offers for the development or potential
sale of the property. The Company also must win or settle the various lawsuits
regarding Stratosphere. The Company is actively defending the suits and expects
trial hearings to start in 2001 unless they are settled prior to that time. The
other uncertainty
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facing Lakes relates to the three proposed casino developments. In eachany such location, the Tribes need to have land accepted into trust on their behalf by
the Bureau of Indian Affairs, and the National Indian Gaming Commission needs to
approve the applicable Lakes management contracts. In addition, the Pokagon Band
of Potawatomi Indians in Michigan needs to secure a valid contract with that
state or a casino may not be built. Lakes is actively working with the Tribes to
bring these issues to a successful conclusion.

Diversification is the key toenterprise.

MARKETING

Lakes' long-term success and it is the third
of the business strategies. Lakes currently plans to buy or create new long-term
business opportunities through the use of cash, stock or debt to complement its
Indian casino management business. Substantial long-term growth and low multiple
values to generate high returns are just a few of the attributes in companies or
start-ups that Lakes is looking for in new opportunities to help enhance
shareholder value. In addition to this approach, Lakes currently has investments
in unconsolidated affiliates which include a 27 percent ownership interest in
Fanball.com, Inc., a start-up internet provider of fantasy sports services, and
a 23 percent ownership interest in Interactive Learning Group, Inc., a consumer
product company. Lakes invested $3.4 million and $3 million in Fanball.com and
Interactive Learning Group, respectively, at the end of the second quarter of
1999. Additionally, as a result of its spin-off from Grand, Lakes received a 49
percent ownership interest in Trak 21 Development, LLC, a developer of player
tracking systems for the casino industry, and a 27 percent ownership interest in
New Horizon Kids Quest, Inc., a publicly held provider of child care facilities.

MARKETING

Lakes targets its marketing strategy at its managed operations is to attract and
retain the repeat customer. Management believes that Lakes' emphasis on
enhancing the entertainment value,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 its 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 mediaoptions 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 at each location. GRAND CASINO AVOYELLES

Grand Casino Avoyelles opened in June 1994 and consists of a 218 room hotel
and approximately 50,000 square feet of casino gaming space containing
approximately 1,700 slot machines and 55 table games. The resort's other
features include a 1,700 seat entertainment complex, three restaurants plus a
night club featuring live entertainment, a full-service RV resort, a Kids
Quest(SM) child care activity center, a video arcade, a gift shop and parking
for approximately 2,250 vehicles.

Grand Casino Avoyelles is located approximately 50 miles west of Natchez,
Mississippi, and within approximately 200 miles of the Louisiana cities of Baton
Rouge, Lafayette, New Orleans, and Shreveport. Lakes
purchased approximately 64
acres of land adjacent to the Tunica-Biloxi reservation and donated
approximately 21 acres of this land to the Tunica-Biloxi Tribe. This land has
been placed in trust, has been approved for gaming, and is the site upon which
Grand Casino Avoyelles was constructed.

Lakes also leases land to the Tunica-Biloxi Tribe for a 220 room hotel
which opened during 1996 and is located in close proximity to Grand Casino
Avoyelles. The Tunica-Biloxi Tribe operates the hotelemphasizes guest service as a part of the Grand
Casino Avoyelles enterprise. Lakes guaranteed $16.5 million of Tunica-Biloxi
Tribal debt incurredits operating strategy. High standards are
set for well-trained and friendly employees so that customers can enjoy
themselves in connection with the purchase of the hotel,a fun-filled and has
subordinated payment of Lakes' management fee and any loan amounts owed by the
Tunica-Biloxi Tribe to Lakes to the repayment of such debt. As of January 2,
2000, the amount outstanding was $2.0 million. The debt is scheduled to be fully
repaid by April 2000.

The term of Lakes' development and management agreement with the
Tunica-Biloxi Tribe (the "Tunica-Biloxi Agreement") expires on June 3, 2001. The
net distributable profits, if any, as determined on a modified cash basis, are
distributed each month 60% to the Tunica-Biloxi Tribe and 40% to Lakes.

Lakes loaned the Tunica-Biloxi Tribe an aggregate of approximately $23.5
million to construct and open Grand Casino Avoyelles, of which amount
approximately $3.5 million was not, but may need to be, approved by the BIA
and/or NIGC. Approximately $5.4 million of such loans remained outstanding at
January 2, 2000.

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The loans bear interest at 1% over the prime rate and are payable over the
remaining term of the Tunica-Biloxi Agreement.

The Tunica-Biloxi Agreement was approved by the BIA on February 27, 1992.
The Tunica-Biloxi Tribe and the State of Louisiana entered into a tribal-state
compact on September 29, 1992, which was approved by the Secretary of the
Interior on November 18, 1992. The compact expired on November 18, 1999 and the
State of Louisiana has delivered a written notice of non-renewal. The Governor
and the Tribe have agreed on a six-month extension which has been approved by
the Department of the Interior.

In connection with the Distribution, Lakes and the appropriate subsidiaries
made application to the Tribal gaming regulatory authority for a license and
obtained certification and licensure by the Louisiana State Police.

GRAND CASINO COUSHATTA

Grand Casino Coushatta opened in January 1995 and currently consists of a
223 room hotel and approximately 98,000 square feet of casino gaming space
containing approximately 3,100 slot machines and 90 table games. Three
restaurants plus a food court, a full-service RV resort, a Kids Quest(SM) child
care center, a video arcade, a gift shop and parking for approximately 1,600
vehicles are among the property's non-gaming amenities.

On February 25, 1992, Grand, as predecessor to Lakes, entered into a
construction agreement and management contract (the "Coushatta Agreement") with
the Coushatta Tribe for the development, construction, and management of a
casino facility in Elton, Louisiana, on Highway 165. Grand Casino Coushatta is
located approximately 60 miles south of Alexandria, Louisiana, and within 200
miles of Houston, Texas. Grand purchased approximately 688 acres of land
adjacent to the Coushatta reservation. Grand has donated approximately 530 acres
to the Coushatta Tribe. This land has been placed in trust for the Coushatta
Tribe. The remaining land was sold to the Coushatta Tribe, and Lakes holds a
promissory note to secure payment of the purchase price with an outstanding
balance of $1.5 million at January 2, 2000.

Grand loaned the Coushatta Tribe an aggregate of approximately $38.3
million to construct and open Grand Casino Coushatta, of which amount up to
approximately $20.3 million was not, but may need to be, approved by the BIA
and/or NIGC. The loans bear interest at 1% over the prime rate and are payable
over the remaining term of the Coushatta Agreement. Approximately $10.0 million
of such loans remained outstanding as of January 2, 2000.

The Coushatta Tribe constructed a hotel on trust land located adjacent to
the casino. Pursuant to the Distribution, Lakes guaranteed $25.0 million of
indebtedness incurred by the Tribe in connection therewith. Such indebtedness
has a repayment term of approximately five years. Lakes subordinated payment of
its management fee and repayment of any loans outstanding from the Coushatta
Tribe to the repayment of such indebtedness. As of January 2, 2000, the amount
outstanding was $19.3 million.

The Coushatta Agreement was approved by the BIA on February 27, 1992. The
Coushatta Tribe and the State of Louisiana entered into a tribal-state compact
on September 15, 1992, which was approved by the Secretary of the Interior on
November 4, 1992.

The compact expired on November 4, 1999 and the State of Louisiana has
delivered a written notice of non-renewal. The Governor and the Tribe have
agreed on a six-month extension which has been approved by the Department of the
Interior. In connection with the Distribution, Lakes was certified by the
Louisiana State Police to manage the casino.

The current Coushatta Agreement expires on January 16, 2002. The net
distributable profits, if any, as determined on a modified cash basis, are
distributed each month 60% to the Coushatta Tribe and 40% to Lakes. The
Coushatta Tribe and Lakes have agreed on a five year contract renewal beginning
January 17, 2002, subject to NIGC approval. Net distributable profits, if any,
under the new contract will be determined in accordance with IGRA and
distributed each month 90% to the Coushatta Tribe and 10% to Lakes.

FUNDING AGREEMENTS

Pursuant to the terms of the Distribution Agreement, Lakes assumed Grand's
obligations under various agreements (the "Funding Agreements") with each of the
Tunica-Biloxi and Coushatta Tribes to provide temporary funding, if necessary,
for the construction of certain additional amenities on Grand Casino Avoyelles
and Grand Casino Coushatta. The terms of the Funding Agreements require each
party to advance
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money for the payment of construction costs if and when the casino operating
funds designated for such purpose are insufficient. Any funds advanced are to be
repaid, together with interest at the prime rate plus 1 percent, over the
remaining term of the respective management agreement.

Advances of $1.2 million and $13.9 million had been made to the
Tunica-Biloxi and Coushatta Tribes, respectively, as of January 2, 2000. Amounts
outstanding were $0.8 million and $11.0 million to the Tunica-Biloxi and
Coushatta Tribes, respectively.

POLO PLAZA

On October 1, 1999, the Company purchased the shopping center and land
owned by the Nevada Resort Properties Polo Plaza Limited Partnership (the
"Partnership") in lieu of exercising its right to purchase the remaining 51%
interest in the Partnership. Prior to the purchase, the Company held a 49%
ownership interest in the Partnership. In consideration for the purchase, the
Company paid approximately $3.3 million and paid off the outstanding partnership
mortgage of approximately $6.3 million. A $6.2 million loan to the Partnership
made by the Company during January 1999 was repaid and satisfied at the closing
by offsetting an appropriate amount against the purchase price as agreed by the
Company and the Partnership. Pursuant to the purchase agreement relating to this
transaction, the Partnership is currently being dissolved. Lakes continues to
operate the site as a commercial shopping center.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 managed and 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 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.

The Louisiana markets are highly competitive and numerous Louisiana
casinos, along with others in Mississippi, compete with Grand Casino Coushatta
and Grand Casino Avoyelles. A single large land-based casino recently opened in
downtown New Orleans and competes for customers with the casinos managed by
Lakes. Louisiana has also legalized river boat gaming. There are presently 14
licensed river boats in operation in Louisiana, four of which are presently
operating in the vicinity of Lake Charles, Louisiana, within approximately 50
miles of Grand Casino Coushatta, drawing players from the Houston market.

The river boats compete with Louisiana casinos managed by Lakes. Moreover,
the legalization of casino gaming in Texas could have a material adverse effect
on the casinos managed by Lakes. Louisiana has also enacted legislation allowing
racetracks in certain parishes to install slot machines, which has been approved
in local referenda. The slot machine operations could also have a material
effect on the casinos managed by Lakes. Video poker machines may be located in
facilities that serve liquor, at truck stops, and at pari-mutuel racetracks and
off-track betting facilities.

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,

6
7 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 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 GAMINGIndian 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 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. All of Lakes' current management contracts
and collateral agreements were approved by the BIA; however, theThe NIGC may review suchany 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.

5
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 7
8

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, and the
income projections for the particular gaming activity justify the larger profit
allocation and longer term. While
Lakes believes that its management contracts meet all requirements of IGRA,
there is a risk that the NIGC may reduce the term or the management fee provided
for in any such contracts. Currently, the management contracts (i) have not been
reviewed or approved by NIGC, and (ii) NIGC could call them for review at any
time and may not approve the contracts at all or may require modification prior
to granting approval.

Grand and Lakes have requested that the NIGC either approve the Grand
Distribution, the Merger and the assignment of Grand's management contracts to
Lakes or acknowledge that their approval is not required. While Lakes believes
that the assignment is valid and has received the consent and support of both
the Tunica-Biloxi Tribe and the Coushatta Tribe, there can be no assurance that
the NIGC will respond favorably or will respond in a timely manner.

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
and includes table games such as blackjack, craps and roulette, as well as
gaming machines such as slots, video poker, lotteries, and pari-mutuel wagering.

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.

The State of Louisiana has entered into tribal-state compacts with the
Coushatta Tribe and the Tunica-Biloxi Tribe. Each of the Louisiana compacts
expired in November 1999. The State of Louisiana has delivered a written notice
of non-renewal. The Governor and each Tribe have agreed on a six-month extension
which has been approved by the Department of the Interior. In the event either
of the Louisiana compacts is not renewed, legal gaming possibly may not be
permitted at the applicable casino location. There can be no assurance that
either of the Louisiana compacts will be renewed.

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...invalue . . . in consideration of services for said Indians relative to
their lands...unlesslands . . . 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.

Lakes believes that it
has complied with the requirements of Section 81 with respect to its management
contracts for Grand Casino Avoyelles and Grand Casino Coushatta.

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
8
9 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.

The possession of valid licenses from the Coushatta Tribe and
Tunica-Biloxi Tribe are conditions of the Coushatta Agreement and the
Tunica-Biloxi Agreement, respectively.

NON-GAMING REGULATIONSNon-gaming Regulations

The Company and its subsidiaries are subject to certain federal, state and
local, safety and health laws, regulations pertaining to operation of barges and
other marine laws, and 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.

EMPLOYEES

At March 20, 2000,19, 2002, Lakes had approximately 2530 employees. Lakes believes its
relations with employees are positive.

RISK FACTORS

In addition to factors discussed elsewhere in this Annual Report on Form
10-K,10-K/A, 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 CONSTRUCTION, OPERATION 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, operating, and managing casinos owned by Indian tribes and located
on Indian land, neither the Company nor any of these individuals has developed
or operated 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 operate 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.

The start of development and construction of the casino projects is subject
to various regulatory approvals. 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.

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.

Although Lakes generally provides only preliminary construction financing
for its managed casinos, 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 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.OBLIGATIONS LAKES INHERITED FROM GRAND
CASINOS UPON LAKES' FORMATION, THOSE PAYMENTS MAY HAVE A MATERIAL ADVERSE EFFECT
ON LAKES' ASSET POSITION.

Under the Distribution Agreement, Lakesdocuments relating to Lakes' spin-off from Grand Casinos and
Grand agreed to indemnify each other for liabilities retainedCasinos' acquisition by them in the
Distribution. Additionally, under the Agreement and Plan of Merger, dated as of
June 30, 1998 (the "Merger Agreement") by and among Hilton Hotels Corporation,
Park Place, Gaming Acquisition Corporation, Lakes and Grand, Lakes agreed to indemnify Grand
Casinos and affiliates of Grand Casinos for (i) Grand'sliabilities 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
(ii)(iii) contingent liabilities related to Stratosphere Corporation
("Stratosphere"). The availabilityLakes 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
such
indemnities will be dependent upon$18.0 million to the financial strengthGrand Casinos, Inc. shareholders and creditworthinessthe Stratosphere
shareholders for full and final settlement of Grandall federal and state related
actions. As described under Item 3 ("Legal Proceedings"), there are currently a
number of other litigation matters for which Lakes respectively. No assurance can be given that such entities
will be in a position to fund such indemnities should they be obligated to do so
in the future.

LAKES' FUNDING OBLIGATION. As security to support Lakes'has indemnification
obligations to Grand under each of the Distribution Agreement and the Merger
Agreement, Lakes agreed to deposit, in trust for the benefit of Grand, as a
wholly owned subsidiary of Park Place, an aggregate of $30 million to cover
various commitments and contingencies related to, or arising out of, Grand's
Non-Mississippi business and assets (as defined in the Merger Agreement)
(including by way of example, but not limitation, tribal loan guarantees, real
property lease guarantees for Lakes' subsidiaries and director and executive
officer indemnity obligations) consisting of four annual installments of $7.5
million, payable at the end of each year for a four year period subsequent to
the effective date of the Merger if the indemnification obligation still exists.
Lakes made the first deposit of $7.5 million on December 31, 1999 and such
amount is included as restricted cash on the accompanying balance sheet as of
January 2, 2000. Lakes' ability to satisfy this funding obligation is materially

9
10

dependent upon the continued success of its operations and the general risks
inherent in its business. In the event Lakes is unable to satisfy its funding
obligation, it would be in breach of its agreement with Grand, possibly
subjecting itself to additional liability for contract damages, which could have
a material adverse effect on Lakes' business and results of operations.

HIGHLY REGULATED INDUSTRY. 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. Grand and Lakes have requested that the NIGC
either approve the Distribution or acknowledge that their approval is not
required. There can be no assurance the NIGC approval or any other required
approvals will be secured on a timely basis, if at all. See "Regulation."

STRATOSPHERE CORPORATION; PENDING LITIGATION. Grand and certain of its
current and former directors and officers are defendants in several lawsuits
related to Grand's former investment in Stratosphere. Stratosphere owns and
operates the Stratosphere Tower, Casino & Hotel, a casino/hotel and
entertainment complex in Las Vegas which filed for reorganization under Chapter
11 of the Bankruptcy Code on January 27, 1997. On November 7, 1997, Stratosphere
filed a second amended proposed plan of reorganization with the Bankruptcy Court
which became effective on October 14, 1998 (the "Second Amended Plan"). Under
the Second Amended Plan, the secured portion of Stratosphere's outstanding first
mortgage notes were converted into 100% of the equity of the reorganized
Stratosphere and all of the common stock of Stratosphere outstanding prior to
the effective date of the Second Amended Plan was canceled. Grand beneficially
owned approximately 37% of the issued and outstanding common stock of
Stratosphere prior to its cancellation as a result of the Second Amended Plan
becoming effective.

Pursuant to the terms of the Distribution Agreement, any future liabilities
arising out of the various Stratosphere-related lawsuits were assumed by Lakes.
In addition other contingent liabilities related to or arising out of Grand's
Non-Mississippi business (such as tribal loan guarantees, real property lease
guarantees for Lakes' subsidiaries, and director and officer indemnity
obligations (see below)) were also assumed by Lakes. Although potential costs
associated with these various commitments and contingencies did not increase
solely as a result of the Distribution, given the numerous uncertainties
associated with litigation and the contingent nature of Lakes' various financial
commitments, Lakes is unable to quantify, within any reasonable range, its total
exposure if all or any of the pending litigation were to be resolved adversely
to Lakes' interests. Nor is Lakes able to assess the likelihood that it will be
required to perform on some or all of its contingent financial obligations.

Under Minnesota corporate law, Lakes is required, subject to certain
limitations and exclusions, to indemnify its current and former officers and
directors. AlthoughCasinos. Until Lakes has agreedreached a final resolution with
respect to assume the liabilities related to
Stratosphere and the Stratosphere lawsuits, Lakes agreed under the Merger
Agreement to indemnify Grand for such liabilities and certain other pending
litigation. Accordingly, Lakes will bear the cost of defending itself, its
current and former directors and officers, and Grand and its current and former
officers and directors for any settlement or judgment of such matters. Although
these lawsuits are in their early stages and Lakes plans to defend itself
vigorously,matters, there can be no assurance that the costs of defense and any
settlement or judgmentLakes' indemnification
obligations will not have a material adverse effect on Lakes or, if
Lakes does not satisfy its indemnification obligations to Grand, on Grand.

OPERATING COVENANTS; DIVIDEND RESTRICTIONS. So long as Lakes is required
to indemnify Grand 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 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 Park Place, which consent can
be given or withheld in Park Place's sole and absolute discretion.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
CAPITAL NEEDS; UNCERTAINTYGAMING OR OTHER BUSINESS OPPORTUNITIES AND THE RESULTS OF ADDITIONAL FUNDING. Lakes anticipates
that the cash it received in the Distribution, interest expected to be earned
thereon and its anticipated revenues will be sufficient to finance its
operations. There can be no assurance, however, that Lakes will not seek or
require additional capital at some point in the future 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
10
11

inability to raise such funds when needed might require Lakes to delay, scale
back or eliminate some of its expansion and development goals, and might require
Lakes to cease its operations entirely. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations of Lakes -- Capital
Resources, Capital Spending and Liquidity."

COMPETITION.LAKES' OPERATIONS MAY
SUFFER ACCORDINGLY.

In Louisiana, there are presently 14 licensed river boats in operation that
compete with Grand Casino Coushatta and Grand Casino Avoyelles, including
"Casino America" and "Players Lake Charles" and, to a lesser extent, "Binion's
Horseshoe Casino," "Casino Magic" and "Harrah's Shreveport."

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. Because the Distribution
resulted in the unavailability of historical cash flows and assets represented
by Grand's Mississippi business, Lakes' ability to compete for and develop
future gaming or other business opportunities will be restricted, both in the
size and number of development projects it can pursue. Many of Lakes' competitors
have more personnel and most 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/A under the caption "Regulation".

IF THE NIGC ELECTS TO MODIFY THE TERMS OF LAKES' MANAGEMENT CONTRACTS OF LIMITED DURATION. Lakes is prohibited under the
IGRA from having an ownership interest in any casino it manages for Indian
tribes. The current management contracts for Grand Casino Avoyelles and Grand
Casino Coushatta expire June 3, 2001 and January 16, 2002, respectively. The
Coushatta Tribe and Lakes have agreed on a five year contract renewal beginning
January 17, 2002, subject to NIGC approval. Net distributable profits, if any,
under the new agreement will be determined in accordance with IGRA and
distributed each month 90% to the Coushatta Tribe and 10% to Lakes. There can be
no assurance that any of these management contracts will be renewed upon
expiration or approved by the NIGC upon any such renewal. Lakes anticipates that
any renewal of the Grand Casino Coushatta and Grand Casino Avoyelles management
contracts will be upon terms less favorable to Lakes. The failure to renew
Lakes' management contracts would result in the loss of revenues to Lakes
derived from such contracts, which would have a material adverse effect on
Lakes' results of operations.

The Coushatta Tribe and the Tunica-Biloxi Tribe each entered into
tribal-state compacts with the State of Louisiana on September 29, 1992. These
compacts were approved in November, 1992 by the Secretary of the Interior. Each
compact expired in November, 1999 and the State of Louisiana has delivered a
written notice of non-renewal. The Governor and each Tribe have agreed on a
six-month extension which has been approved by the Department of the Interior.
In the event the compacts are not renewed, legal gaming may possibly not be
permitted at Grand Casino Avoyelles or Grand Casino Coushatta. In the event that
the compacts are renewed, but Lakes' management contracts are not, Lakes will
not operate the casinos at those locations. The non-renewal of the management
contracts would result in the loss of revenues to Lakes derived from such
contracts, which would have a material adverse effect on Lakes' results of
operations. Currently, the management contracts for Grand Casino Coushatta and
Grand Casino Avoyelles generate all of Lakes' operating revenues. Without the
renewal of either or both of the existing management contracts or the
realization of new business opportunities or new management contracts, the
non-renewal of the Louisiana management contracts would have a material adverse
impact on Lakes' results of operations and financial condition. There can be no
assurance that these compacts will be renewed on terms and conditions acceptable
to either of the tribes.WITH
INDIAN TRIBES OR VOID SUCH CONTRACTS ALTOGETHER, LAKES' REVENUES FROM MANAGEMENT
CONTRACTS SUBJECT TO GOVERNMENTAL MODIFICATION.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. While Lakes believes that its
management contracts meet the requirements of the IGRA, 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,
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12 which could have an adverse effect on Lakes. Currently, the
management contracts (i) have 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.

In addition, Lakes has made
loans to Indian tribes in excess of the loan ceilings set forth in each of the
Indian management contracts. Under certain circumstances, these loans may not be
enforceable by Lakes. As of January 2, 2000, loan balances outstanding to such
tribes were approximately $33.1 million.

LIMITED9

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
AGAINST TRIBAL ASSETS.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 these loans 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.

DEPENDENCEA 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 KEY PERSONNEL.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.

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 operations. However, it is likely additional financing will be required to
complete one or more of its casino projects as soon as regulatory approvals are
received and construction can begin. There can be no assurance that Lakes will
not seek or require additional capital at some point in the future 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 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").

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 30, 2001, Lakes had $53.3 million in notes receivable, which
represented approximately 28% of its total assets. See Note 3 to the
Consolidated Financial Statements. Most of the notes receivable are advances
made to Indian tribes for financing related to gaming properties being
developed, managed or financed 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 of the notes receivable and the manager's fees under the
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 30, 2001. 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' casino
projects begin construction 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.

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.

LIMITED BASE OF OPERATIONS. Lakes' principal operations currently consist
of the management of two Indian-owned casinos. The management contracts for
Grand Casino Avoyelles and Grand Casino Coushatta expire June 3, 2001 and
January 16, 2002, respectively. The Coushatta Tribe and Lakes have agreed on a
five-year contract renewal beginning January 17, 2002, subject to NIGC approval.
The combination of the relatively small number of managed casinos and the
potentially significant investment associated with any new managed casino may
cause the operating results of Lakes to fluctuate significantly and adversely
affect the profitability of Lakes. Due to this relatively small number of
current locations, poor operating results at any one casino or a delay in the
opening or non-opening of any future casinos could materially affect the
profitability of Lakes. Future growth in revenues and profits will depend to a
large extent on Lakes' ability to continue to increase the number of its managed
casinos or develop new business opportunities.

RISKS ASSOCIATED WITH NEW DEVELOPMENT ACTIVITIES. Although Lakes and
certain members of its management team have experience developing, operating and
managing casinos owned by Indian tribes and located on Indian land, neither the
Company nor any of these individuals has developed or operated a casino in
either the State of California or the State of Michigan. In addition, the gaming
industry in each of the three locations where Lakes plans to develop and operate
casinos has no operating history as yet and faces several legal and procedural
challenges which 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, near San Diego, CA,
Sacramento, CA, and in the State of Michigan, respectively, 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.

At this time, Lakes does not have a target date for the start of
development and construction of these three projects, and no assurances can be
given that even once a schedule for such construction and development activities
has been 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. 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 stalling problems 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 or
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.

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ITEM 2. PROPERTIES

CORPORATE OFFICE FACILITY

Pursuant to the terms of the Distribution Agreement, Grand has assigned to
Lakes, and Lakes has assumed a lease agreement dated February 1, 1996 covering
Lakes' current corporate office space of approximately 65,000 square feet with a
lease term of fifteen years. The lease commenced on October 14, 1996 and the
annual base rent is $768,300 plus building operating costs.

LAS VEGAS LAND

SHARK CLUB PARCEL

A subsidiary of Lakes is the tenant under a ground lease (the "Shark Club
Lease") which has a term through July 31, 2046 unless sooner terminated in
accordance with the provisions thereof. The Shark Club Lease provides for base
rent in the initial amount of $65,000 per month, subject to adjustment each
lease year based on a cost of living formula and additional rent in the amount
of $6,500 per month if the parcel is used for a casino/hotel.

In addition to the base rent, Lakes must pay all taxes on and bear all
costs of maintaining the property. Grand Casinos also executed a guarantee in
connection with the execution of the Shark Club Lease by its former subsidiary.

In connection with the Merger, Lakes agreed with Park Place that Lakes will
either exercise, or cause one of its subsidiaries to exercise, the Shark Club
Lease purchase option of approximately $10.1 million prior to the earliest time
when the landlord could require Lakes (or Grand as the guarantor) to purchase
the subject real estate. Lakes is anticipating that date to be April 2000.

Under the Shark Club Lease, Lakes is required to maintain the leased
property. Lakes executed an amendment to the Shark Club Lease that permitted it
to raze the property without increasing its security deposit. In exchange. Lakes
agreed to waive the payment and accrual of interest on such security deposit.

TRAVELODGE PARCEL

A Lakes subsidiary is tenant under a ground lease (the "Travelodge Lease")
which commenced on June 17, 1996, and will (unless sooner terminated in
accordance with the provisions thereof) remain in effect until June 16, 2095.
The Travelodge Lease provides for a base rent (in the initial amount of $166,667
per month) that is adjusted each lease year based on a cost of living formula.
In addition to the base rent, the tenant must pay all taxes on and costs of
maintaining the leased property. Lakes has the option to purchase the leased
property during the 20th lease year for the purchase price of $30 million. Lakes
manages the hotel building located on the leased property. A third party had a
sublease interest in the leased property. That claimed interest was terminated
pursuant to an agreement between the third party and Lakes that provides for
payments by Lakes in the amount of $150,000 per quarter for a period of ten
years after such party surrendered possession of the property to Lakes. A
portion of the building located on the leased property is subleased, which Lakes
currently has the right to terminate by making certain prescribed payments, and
complying with certain other conditions stated, in the sublease.

POLO PLAZA SHOPPING CENTER PARCEL

CABLE PARCEL

Pursuant to a November 1, 1997 Option Agreement, Grand acquired an option
to purchase approximately 4.5 acres of land located near the Polo Plaza Shopping
Center anytime prior to October 31, 2000. As
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consideration for the option, Lakes pays the landowner a non-refundable monthly
option payment of $80,000. The option agreement states that the purchase price
for the land is $18 million.

ITEM 3. LEGAL PROCEEDINGS

The following summaries describe certain known legal proceedings to which
Grand is a party which Lakes has assumed, or with respect to which Lakes has
agreed to indemnify Grand, in connection with the Distribution.

STRATOSPHERE SHAREHOLDERS LITIGATION -- FEDERAL COURT

In August 1996, a complaint was filed in the U.S. District Court for the
District of Nevada -- Michael Ceasar, et al v. Stratosphere Corporation, et
al -- against Stratosphere and others, including Grand. The complaint was filed
as a class action, and sought relief on behalf of Stratosphere shareholders who
purchased their stock between December 19, 1995 and July 22, 1996. The complaint
included allegations of misrepresentations, federal securities law violations
and various state law claims.

In August through October 1996, several other nearly identical complaints
were filed by various plaintiffs in the U.S. District Court for the District of
Nevada.

The defendants in the actions submitted motions requesting that all of the
actions be consolidated. Those motions were granted in January 1997, and the
consolidated action is entitled In re: Stratosphere Corporation Securities
Litigation -- Master File No. CV-S-96-00708 PMP (RLH).

In February 1997, the plaintiffs filed a consolidated and amended complaint
naming various defendants, including Grand and certain current and former
officers and directors of Grand. The amended complaint includes claims under
federal securities laws and Nevada laws based on acts alleged to have occurred
between December 19, 1995 and July 22, 1996.

The Court has recently signed a scheduling order, which cuts off fact
discovery as of April 30, 2000 and expert discovery as of September 30, 2000.
The parties have submitted preliminary pretrial statements, which may be amended
after the completion of discovery.

In February 1997, various defendants, including Grand and Grand's officers
and directors named as defendants, submitted motions to dismiss the amended
complaint. Those motions were made on various grounds, including Grand's claim
that the amended complaint failed to state a valid cause of action against Grand
and Grand's officers and directors.

In May 1997, the court dismissed the amended complaint. The dismissal order
did not allow the plaintiffs to further amend their complaint in an attempt to
state a valid cause of action.

In June 1997, the plaintiffs asked the court to reconsider its dismissal
order, and to allow the plaintiffs to submit a second amended complaint in an
attempt to state a valid cause of action. In July 1997, the court allowed the
plaintiffs to submit a second amended complaint.

In August 1997, the plaintiffs filed a second amended complaint. In
September 1997, certain of the defendants, including Grand and Grand's officers
and directors named as defendants, submitted a motion to dismiss the second
amended complaint. The motion was based on various grounds, including Grand's
claim that the second amended complaint failed to state a valid cause of action
against Grand and Grand's officers and directors.

In April 1998, the Court granted Grand's motion to dismiss, in part, and
denied the motion in part. Thus, the plaintiffs are pursuing the claims in the
second amended complaint that survived the motion to dismiss.

In June 1998, certain of the defendants, including Grand and Grand's
officers and directors named as defendants, submitted a motion for summary
judgment seeking an order that such defendants are entitled to judgment as a
matter of law. In December 1998, the plaintiffs completed fact discovery related
to the issues raised by the summary judgment motion. Expert discovery was
completed in March of 1999. All papers relating to this matter were filed on
June 1, 1999.

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Statement; (4) the vague expressions of general optimism (issued within the
December 19, 1995 Prospectus, the 10-Q and 10-K Filings, press releases and
other public statements) referred to in this Order; (5) the adoption of
statements in securities analysts reports; (6) the alleged utterance of
misleading statements before the Nevada Gaming Commission; and (7) the temporary
diversion of Phase II proceeds to fund Phase I. The remaining claims relate to
the accuracy of defendants' budgetary estimates issued in Stratosphere's
December 1995 Prospectus and SEC 10-Q and 10-K Reports. The Court concluded that
there were triable issues as to whether defendants misstated anticipated
construction costs or omitted to disclose material cost overruns.

The court recently added the Company as an additional defendant because of
its indemnity obligation and stipulation. Park Place has opposed being added to
the litigation and plaintiffs' motion to add Park Place as a defendant is
pending.

STRATOSPHERE SHAREHOLDERS LITIGATION -- NEVADA STATE COURT

In August 1996, a complaint was filed in the District Court for Clark
County, Nevada -- Victor M. Opitz, et al v. Robert E. Stupak, et al -- Case No.
A363019 -- against various defendants, including Grand. The complaint seeks
relief on behalf of Stratosphere Corporation shareholders who purchased stock
between December 19, 1995 and July 22, 1996. The complaint alleges
misrepresentations, state securities law violations and other state claims.

Grand and certain defendants submitted motions to dismiss or stay the state
court action pending resolution of the federal court action described above. The
court has stayed further proceedings pending the resolution of In re:
Stratosphere Securities Litigation.UNTIL LAKES HAS SATISFIED ITS INDEMNIFICATION OBLIGATIONS RELATED TO GRAND
CASINOS, INC.LAKES IS PROHIBITED FROM DECLARING DIVIDENDS ON ITS COMMON STOCK AND,
CONSEQUENTLY, THE ONLY RETURN ON INVESTMENT FOR LAKES' SHAREHOLDERS, LITIGATION

The complaints allege misrepresentations, federal securities law violations
and other claims in connection with the Stratosphere project.

The actions have been consolidated as In re: Grand Casinos, Inc. Securities
Litigation -- Master File No. 4-96-890 -- and the plaintiffs filed a
consolidated complaint. The defendants submitted a motion to dismiss the
consolidated complaint, based in part on Grand's claim that the consolidated
complaint failed to properly state a cause of action.

In December 1997, the court granted Grand's motion to dismiss in part, and
denied the motion in part. Thus, the plaintiffs are pursuing the claims in the
consolidated complaint that survived Grand's motion to dismiss. Discovery in the
action has begun.

The defendants have submitted a motion for summary judgment seeking an
order that the defendants are entitled to judgment as a matter of law. In
December 1998, the plaintiffs completed fact discovery related to the issues
raised by the summary judgement motion. Expert discovery was completed in March
of 1999. The parties have completed follow-up discovery pertaining to the
summary judgment motion. The court heard the motion on September 2, 1999. The
court has not yet ruled on the motion.

In early February 1999, the plaintiffs filed a motion for leave to amend
the complaint in this action to include, as defendants in the case, both the
Company and Park Place. The motion for leave to amend the complaint has been
granted and Lakes has filed its answer. Lakes will defend this action
vigorously.

SLOT MACHINE LITIGATION

In April 1994, William H. Poulos brought an action in the U.S. District
Court for the Middle District of Florida, Orlando Division -- William H. Poulos,
et al v. Caesars World, Inc. et al -- Case No. 39-478-CIV-ORL-22 -- in which
various parties (including Grand) alleged to operate casinos or be slot machine
manufacturers were named as defendants. The plaintiff sought to have the action
certified as a class action.

A subsequently filed Action -- William Ahearn, et al v. Caesars World, Inc.
et al -- Case No. 94-532-CIV-ORL-22 -- made similar allegations and was
consolidated with the Poulos action.

defendants are involved in a scheme to induce people to play electronic video
poker and slot machines based on false beliefs regarding how such machines
operate and the extent to which a player is likely to win on any given play.

In December 1994, the consolidated actions were transferred to the U.S.
District Court for the District of Nevada.

In September 1995, Larry Schreier brought an action in the U.S. District
Court for the District of Nevada -- Larry Schreier, et al v. Caesars World, Inc.
et al -- Case No. CV-95-00923-DWH(RJJ).

The plaintiffs' allegations in the Schreier action were similar to those
made by the plaintiffs in the Poulos and Ahearn actions, except that Schreier
claimed to represent a more precisely defined class of plaintiffs than Poulos or
Ahearn.

In December 1996, the court ordered the Poulos, Ahearn and Schreier actions
consolidated under the title William H. Poulos, et al v. Caesars World, Inc., et
al -- Case No. CV-S-94-11236-DAE(RJJ) -- (Base File), and required the
plaintiffs to file a consolidated and amended complaint. In February 1997, the
plaintiffs filed a consolidated and amended complaint.

In March 1997, various defendants (including Grand) filed motions to
dismiss or stay the consolidated action until the plaintiffs submitted their
claims to gaming authorities and those authorities considered the claims
submitted by the plaintiffs.

The plaintiffs have filed a motion seeking an order certifying the action
as a class action. Grand and certain of the defendants have opposed the motion.
The Court has not ruled on the motion.

STANDBY EQUITY COMMITMENT LITIGATION

In September 1997, the Stratosphere Trustee under the indenture pursuant to
which Stratosphere issued its first mortgage notes filed a complaint in the U.S.
District Court for the District of Nevada -- IBJ Schroeder Bank & Trust Company,
Inc. v. Grand Casinos, Inc. -- File No. CV-S-97-01252-DWH (RJJ) -- naming Grand
as defendant.

The complaint alleges that Grand failed to perform under the Standby Equity
Commitment entered into between Stratosphere and Grand in connection with
Stratosphere's issuance of such first mortgage notes in March 1995. The
complaint seeks an order compelling specific performance of what the Trustee
claims are Grand's obligations under the Standby Equity Commitment.

The Stratosphere Trustee filed the complaint in its alleged capacity as a
third party beneficiary under the Standby Equity Commitment. Pursuant to the
Second Amended Plan, a new limited liability company (the "Stratosphere LLC")
was formed to pursue certain alleged claims and causes of action that
Stratosphere and other parties may have against numerous third parties,
including Grand and/or officers and/or directors of Grand. The Stratosphere LLC
has been substituted for IBJ Schroeder Bank & Trust Company, Inc. in this
proceeding.

In October of 1999, Motions for Summary Judgment by both parties were
denied. Grand's request for appellate court review of the denial as to its
motion for summary judgment was denied. The trial court is expected to hold a
pretrial conference to address discovery and scheduling issues. Lakes will
continue to defend the lawsuit diligently.

STRATOSPHERE PREFERENCE ACTION

In April 1998, Stratosphere served on Grand and Grand Media & Electronics
Distributing, Inc., a wholly owned subsidiary of Grand ("Grand Media"), a
complaint in the Stratosphere bankruptcy case seeking recovery of certain
amounts paid by Stratosphere to (i) Grand as management fees and for costs and
expenses under a management agreement between Stratosphere and Grand, and (ii)
Grand Media for electronic equipment purchased by Stratosphere from Grand Media.

Stratosphere claims in its complaint that such amounts are recoverable by
Stratosphere as preferential payments under bankruptcy law.

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In May 1998, Grand responded to Stratosphere's complaint. That response
denies that Stratosphere is entitled to recover the amounts described in the
complaint. The matter is pending.

ITEM 4. SUBMISSIONIF ANY,
WILL OCCUR UPON THE SALE OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

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PART II

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

Lakes became a stand-alone, publicly held and publicly traded company as a
result of the Grand Distribution which was effected on December 31, 1998. The
fourth quarter of Lakes' fiscal year ended on Sunday, January 3, 1999 and the
Common Stock did not begin trading on the Nasdaq National Market under the
symbol LACO until Monday, January 4, 1999.

For the period from January 4, 1999 through January 2, 2000, the high and
low sales prices per share of the Company's Common Stock are indicated below, as
reported on the Nasdaq National Market:

FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------

Year Ended January, 2, 2000:
High................................................ $12.38 $11.88 $13.25 $10.31
Low................................................. 7.88 8.00 9.31 6.84

On March 20, 2000, the last reported sale price for the Common Stock was
$7.9375 per share. As of March 20, 2000, the Company had approximately
10,630,453 shareholders of record.

So long as Lakes is required to indemnify Grand as a subsidiary of Park Place,Casinos 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 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 Park Place, which consent can be given or
withheld inat Park Place's sole and absolute discretion.

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."11

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:
--------------------------------------------------------------------
JANUARY 2, JANUARY 3, DECEMBER 28, DECEMBER 29, DECEMBER 31,
2000 1999 1997 1996 1995
---------- ---------- ------------ ------------ ------------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)

LAKES HISTORICAL
RESULTS OF OPERATIONS:
Total revenue................... $ 55 $ 92 $ 79 $ 77 $ 69
Total operating income.......... 45 76 70 60 58
Net Earnings (loss)............. 29 61 45 (109)(2) 41
Net Earnings (loss) per share --
basic........................ 2.72 5.80 4.32 (10.46)(2) 4.81
Net Earnings (loss) per share --
diluted...................... 2.67 5.71 4.20 (10.46)(2) 4.65
OTHER OPERATING DATA:
EBITDA(1)....................... 47 78 71 61 60
BALANCE SHEET:
Unrestricted Cash and cash
equivalents.................. $ 24 $ 57 $ 33 $ 34 $ 33
Total assets.................... 185 161 132 114 233
Total debt...................... 2 1 1 1 1
Shareholders' equity............ 160 132 119 104 229

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

(1) 1998 results include $36.8 million in revenues from the management contracts
for Grand Casino Mille Lacs and Grand Casino Hinckley that concluded during
1998. The Company's revenues and earnings will not include contributions
from these operations going forward. EBITDA is earnings before interest,
taxes, depreciation and amortization, which can be computed by adding
depreciation and amortization to operating income. EBITDA also excludes the
$161 million write off of Grand's investment in Stratosphere Corporation.
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 generally accepted accounting principles (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 January
2, 2000, January 3, 1999, December 28, 1997, December 29, 1996 and December
31, 1995 totaled $2 million, $2 million, $1 million, $1 million and $2
million, respectively.

(2) Includes a non-recurring, non-cash $161 million charge related to the
write-off of Lakes' investment in Stratosphere Corporation.

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

OVERVIEW

Lakes was established as a public corporation on December 31, 1998, via a
distribution of its Common Stock, to the shareholders of Grand.2. PROPERTIES

CORPORATE OFFICE FACILITY

Pursuant to the terms of the Distribution Agreement, entered into between Grand Casinos assigned
to Lakes, and Lakes andassumed a lease agreement dated asFebruary 1, 1996 covering
corporate office space of December 31, 1998, Grand shareholders received .25 shares of Lakes
Common Stock for each share heldapproximately 65,000 square feet in Grand. Historical references to the Company,
which preclude the distribution give pro forma effect to the distribution as if
it had already occurred.

Immediately following the Distribution, Grand mergedMinnetonka,
Minnesota, with a subsidiarylease term of Park Place, pursuant to which Grand became a wholly owned subsidiary of Park
Place. Grand shareholders received one share of Park Place common stock in the
Merger for each share they held in Grand.

As a result of the Distribution, Lakes operates the Indian casino
management business and holds various other assets previously owned by Grand.fifteen years. The Company's revenues are derived almost exclusively from management fees.
Lakes manages two land-based, Indian-owned casinos in Louisiana: Grand Casino
Avoyelles, in Marksville, Louisiana, owned by the Tunica-Biloxi Tribe and Grand
Casino Coushatta, in Kinder, Louisiana, owned by the Coushatta Tribe. Both
management contracts expire seven years from the dates the casinos opened.

For a portion of fiscal 1998, and prior to the Distribution, Grand also had
management contracts for Indian-owned casinos located at Grand Casino Hinckley
and Grand Casino Mille Lacs in Minnesota. The management contract at Grand
Casino Mille Lacs expired at the end of the first quarter of 1998,lease commenced on October
14, 1996 and the management of Grand Casino Hinckley ended November 30, 1998, with the buyout of
the remaining contract term.

Lakes develops, constructs and manages casinos and related hotel and
entertainment facilities in emerging and established gaming jurisdictions.
Lakes' revenues are derived from management fee income from Grand Casino
Avoyelles and Grand Casino Coushatta. Grand commenced operations in September
1990, and opened its first casino, Grand Casino Mille Lacs, in April 1991. Grand
Casino Hinckley commenced operations in May 1992, Grand Casino Avoyelles
commenced operations in June 1994 and Grand Casino Coushatta commenced
operations in January 1995.

Pursuantannual base rent was $768,300 plus building operating costs.
During 2001, also pursuant to the Avoyelles and Coushatta management contracts, Lakes
receives a fee based on the net distributable profits (as defined in the
contracts) generated by Grand Casino Avoyelles and Grand Casino Coushatta.

On May 12, 1999, the Company announced that it would form a partnership for
the purpose of developing a gaming facility on Indian-owned land near San Diego,
California. Under the agreement, Lakes has formed a limited liability company
with KAR, a limited liability company based in Houston, Texas. The partnership
between Lakes and KAR holds a contract to develop and manage a casino resort
facility with the

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20

Jamul Indian Village in California. The contract is subject to approval by NIGC.
California voters recently 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.

On June 22, 1999, the Company announced that it has been selected by the
Pokagon Band to serve as the exclusive developer and manager of a proposed
casino gaming resort facility to be owned by the Pokagon Band in the State of
Michigan. In connection with its selection, Lakes and the Band have executed a
development and management agreement governing their relationship during the
development, construction and management of the casino. Various regulatory
approvals are needed prior to commencement of development activities. 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.

On July 15, 1999, the Company announced that it would form a partnership
for the purpose of developing a gaming facility on Indian-owned land near
Sacramento, California. Pursuant to the agreement, Lakes has formed a limited
liability company with KAR, a limited liability company based in Houston, Texas.
The partnership between Lakes and KAR has been awarded a contract to develop and
manage a casino resort facility with the Shingle Springs Band of Miwok Indians
in California. The contract is subject to approval by NIGC and placement of the
land where the gaming facility is to be located into trust with the BIA.
California voters recently 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.

On October 1, 1999, the Company purchased the shopping center and land
owned by the Nevada Resort Properties Polo Plaza Limited Partnership in lieu of
exercising its right to purchase the remaining 51% interest in the Partnership.
Prior to the purchase, the Company held a 49% ownership interest in the
Partnership. In consideration for the purchase, the Company paid approximately
$3.3 million and paid off the outstanding partnership mortgage of approximately
$6.3 million. A $6.2 million loan to the Partnership made by the Company during
January 1999 was repaid and satisfied at the closing by offsetting an
appropriate amount against the purchase price as agreed by the Company and the
Partnership. Pursuant to the purchase agreement relating to this transaction,
the Partnership is currently being dissolved.

On December 22, 1999, the Company and Rainforest Cafe, Inc. announced plans
to merge. Under the terms of the agreement, Rainforest Cafe shareholders would
have received .55 of one share ofDistribution Agreement, Lakes
Common Stock for every share owned in
Rainforest Cafe. The transaction was terminated by mutual agreement on January
24, 2000 after Rainforest Cafe, Inc. received an unsolicited offer to purchase
Rainforest Cafe, Inc. Lakes will be entitled toentered into a $2 million termination fee in
the event Rainforest Cafe, Inc. consummates a competing proposal prior to July
24, 2000.

Lakes' investments in unconsolidated affiliates include a 27 percent
ownership interest in Fanball.com, Inc., a start-up internet provider of fantasy
sports services, and a 23 percent ownership interest in Interactive Learning
Group, Inc., a consumer product company. Lakes invested $3.4 million and $3
million in Fanball.com and Interactive Learning Group, respectively, at the end
of the second quarter of 1999. Additionally, as a result of its spin-off from
Grand, Lakes received a 49 percent ownership interest in Trak 21 Development,
LLC, a developer of player tracking systemscapital lease arrangement for the casino industry, andcorporate office space.
Accordingly, Lakes recorded a 27
percent ownership interest in New Horizon Kids Quest, Inc., a publicly held
provider of child care facilities.

The following discussion and analysis should be read in conjunction with
the consolidated financial statements and notes thereto for the years ended
January 2, 2000, January 3, 1999, and December 28, 1997.

RESULTS OF OPERATIONS

Revenues are calculated in accordance with generally accepted accounting
principles and are presented in a manner consistent with industry practice. Net
distributable profits from Grand Casino Avoyelles and Grand Casino Coushatta are
computed using a modified cash basis of accounting in accordance with the
management contracts. The effect of the use of the modified cash basis of
accounting is to accelerate the write-off of capital equipment and leased
assets, which thereby impacts the timing of net distributable profits.

Lakes is prohibited by IGRA from having an ownership interest in any casino
it manages for Indian tribes. The management contracts for Grand Casino
Avoyelles and Grand Casino Coushatta expire June 3, 2001 and January 16, 2002,
respectively. The Coushatta Tribe and Lakes have agreed on a five-year contract
renewal beginning January 17, 2002, subject to NIGC approval. Net distributable
profits, if any, under the
20
21

new agreement will be determined in accordance with IGRA and distributed each
month 90% to the Coushatta Tribe and 10% to Lakes. There can be no assurance
that any of these management contracts will be renewed upon expiration or
approved by NIGC upon any such renewal. The failure to renew the Lakes'
management contracts would result in the loss of revenues to Lakes derived from
such contracts, which would have a material adverse effect on Lakes' results of
operations. The Coushatta Tribe and the Tunica-Biloxi Tribe each entered into
tribal-state compacts with the State of Louisiana on September 29, 1992.

These compacts were approved in November 1992 by the Secretary of the
Interior. The compact for the Coushatta Tribe expired November 4, 1999, and the
compact for the Tunica-Biloxi Tribe expired November 18, 1999, and the State of
Louisiana has delivered a written notice of non-renewal. The Governor and each
Tribe have agreed on a six-month extension which has been approved by the
Department of the Interior. The Coushatta Tribe and the Tunica-Biloxi Tribe are
actively negotiating with the State of Louisiana terms for a new compact. In the
event the compacts are not renewed, gaming may not be permitted at Grand Casino
Avoyelles or Grand Casino Coushatta. There can be no assurance that these
compacts will be renewed on terms and conditions acceptable to either of the
Tribes.

FISCAL YEAR ENDED JANUARY 2, 2000 COMPARED TO FISCAL YEAR ENDED JANUARY 3, 1999

Revenues. Grand Casino Avoyelles and Grand Casino Coushatta generated
$54.7 million in management fee income during the fiscal year ended January 2,
2000. Grand Casino Mille Lacs, Grand Casino Hinckley, Grand Casino Avoyelles and
Grand Casino Coushatta generated $92.3 million in management fee income during
the fiscal year ended January 3, 1999. Gross revenue increases at Grand Casino
Avoyelles and Grand Casino Coushatta partially offset the fact that the
management contracts for Grand Casino Mille Lacs and Grand Casino Hinckley ended
during 1998. Contributing to the increases were a 223-room hotel at Grand Casino
Coushatta, which opened in November of 1998 along with a 28,000 square foot
casino expansion at Coushatta which opened in December of 1998. Also
contributing to the increases were a special events center and RV resort at
Grand Casino Avoyelles, which opened during the first quarter of 1998, and the
addition of approximately 180 slot machines at Avoyelles from January 3, 1999 to
January 2, 2000.

Costs and Expenses. Total costs and expenses decreased $6.7 million from
$16.4 million for the fiscal year ended January 3, 1999 to $9.7 million for the
fiscal year ended January 2, 2000. Selling, general, and administrative expenses
decreased $6.8 million from $14.6 million for the fiscal year ended January 3,
1999 to $7.8 million for the fiscal year ended January 2, 2000 due primarily to
legal, professional and other costs associated with separating Lakes from Grand
incurred during 1998.

Other. Interest income increased $2 million to $7.6 million for the fiscal
year ended January 2, 2000 from $5.6 million for the fiscal year ended January
3, 1999 due primarily to interest earned on increased cash balances and
additional notes receivable. Interest expense was $0.1 million for both periods.
Equity in loss of unconsolidated affiliates increased from $.4 million for the
fiscal year ended January 3, 1999 to $2.9 million for the fiscal year ended
January 2, 2000 due primarily to investments in Interactive Learning Group, Inc.
and Fanball.com.

Taxes. A deferred tax asset was recorded in 1996 when the Company set up a
reserve allowance due to uncertainty related to the collectibility of the note
receivable from Stratosphere. However, a full valuation allowance was created
for the deferred tax asset and no income tax benefit was recognized at that
time. Upon writing off the receivable and realizing the tax deduction in 1998,
the Company reversed the deferred tax asset valuation allowance, resulting in
the recognition of a $17.3 million income tax benefit. 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, up to a benefit of approximately
$12 million to Lakes.

Earnings per Common Share and Net Earnings. For the fiscal year ended
January 2, 2000 basic and diluted earnings per common share were $2.72 and
$2.67, respectively. This compares to basic and diluted earnings per common
share of $5.80 and $5.71, respectively, for the fiscal year ended January 3,
1999. Earnings decreased $32.3 million to $28.8 million for the fiscal year
ended January 2, 2000 compared to the same period in the prior year.

FISCAL YEAR ENDED JANUARY 3, 1999 COMPARED TO FISCAL YEAR ENDED DECEMBER 28,
1997

Revenues. Grand Casino Mille Lacs, Grand Casino Hinckley, Grand Casino
Avoyelles and Grand Casino Coushatta generated $92.3 million in management fee
income during the fiscal year ended January 3,

21
22

1999 as compared to $78.5 million for the prior year's comparable period. Gross
revenue increases at Grand Casino Hinckley, Grand Casino Avoyelles and Grand
Casino Coushatta offset the fact that the management contract for Grand Casino
Mille Lacs expired at the end of the first quarter. Contributing to the
increases was the early buyout of the Management Agreement for Grand Casino
Hinckley by the Mille Lacs Band of Ojibwe in December, 1998. Under the early
buyout agreement, the Company was compensated for the management fees it would
have received had it managed Grand Casino Hinckley through the original contract
expiration date which was May, 1999. Also contributing to the increases were a
378-room hotel at Grand Casino Hinckley, which opened in November of 1997, and a
special events center and RV resort at Grand Casino Avoyelles, which opened
during the first quarter of 1998.

1998 results include $36.8 million in revenues from the management
contracts for Grand Casino Mille Lacs and Grand Casino Hinckley that concluded
during 1998. The Company's revenues and earnings will not include contributions
from these operations going forward.

Costs and Expenses. Total costs and expenses were $16.4 million for the
fiscal year ended January 3, 1999 compared to $8.8 million for the same period
in the prior year. Selling, general, and administrative expenses increasedliability in the amount
of $6.7 million from $7.9 million for the fiscal year ended December
28, 1997 to $14.6 million for the fiscal year ended January 3, 1999 due to
legal, professional and other costs associated with separating Lakes from Grand.

Other. Interest income was $5.6 million and $5.9 million for the fiscal
years ended January 3, 1999 and December 28, 1997, respectively. Interest
expense was $0.1 million for both periods.

Taxes. A deferred tax asset was recorded in 1996, when the Company set up
a reserve allowance due to uncertainty related to the collectibility of the note
receivable from Stratosphere. However, a full valuation allowance was created
for the deferred tax asset and no income tax benefit was recognized at that
time. Upon writing off the receivable and realizing the tax deduction in 1998,
the Company reversed the deferred tax asset valuation allowance, resulting in
the recognition of a $17.3 million income tax benefit. 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, up to a benefit of approximately $12 million to Lakes.

Earnings per Common Share and Net Earnings. For the fiscal year ended
January 3, 1999 basic and diluted earnings per common share were $5.80 and
$5.71, respectively. This compares to basic and diluted earnings of $4.32 and
$4.20 per share for the fiscal year ended December 28, 1997. Earnings increased
$16 million to $61.2 million for the fiscal year ended January 3, 1999 compared
to the same period in the prior year, primarily due to increased management fee
income from each of the casino operations.

CAPITAL RESOURCES, CAPITAL SPENDING, AND LIQUIDITY

At January 2, 2000 Lakes had $36.5 million in restricted and unrestricted
cash and cash equivalents. At January 2, 2000, the Company also had $27.4
million in short-term, available-for-sale investments, consisting primarily of a
fixed income portfolio made up of various types of bonds which$5.8 million. These amounts are rated A1 or
better. The cash and short-term investment balances are planned to be used for
loans to current tribal partners to help develop existing operations, the
pursuit of additional gaming and non-gaming opportunities, and settlement of
pending litigation matters.

For the years ended January 2, 2000, January 3, 1999, and December 28,
1997, net cash provided by operating activities totaled $8.1 million, $85.8
million, and $35.8 million, respectively. During 1999, $27.4 million of cash and
cash equivalents were reclassified as short-term investments. For the years
ended January 2, 2000, January 3, 1999, and December 28, 1997, proceeds from
repayment of notes receivable amounted to $12.0 million, $6.6 million, and $6.1
million, respectively. Also during these periods, payments for land held for
development amounted to $22.9 million, $11.2 million, and $13.2 million,
respectively.

As security to support Lakes' indemnification obligations to Grand under
each of the Distribution Agreement and the Merger Agreement, and as a condition
to the consummation of the Merger, Lakes agreed to deposit, in trust for the
benefit of Grand, as a wholly owned subsidiary of Park Place, an aggregate of
$30 million, consisting of four annual installments of $7.5 million, on each
annual anniversary of the Distribution and Merger. Lakes' ability to satisfy
this funding obligation is materially dependent upon the continued success of
its operations and the general risks inherent in its business. In the event
Lakes is unable to satisfy its funding obligation, it would be in breach of its
agreement with Grand, possibly subjecting itself to additional liability for
contract damages, which could have a material adverse effect on Lakes' business
and
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23

results of operations. The Company made the first deposit of $7.5 million on
December 31, 1999, and such amount is included as restricted cash on the accompanying
consolidated balance sheet as of December 30, 2001. On January 2, 2000.

THE YEAR 2000 ISSUE

The Year 2000 issue was the result of computer programs being written using
two digits rather than four digits to define the applicable year. Any programs
that have time-sensitive software may have recognized a date using "00"2002, as the
year 1900 rather than the year 2000. If not remedied, this could have resulted
in system failure or miscalculations.

The Company assessed the impact of the Year 2000 on its computer systems,
both hardware and software, and developed a plan to timely address the Year 2000
issue. The Company and its currently managed properties spent approximately $1.1
million in the execution of the Year 2000 plan. These expenditures were charged
to expense or capitalized in accordance with appropriate accounting policies. To
date there have been no material adverse consequences, nor does the Company
believe that there will be any future material adverse consequences to the
Company's business, operations, or financial condition from the Year 2000 issue.
However, there can be no assurances that failure to address the Year 2000 issue
by a third party on whom the Company's systems rely, will not have a material
adverse effect on the Company.

SEASONALITY

The Company believes that the operations of all casinos managed by the
Company are 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 other
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.

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
integrated Form 10-K/Annual Report 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 development and construction activities, dependence upon existing
management, pending litigation, domestic or global economic conditions and
changes in federal or state tax laws or the administration of such laws and
changes in gaming laws or regulations (including the legalization of gaming in
certain jurisdictions). For further information regarding the risks and
uncertainties, see the "Business -- Risk Factors" section of this Annual Report
on Form 10-K for the fiscal year ended January 2, 2000.

23
24

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA

LAKES GAMING, INC.

INDEX TO FINANCIAL STATEMENTS

PAGE
----

LAKES GAMING, INC. AND SUBSIDIARIES

Report of Independent Public Accountants.................... 25

Consolidated Balance Sheets as of January 2, 2000 and
January 3, 1999........................................... 26

Consolidated Statements of Earnings for the fiscal years
ended January 2, 2000, January 3, 1999, and December 28,
1997...................................................... 27

Consolidated Comprehensive Statements of Earnings for the
fiscal years ended January 2, 2000, January 3, 1999, and
December 28, 1997......................................... 28

Consolidated Statements of Shareholders' Equity for the
fiscal years ended January 2, 2000, January 3, 1999, and
December 28, 1997......................................... 29

Consolidated Statements of Cash Flows for the fiscal years
ended January 2, 2000, January 3, 1999, and December 28,
1997...................................................... 30

Notes to Consolidated Financial Statements.................. 31

24
25

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Lakes Gaming, Inc.

We have audited the accompanying consolidated balance sheets of Lakes
Gaming, Inc. (a Minnesota corporation) and Subsidiaries as of January 2, 2000
and January 3, 1999 and the related consolidated statements of earnings,
comprehensive earnings, shareholders' equity and cash flows for each of the
three years in the period ended January 2, 2000. 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. 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
Gaming, Inc. and Subsidiaries as of January 2, 2000 and January 3, 1999, and the
results of their operations and their cash flows for each of the three years in
the period ended January 2, 2000, in conformity with accounting principles
generally accepted in the United States.

ARTHUR ANDERSEN LLP

Minneapolis, Minnesota
January 28, 2000

25
26

LAKES GAMING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)

1999 1998
-------- --------

ASSETS
Current Assets:
Cash and cash equivalents................................. $ 24,392 $ 56,774
Short-term investments.................................... 27,433 --
Current installments of notes receivable.................. 15,406 8,561
Accounts receivable....................................... 5,613 15,217
Other current assets...................................... 7,380 8,126
-------- --------
Total Current Assets........................................ 80,224 88,678
-------- --------
Property and Equipment-Net.................................. 1,888 1,265
-------- --------
Other Assets:
Land held for development................................. 54,812 26,647
Notes receivable-less current installments................ 20,022 25,118
Cash and cash equivalents-restricted...................... 12,149 4,992
Investments in and notes from unconsolidated affiliates... 8,446 8,590
Other long-term assets.................................... 5,997 6,079
-------- --------
Total Other Assets.......................................... 101,426 71,426
-------- --------
TOTAL ASSETS................................................ $183,538 $161,369
======== ========

LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable.......................................... $ 488 $ --
Income taxes payable...................................... 6,385 10,811
Litigation and claims accrual............................. 8,419 10,554
Other accrued expenses.................................... 6,099 4,625
-------- --------
Total Current Liabilities................................... 21,391 25,990
-------- --------
Long-term Liabilities:
Long-term debt-less current installments.................. 1,500 975
Deferred income taxes..................................... 786 2,733
-------- --------
Total Long-Term Liabilities................................. 2,286 3,708
-------- --------
TOTAL LIABILITIES........................................... 23,677 29,698
-------- --------
COMMITMENTS AND CONTINGENCIES (NOTE 8)

Shareholders' Equity:
Capital stock, $.01 par value; authorized 100,000 shares;
10,629 and 10,576 common shares issued and outstanding
at January 2, 2000, and January 3, 1999,
respectively........................................... 106 106
Additional paid-in-capital................................ 131,406 130,929
Accumulated other comprehensive earnings (loss)........... (478) 636
Retained earnings......................................... 28,827 --
-------- --------
Total Shareholders' Equity.................................. 159,861 131,671
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.................. $183,538 $161,369
======== ========

The accompanying notes are an integral part of these consolidated balance
sheets.
26
27

LAKES GAMING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
YEARS ENDED JANUARY 2, 2000, JANUARY 3, 1999 AND DECEMBER 28, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)

1999 1998 1997
------- ------- -------

REVENUES:
Management fee income..................................... $54,716 $92,347 $78,515
COSTS AND EXPENSES:
Selling, general and administrative....................... 7,750 14,557 7,916
Depreciation and amortization............................. 1,916 1,838 890
------- ------- -------
Total Costs and Expenses.................................... 9,666 16,395 8,806
------- ------- -------
EARNINGS FROM OPERATIONS.................................... 45,050 75,952 69,709
------- ------- -------
OTHER INCOME (EXPENSE):
Interest income........................................... 7,580 5,601 5,940
Interest expense.......................................... (98) (98) (98)
Equity in loss of unconsolidated affiliates............... (2,925) (359) (942)
Gain (loss) on sale of securities......................... 1,264 (4,473) --
Other..................................................... 21 368 117
------- ------- -------
Total other income, net................................ 5,842 1,039 5,017
------- ------- -------

Earnings before income taxes................................ 50,892 76,991 74,726
Provision for income taxes.................................. 22,065 15,811 29,523
------- ------- -------

NET EARNINGS................................................ $28,827 $61,180 $45,203
======= ======= =======
BASIC EARNINGS PER SHARE.................................... $ 2.72 $ 5.80 $ 4.32
======= ======= =======
DILUTED EARNINGS PER SHARE.................................. $ 2.67 $ 5.71 $ 4.20
======= ======= =======
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING.................. 10,600 10,550 10,475
DILUTIVE EFFECT OF STOCK COMPENSATION PROGRAMS.............. 186 162 284
======= ======= =======
WEIGHTED AVERAGE COMMON AND DILUTED SHARES OUTSTANDING...... 10,786 10,712 10,759
======= ======= =======

The accompanying notes are an integral part of these consolidated financial
statements.
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28

LAKES GAMING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS
YEARS ENDED JANUARY 2, 2000, JANUARY 3, 1999, AND DECEMBER 28, 1997
(IN THOUSANDS)

1999 1998 1997
------- ------- -------

NET EARNINGS................................................ $28,827 $61,180 $45,203

OTHER COMPREHENSIVE INCOME, NET OF TAX:
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) during the period.... (1,114) 3,583 (4,307)
Less: reclassification adjustment for gains (losses)
included in net earnings............................. 796 (2,818) --
------- ------- -------
COMPREHENSIVE EARNINGS...................................... $28,509 $61,945 $40,896
======= ======= =======

The accompanying notes are an integral part of these consolidated financial
statements.
28
29

LAKES GAMING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED JANUARY 2, 2000, JANUARY 3, 1999, AND DECEMBER 28, 1997
(IN THOUSANDS)

ACCUMULATED
COMMON STOCK OTHER TOTAL
--------------- ADDITIONAL DIVISION RETAINED COMPREHENSIVE SHAREHOLDERS'
SHARES AMOUNT PAID-IN-CAPITAL EQUITY EARNINGS EARNINGS(LOSS) EQUITY
------ ------ --------------- -------- -------- --------------- -------------

Balance, December 29, 1996........ -- -- -- $102,224 -- $1,360 $103,584
Distribution to Grand Casinos,
Inc........................... -- -- -- (25,682) -- -- (25,682)
Other comprehensive earnings.... -- -- -- -- -- (4,307) (4,307)
Net earnings.................... -- -- -- 45,203 -- -- 45,203
------ ---- -------- -------- ------- ------ --------
Balance, December 28, 1997........ -- -- -- 121,745 -- (2,947) 118,798
Distribution to Grand Casinos,
Inc........................... -- -- -- (51,890) -- -- (51,890)
Other comprehensive earnings.... -- -- -- -- -- 3,583 3,583
Net earnings.................... -- -- -- 61,180 -- -- 61,180
Distribution from Grand Casinos,
Inc........................... 10,576 106 130,929 (131,035) -- -- --
------ ---- -------- -------- ------- ------ --------
Balance, January 3, 1999.......... 10,576 106 130,929 -- -- 636 131,671
Issuance of stock on options
exercised -- net.............. 53 -- 477 -- -- -- 477
Other comprehensive earnings.... -- -- -- -- -- (1,114) (1,114)
Net earnings.................... -- -- -- -- 28,827 -- 28,827
------ ---- -------- -------- ------- ------ --------
Balance, January 2, 2000.......... 10,629 $106 $131,406 $ -- $28,827 ($ 478) $159,861
====== ==== ======== ======== ======= ====== ========

The accompanying notes are an integral part of these consolidated financial
statements.
29
30

LAKES GAMING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JANUARY 2, 2000, JANUARY 3, 1999 AND DECEMBER 28, 1997
(IN THOUSANDS)

1999 1998 1997
------- ------- -------

OPERATING ACTIVITIES:
Net earnings.............................................. $28,827 $61,180 $45,203
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation and amortization............................. 1,916 1,838 890
(Gain) loss on sale of securities......................... (1,264) 4,473 --
Equity in loss of unconsolidated affiliates............... 2,925 359 942
Deferred income taxes..................................... (276) (1,040) (2,930)
Changes in operating assets and liabilities:
Accounts receivable.................................... 9,604 (8,792) 1,571
Income taxes........................................... (4,638) 23,596 (9,357)
Accounts payable....................................... 488 -- 45
Accrued expenses....................................... (661) 6,193 1,037
Other.................................................. (465) (2,040) (1,650)
------- ------- -------
Net Cash Provided by Operating Activities................... 36,456 85,767 35,751
------- ------- -------
INVESTING ACTIVITIES:
Short-term investments, purchases......................... (28,829) -- --
Short-term investments, sales/maturities.................. 500 -- --
Payments for land held for development.................... (22,949) (11,229) (13,153)
Payments for notes receivable............................. (12,406) (7,115) (1,825)
Proceeds from repayment of notes receivable............... 11,950 6,567 6,144
Investment in and notes receivable from unconsolidated
affiliates............................................. (8,035) (807) (336)
Increase in restricted cash, net.......................... (7,157) (3,767) --
Decrease (increase) in other long-term assets............. (2,539) 1,216 (1,435)
Proceeds from sale of securities.......................... 389 4,824 --
Payments for property and equipment, net.................. (239) -- (99)
------- ------- -------
Net Cash Used in Investing Activities....................... (69,315) (10,311) (10,704)
------- ------- -------
FINANCING ACTIVITIES:
Distribution to Grand..................................... -- (51,890) (25,682)
Proceeds from issuance of common stock.................... 477 -- --
Payments on long-term debt................................ -- -- (9)
------- ------- -------
Net Cash Provided by (Used in) Financing Activities......... 477 (51,890) (25,691)
------- ------- -------
Net increase (decrease) in cash and cash equivalents........ (32,382) 23,566 (644)
Cash and cash equivalents -- beginning of period............ 56,774 33,208 33,852
------- ------- -------
Cash and cash equivalents -- end of period.................. $24,392 $56,774 $33,208
======= ======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest.................................................. $ 98 $ 98 $ 98
Income taxes.............................................. 23,676 5,420 41,504

The accompanying notes are an integral part of these consolidated financial
statements.
30
31

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 2, 2000, JANUARY 3, 1999, AND DECEMBER 28, 1997

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

Lakes Gaming, 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"). Pursuant to the
terms of a Distribution Agreement entered into between Grand and Lakes and dated
as of December 31, 1998 (the "Distribution Agreement"), Grand shareholders
received .25 shares of Lakes Common Stock for each share held in Grand.
Historical references to the Company which predate the Distribution give pro
forma effect to the Distribution as if it had already occurred.

Immediately following the Distribution, Grand merged with a subsidiary of
Park Place Entertainment Corporation, a Delaware corporation ("Park Place"),
pursuant to which Grand became a wholly owned subsidiary of Park Place (the
"Merger"), Grand shareholders received one share of Park Place common stock in
the Merger for each share they held in Grand. Both transactions are hereinafter
referred to as the Transaction. The Transaction received shareholder and
regulatory approvals and was completed on December 31, 1998. Grand obtained a
ruling from the Internal Revenue Service (IRS) that the Distribution qualified
as a tax-free transaction, solely with respect to Grand shareholders except to
the extent that Grand shareholders received cash in lieu of fractional shares.

Lakes manages Indian-owned casinos and owns certain other assets related to
potential gaming-related development. The Company manages two Indian-owned
casinos in Louisiana and previously managed two Minnesota casinos through April
4, 1998 and November 30, 1998. The Company had written off or reserved for its
investments and other related costs in Stratosphere Corporation (Stratosphere),
which owns the Stratosphere Tower, Casino and Hotel in Las Vegas, Nevada, as of
December 29, 1996 in the amount of $161 million. The Company has not recorded
any results of Stratosphere's operations in 1997, 1998 or 1999. Stratosphere is
the subject of Chapter 11 bankruptcy proceedings. See Note 8 for further
discussion. The Second Amended Plan has been approved by the Bankruptcy Court
and was declared effective on October 14, 1998. As such, all Stratosphere stock
owned by Lakes has been canceled.

MANAGEMENT CONTRACTS OF LIMITED DURATION

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.

Management contracts for the two previously managed Minnesota casinos,
Grand Casino Mille Lacs and Grand Casino Hinckley concluded during 1998. The
current management contracts for Grand Casino Avoyelles and Grand Casino
Coushatta expire June 3, 2001 and January 16, 2002, respectively. The Coushatta
Tribe and Lakes have agreed on a five-year contract renewal beginning January
17, 2002, subject to NIGC approval. Net distributable profits, if any, under the
new agreement will be determined in accordance with IGRA and distributed each
month 90% to the Coushatta Tribe and 10% to Lakes. There can be no assurance
that the Louisiana management contracts will be renewed upon expiration or
approved by NIGC upon any such renewal. The failure to renew the Company's
management contracts would result in the loss of revenues to the Company derived
from such contracts, which would have a material adverse effect on the Company's
results of operations. The Coushatta Tribe and the Tunica-Biloxi Tribe each
entered into tribal-state compacts with the State of Louisiana on September 29,
1992. These compacts were approved in November 1992 by the Secretary of the
Interior. The compact for the Coushatta Tribe expired November 4, 1999, and the
compact for the Tunica-Biloxi Tribe expired November 18, 1999, and the State of
Louisiana has delivered a written notice of non-renewal. The Governor and each
Tribe have agreed on a six-month extension which has been approved by the
Department of the Interior.

The Coushatta Tribe and the Tunica-Biloxi Tribe are actively negotiating
with the State of Louisiana terms for a new compact. In the event the compacts
are not renewed, gaming may not be permitted at Grand

31
32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 2, 2000, JANUARY 3, 1999, AND DECEMBER 28, 1997 -- (CONTINUED)

Casino Avoyelles or Grand Casino Coushatta. There can be no assurance that these
compacts will be renewed on acceptable terms and conditions.

USE OF ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles 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. Ultimate 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 January
2, 2000 (1999), January 3, 1999 (1998), and December 28, 1997 (1997). The
activity from the date of the Transaction to January 3, 1999 was not segregated
from the full year's results as it was not material.

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of Lakes and its
wholly-owned and majority-owned subsidiaries. Investments in unconsolidated
affiliates representing between 20% and 50% of voting interests are accounted
for on the equity method. All material intercompany balances and transactions
have been eliminated in consolidation.

Lakes' investments in unconsolidated affiliates include a 27 percent
ownership interest in Fanball.com, Inc., a start-up internet provider of fantasy
sports services, and a 23 percent ownership interest in Interactive Learning
Group, Inc., a consumer product company. Lakes invested $3.4 million and $3
million in Fanball.com and Interactive Learning Group, respectively, at the end
of the second quarter of 1999. Additionally, as a result of its spin-off from
Grand, Lakes received a 49 percent ownership interest in Trak 21 Development,
LLC, a developer of player tracking systems for the casino industry, and a 27
percent ownership interest in New Horizon Kids Quest, Inc., a publicly held
provider of child care facilities.

REVENUE AND EXPENSES

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

The operating expensesagreement with Grand Casinos, Lakes purchased the building for
$6.4 million. Lakes occupies approximately 22,000 square feet of the Company includebuilding
and has leased the costs associated with the
management of all gaming operations for which the Company has a management
contract. Such amounts represent the direct cost of providing assistance in the
areas of casino operations, marketing and promotion, customer service,
accounting, legal and other functions.

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 consist primarily of funds deposited as securityremaining space to support Lakes'
indemnification obligations to Grand under each of the Distribution Agreement
and the Merger Agreement, and funds designated as collateral relating to land
held for development. Cash and cash equivalents are stated at cost which
approximates fair value.

SHORT-TERM INVESTMENTS

Investment securities are classified as available-for-sale and stated at
market value. Unrealized gains and losses, net of income tax effects, are
excluded from income and reported as a component of accumulated other
comprehensive income. 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.
32
33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 2, 2000, JANUARY 3, 1999, AND DECEMBER 28, 1997 -- (CONTINUED)

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:

Leasehold improvements...................................... 15 years
Furniture and equipment..................................... 3-10 years

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

1999 1998
------ ------

Land.................................................. 1,234 709
Leasehold improvements................................ 376 376
Furniture and equipment............................... 1,466 1,227
------ ------
3,076 2,312
Less: Accumulated depreciation........................ (1,188) (1,047)
------ ------
Property and equipment, net........................... 1,888 1,265
====== ======
outside tenants.

LAS VEGAS LAND

The Company periodically evaluates whether eventsowned, or held purchase options for, approximately sixteen
acres of land surrounding the corner of Harmon Avenue 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.

LAND HELD FOR DEVELOPMENT

Land held for development consists of amounts related to an approximately
15-acre siteLas Vegas Boulevard in
Las Vegas, Nevada, whichNevada. On July 31, 2000, Lakes announced that it had formed a joint
venture, Metroplex-Lakes LLC to develop the Company controls. All or any
portion of this site may be sold, held for sale or held for future development.
The Company is currently evaluating the potential sale of all or any portion of
this site and in connection therewith has entered into a listing agreement with
a real estate broker for the active marketing of this site.

SECURITIES AVAILABLE FOR SALE

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.properties. On October 15, 1998, Hollywood Park and Casino Magic completed a merger
agreement under which Hollywood Park purchased each outstanding share of Casino
Magic common stock for $2.27 of cash per share. As a result of this transaction,
the Company realized a loss of approximately $2.9 million, net of tax, on the
2,126,000 shares of Casino Magic common stock it owned at the time of the
Merger.

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.

33
34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 2, 2000, JANUARY 3, 1999, AND DECEMBER 28, 1997 -- (CONTINUED)

INTEREST INCOME

Interest income represents interest on the notes receivable from Indian
tribes and interest on cash, cash equivalents and short-term investments.
Interest on the notes receivable is recorded as earned based on contractual
rates of interest. 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

Earnings per share (EPS) is calculated for the periods ended January 3,
1999 and December 28, 1997 based on the exchange of one Lakes share for every
four owned Grand shares. For all periods, basic EPS is calculated by dividing
earnings by the weighted average common shares outstanding. Diluted EPS reflects
the potential dilutive effect of all common stock equivalents outstanding by
dividing net income by the weighted average of all common and dilutive shares
outstanding.

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 Tunica-Biloxi Tribe of Louisiana and the
Coushatta Tribe of Louisiana.

ACCOUNTING PRONOUNCEMENTS

In June 1998, the Financial Accounting Standards Board issued Statement on
Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities". SFAS No. 137 deferred the effective date of
SFAS No. 133 to fiscal quarters of all fiscal years beginning after June 15,
2000. The Company believes that the adoption of SFAS No. 133 will not have a
material impact on the Company financial statements.

2. MANAGEMENT CONTRACTS FOR INDIAN-OWNED CASINOS:

The Company had contracts with the Mille Lacs Band for the management of
two gaming facilities in Onamia and Hinckley, Minnesota. The management contract
for the gaming facility in Onamia expired on April 2, 1998. The Company reached
an agreement with the Mille Lacs Band of Ojibwe, effective December 1, 1998, for
the early buyout of the management contract for the facility in Hinckley. The
Mille Lacs Band elected to exercise its option for the early buyout of the
contract that was scheduled to expire on May 15, 1999.

The early buyout of the contract was provided in the original seven-year
management agreement and the Company received full value for all contracted
obligations by the Mille Lacs Band. Under the early buyout agreement, the
Company was compensated for the management fees the company would have received
had it managed Grand Casino Hinckley through the original contract expiration
date.

In addition, the Company holds a management contract with the Tunica-Biloxi
Tribe of Louisiana for a gaming facility in Marksville, Louisiana, that expires
on June 3, 2001, and a management contract with the Coushatta Tribe of Louisiana
for a gaming facility in Kinder, Louisiana, that expires on January 16, 2002.
The Coushatta Tribe and Lakes have agreed on a five-year contract renewal
beginning January 17, 2002, subject to NIGC approval. Net distributable profits,
if any, under the new agreement will be determined in accordance with IGRA and
distributed each month 90% to the Coushatta Tribe and 10% to Lakes.

The management contracts govern the relationship between the Company and
the tribes with respect to the construction and management of the casinos. The
construction or remodeling portion of the agreements commenced with the signing
of the respective contracts and continued until the casinos opened for business;
thereafter, the management portion of the respective management contracts
continues for a period of seven years.
34
35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 2, 2000, JANUARY 3, 1999, AND DECEMBER 28, 1997 -- (CONTINUED)

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.

In the event the management contracts are not renewed upon expiration of
their initial term, the Company will be entitled to payments equal to a
percentage of the fair value of certain leased gaming equipment.

The management contracts for the Tunica-Biloxi Tribe of Louisiana and the
Coushatta Tribe of Louisiana have been approved by the Bureau of Indian Affairs
(BIA). While the Company believes that all of its management contracts meet all
requirements of the Indian Gaming Regulatory Act of 1988, the BIA or the NIGC
may attempt to reduce the terms or the management fees payable under the
management contracts or require other changes to the contracts.

3. NOTES RECEIVABLE:

Notes receivable consist of the following (in thousands):

JANUARY 2, 2000 JANUARY 3, 1999
--------------- ---------------

Notes from the Coushatta Tribe with interest at a defined
reference rate plus 1% (not to exceed 16%) (9.5% at
January 2, 2000), receivable in 84 monthly installments
through January 2002...................................... $ 22,484 $24,392
Notes from the Tunica-Biloxi Tribe with interest at a
defined reference rate plus 1% (not to exceed 16%) (9.5%
at January 2, 2000), receivable in 84 monthly installments
through June 2001......................................... 6,196 9,287
Other....................................................... 6,748 --
-------- -------
Total notes receivable.................................... 35,428 33,679
Less -- current installments of notes receivable............ (15,406) (8,561)
-------- -------
Notes receivable, less current installments............... $ 20,022 $25,118
======== =======

The notes receivable are generally advances made to Indian Tribes for the
development of gaming properties 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 aforementioned notes receivable from
the Coushatta Tribe and the Tunica-Biloxi Tribe is 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. Through January 2, 2000, no
amounts have been withheld under these provisions.

Management periodically evaluates the recoverability of such notes
receivable based on the current and projected operating results of the
underlying facility and historical collection experience. No impairment losses
on such notes receivable have been recognized through January 2, 2000.

The Company believes the costs and complexities of assembling the relevant
facts and comparables needed to appraise the fair market values of these notes
based on estimates of net present value of discounted cash flows or using other
valuation techniques are excessive and the process exceedingly time consuming.
It further believes that the determined results would not reasonably differ from
the carrying values, which are believed to be reasonable estimates of fair
market value based on past experience with similar receivables.

35
36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 2, 2000, JANUARY 3, 1999, AND DECEMBER 28, 1997 -- (CONTINUED)

4. INCOME TAXES:

The provisions for income taxes attributable to earnings for 1999, 1998,
and 1997 consisted of the following (in thousands):

YEARS ENDED
-----------------------------
1999 1998 1997
------- ------- -------

Current:
Federal................................................... $17,649 $14,482 $30,307
State..................................................... 4,692 2,369 2,146
------- ------- -------
22,341 16,851 32,453
Deferred.................................................... (276) (1,040) (2,930)
------- ------- -------
$22,065 $15,811 $29,523
======= ======= =======

Reconciliations of the statutory federal income tax rate to the Company's
actual rate based on earnings before income taxes for 1999, 1998, and 1997 are
summarized as follows:

YEARS ENDED
---------------------
1999 1998 1997
---- ----- ----

Statutory federal tax rate.................................. 35.0% 35.0% 35.0%
State income taxes, net of federal income tax benefit....... 6.0 2.0 1.9
Valuation allowance increases (decreases) on Stratosphere
losses and write-down..................................... -- (22.5) --
Other, net.................................................. 2.4 6.0 2.6
---- ----- ----
43.4% 20.5% 39.5%
==== ===== ====

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

1999 1998
------- -------

Current deferred tax asset:
Accruals, reserves and other.............................. $ 6,301 $ 7,370
======= =======
Non-current deferred taxes:
Unrealized investment losses (gains)...................... 1,815 (114)
Capitalized interest...................................... (1,737) (1,483)
Development cost amortization............................. (784) (960)
Other..................................................... (80) (176)
------- -------
Net non-current deferred tax liability...................... $ (786) $(2,733)
======= =======

A deferred tax asset was recorded in 1996 when the Company set up a reserve
allowance due to uncertainty related to the collectability of a note receivable
from Stratosphere. However, a full valuation allowance was created for the
deferred tax asset and no income tax benefit was recognized at that time.

Upon writing off the receivable and realizing the tax deduction in 1998,
the Company reversed the deferred tax asset valuation allowance resulting in the
recognition of a $17.3 million income tax benefit. 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 up to a benefit of approximately
$12.0 million to Lakes.

5. LONG-TERM DEBT:

The Company has two notes payable with third parties. The first is
collateralized by certificates of deposit, with $1.0 million outstanding at
January 2, 2000 and January 3, 1999. Interest is compounded and paid on a
quarterly basis at 10%. The principal and any unpaid interest are due December
22, 2002. The

36
37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 2, 2000, JANUARY 3, 1999, AND DECEMBER 28, 1997 -- (CONTINUED)

second is collateralized by property with $0.5 million outstanding at January 2,
2000. Interest is compounded and paid on a quarterly basis at 8.5%. The
principal and any unpaid interest are due November 5, 2001.

6. STOCK OPTIONS:

Grand 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's common stock were granted to officers, directors, and
employees.

Upon the consummation of the Transaction, the holders of outstanding Grand
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 Park Place common stock for each option previously held. The exercise
price of the new options was apportioned between Lakes and Park Place 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
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 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 .2 million shares, respectively, of incentive and
non-qualified stock options to officers, directors, and employees.

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

NUMBER OF COMMON SHARES
------------------------------------------
LAKES
OPTIONS AVAILABLE OPTION PRICE
OUTSTANDING FOR GRANT RANGE PER SHARE
----------- ---------- ---------------

Balance at January 3, 1999............................ 1,054,846 -- $(3.13 - 33.11)
Additional Shares Authorized.......................... -- 2,700,000 --
Granted............................................... 1,845,000 (1,845,000) (8.38 - 10.81)
Canceled.............................................. (527,526) 527,526 (7.42 - 33.11)
Exercised............................................. (52,467) -- (3.13 - 11.34)
--------- ---------- --------------
Balance at January 2, 2000............................ 2,319,853 1,382,526 $(7.42 - 17.72)
========= ========== ==============
Exercisable at January 2, 2000........................ 789,353
=========

The Company accounts for these plans under APB Opinion No. 25, under which
no compensation cost has been recognized. Had compensation cost for these plans
been determined consistent with SFAS No. 123, the Company's net earnings (loss)
would have been as follows (in thousands):

1999 1998 1997
------- ------- -------

Net earnings (loss):
As reported............................................... $28,827 $61,180 $45,203
Pro forma................................................. 28,431 59,694 44,570
Net earnings (loss) per share:
As reported -- Basic...................................... $ 2.72 $ 5.80 $ 4.32
Pro forma -- Basic........................................ 2.68 5.66 4.25
As reported -- Diluted.................................... 2.67 5.71 4.20
Pro forma -- Diluted...................................... 2.64 5.57 4.14

37
38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 2, 2000, JANUARY 3, 1999, AND DECEMBER 28, 1997 -- (CONTINUED)

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 fair value of the options issued in 1999
range from $8.38 per share to $10.81 per share. The following assumptions were
used to estimate the fair value of options:

1999 1998 1997
---------- ---------- -----------

Risk-free interest rate........................... 5.20-6.50% 4.83-5.85% 6.04%-6.98%
Expected life..................................... 10 years 10 years 10 years
Expected volatility............................... .452-.485 .487-.509 .563-.629
Expected dividend yield........................... -- -- --

7. EMPLOYEE RETIREMENT PLAN:

Grand had a section 401(k) employee savings plan for all full-time
employees which upon consummation of the Transaction became Lakes' Plan. The
savings plan allows participants to defer, on a pretax 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 $.03 million, $.03 million, and
$.02 million during 1999, 1998, and 1997, respectively. Company contributions
are vested over a period of five years.

8. COMMITMENTS AND CONTINGENCIES:

LEASES

The Company leases certain property and equipment under non-cancelable
operating leases. Rent expense, under non-cancelable operating leases, exclusive
of real estate taxes, insurance, and maintenance expense was $1.3 million, $0.2
million, and $0.2 million for 1999, 1998, and 1997, respectively. Future minimum
lease payments, excluding contingent rentals, due under non-cancelable operating
leases as of January 2, 2000 are as follows (in thousands):

OPERATING LEASES

2000....................................................... 3,178
2001....................................................... 2,981
2002....................................................... 3,109
2003....................................................... 3,176
2004....................................................... 3,246
Thereafter................................................. 44,303
-------
$59,993
=======

PURCHASE OPTIONS

As a condition to the Merger, the Company has agreed to exercise its call
option to purchase the Shark Club property in Las Vegas, Nevada, not prior to
April 9, 2000 and not later than January 10, 2001. The option purchase price
would be approximately $10.1 million.

The Company also has an option to purchase the Travelodge property in Las
Vegas, Nevada for the purchase price of $30 million on October 31, 2017 and an
option to purchase the Cable property in Las Vegas, Nevada for the purchase
price of $18 million anytime prior to October 31, 2000.

LOAN GUARANTY AGREEMENTS

The Company has guaranteed a loan and security agreement entered into by
the Tunica-Biloxi Tribe of Louisiana for $16.5 million for the purpose of
purchasing a hotel and additional casino equipment. The agreement extends
through 2000, and as of January 2, 2000 and January 3, 1999, the amounts
outstanding were $2.0 million and $7.3 million, respectively.

38
39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 2, 2000, JANUARY 3, 1999, AND DECEMBER 28, 1997 -- (CONTINUED)

On May 1, 1997,
the Company entered into a guaranty agreement relatedcontract for sale of the Polo Plaza shopping center
property to a
loan agreementMetroflag Polo, LLC. In conjunction with this transaction, Lakes
also entered into a contract for sale to Metroflag BP, LLC, of the rights to the
adjacent Travelodge property consisting of a long-term land lease and a motel
operation. The price for this combined transaction, which closed on December 28,
2001, was approximately $30.9 million. The Company previously reported this
transaction as a sale and previously recorded a loss on the sale of $22.1
million. This amount is now reported as an impairment of land held for
development. Proceeds receivable from the buyers of $30.8 million were
previously reported as Notes Receivable. This real estate is now reported at its
adjusted carrying value in Land Held Under Contract for sale. The correction of
this error had no impact on the previously reported loss or loss per share for
the year ended December 30, 2001 or on shareholders' equity as of December 30,
2001. Terms of the transaction include a $1.0 million down payment, which was
received in January 2002, a contractual commitment to pay Lakes $23.3 million
payable by December 29, 2002, and a second contractual commitment to pay Lakes
$7.5 million on June 30, 2004. Lakes' collateral is the Coushatta Tribeproperty and lease
rights described above which would revert back to Lakes in the event of Louisianadefault
by Metroflag. The transaction was closed subject to certain administrative
post-closing conditions that must be satisfied within six months after the
closing. This post-closing period has been extended through September 27, 2002.
Certain of these conditions have not yet been satisfied as of September 15,
2002. If the conditions are not satisfied or waived by Metroflag within the
prescribed period, Metroflag has the right to require Lakes to repurchase the
properties.

Lakes continues to own the Shark Club property which is an approximate 3.5
acre undeveloped site adjacent to the Polo Plaza shopping center and Travelodge
sites. Lakes is currently in negotiations with a joint venture partner to
develop this site for an upscale time-share project. It is contemplated that
Lakes will contribute the property, valued at $16.0 million, and be required to
make no other material contributions of cash or property to the project. Lakes
has written down the Shark Club site to the estimated market value during the
fourth quarter of 2001. Further, the option to purchase the adjacent Cable
property for $39.1 million was allowed to lapse during 2001. As a result of
these transactions, a pre-tax impairment of land held for development in the
amount of $25.0$22.1 million and a pre-tax write-down of approximately $7.1 million
was included in selling, general and administrative expenses in the accompanying
consolidated statement of loss for the purpose of constructing a hotel and acquiring additional
casino equipment. The guaranty will remain in effect until the loan is paid. The
loan term is approximately five years. As of January 2, 2000 and January 3,
1999, the amounts outstanding were $19.3 million and $19.6 million,
respectively.

INDEMNIFICATION AGREEMENT

As a part of the Transaction, the Company has agreed to indemnify Grand
against all costs, expenses and liabilities incurred in connection with or
arising out of certain pending and threatened claims and legal proceedings to
which Grand and certain of its subsidiaries are likely to be parties. 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 security to support Lakes' indemnification obligations to Grand under
each of the Grand Distribution Agreement and the Park Place Merger Agreement,
and as a condition to the consummation of the Merger, Lakes has agreed to
deposit, in trust for the benefit of Grand, as a wholly owned subsidiary of Park
Place, an aggregate of $30 million, to cover various commitments and
contingencies related to or arising out of, Grand's non-Mississippi business and
assets (including by way of example, but not limitation, tribal loan guarantees,
real property lease guarantees for Lakes' subsidiaries and director and
executive officer indemnity obligations) consisting of four annual installments
of $7.5 million, during the four-year period subsequent to the Effective Date of
the Transaction. Any surplus proceeds remaining after all the secured
obligations are indefeasibly paid in full and discharged shall be paid over to
Lakes. Lakes made the first deposit of $7.5 million ontwelve months ended December 31, 1999 and
such amount is included as restricted cash on the accompanying balance sheet as
of January 2, 2000.

As part of the indemnification agreement, Lakes has agreed that it will not
declare or pay any dividends, make any distribution of Lakes' equity interests,
or otherwise purchase, redeem, defease or retire for value any equity interests
in Lakes without the written consent of Park Place.30, 2001.

ITEM 3. LEGAL PROCEEDINGS

The following summaries describe certain known legal proceedings to which
Grand Casinos is a party which Lakes has assumed, or with respect to which Lakes
hasmay have agreed to indemnify Grand Casinos, in connection with the Distribution.

STRATOSPHERE SHAREHOLDERS LITIGATION -- FEDERAL COURT

In August through October 1996, several other nearly identical complaints
were filed by various plaintiffs in the U.S. District Court for the District of
Nevada.

In February 1997, various defendants, including Grand and Grand's officers
and directors named as defendants, submitted motions to dismiss the amended
complaint. Those motions were made on various
3912
40
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 2, 2000, JANUARY 3, 1999, AND DECEMBER 28, 1997 -- (CONTINUED)

grounds, including Grand's claim that the amended complaint failed to state a
valid cause of action against Grand and Grand's officers and directors.

In May 1997, the court dismissed the amended complaint. The dismissal order
did not allow the plaintiffs to further amend their complaint in an attempt to
state a valid cause of action.

On October 6, 1999, the District Court entered its Order, granting in part
and denying in part, defendants' Motion for Summary Judgment and Summary
Adjudication. The Court dismissed all allegations in reference to (1) Phase II
funding levels; (2) "over-allotments uses", as stated in the December 19, 1995
Prospectus; (3) the purpose and use of the Grand Casino Completion Guaranty, as
stated in the June 6, 1996 Press Statement; (4) the vague expressions of general
optimism (issued within the December 19, 1995 Prospectus, the 10-Q and 10-K
Filings, press releases and other public statements) referred to in this Order;
(5) the adoption of statements in securities analysts reports; (6) the alleged
utterance of misleading statements before the Nevada Gaming Commission; and (7)
the temporary diversion of Phase II proceeds to fund Phase I. The remaining
claims relate to the accuracy of defendants' budgetary estimates issued in
Stratosphere's December 1995 Prospectus and SEC 10-Q and 10-K Reports. The Court
concluded that there were triable issues as to whether defendants misstated
anticipated construction costs or omitted to disclose material cost overruns.

The Court recently added the Company as an additional defendant because of
its indemnity obligation and stipulation. Park Place has opposed being added to
the litigation and plaintiffs' motion to add Park Place as a defendant is
pending.

STRATOSPHERE SHAREHOLDERS LITIGATION -- NEVADA STATE COURT

GRAND CASINOS, INC. SHAREHOLDERS LITIGATION

In September and October 1996, two actions were filed by Grand shareholders
in the U.S. District Court for the District of Minnesota against Grand and
certain of Grand's current and former directors and officers. The complaints
allege misrepresentations, federal securities law violations and other claims in
connection with the Stratosphere project.

40
41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 2, 2000, JANUARY 3, 1999, AND DECEMBER 28, 1997 -- (CONTINUED)

SLOT MACHINE LITIGATION

In April 1994, William H. Poulos brought an action in the U.S. District
Court for the Middle District of Florida, Orlando Division -- William H. Poulos,
et al v. Caesars World, Inc. et al -- Case No. 39-478-CIV-ORL-22 -- in which
various parties (including Grand)Grand Casinos) alleged to operate casinos or be slot
machine manufacturers were named as defendants. The plaintiff sought to have the
action certified as a class action.

A subsequently filed Action --- William Ahearn, et al v. Caesars World, Inc.
et al -- Case No. 94-532-CIV-ORL-22 -- made similar allegations and was
consolidated with the Poulos action.

Both actions included claims under the federal Racketeering-Influenced and
Corrupt Organizations Act and under state law, and sought compensatory and
punitive damages. The plaintiffs claimed that the defendants are involved in a
scheme to induce people to play electronic video poker and slot machines based
on false beliefs regarding how such machines operate and the extent to which a
player is likely to win on any given play.

In December 1994, the consolidated actions were transferred to the U.S.
District Court for the District of Nevada.

In September 1995, Larry Schreier brought an action in the U.S. District
Court for the District of Nevada -- Larry Schreier, et al v. Caesars World, Inc.
et al -- Case No. CV-95-00923-DWH(RJJ). The plaintiffs' allegations in the
Schreier action were similar to those made by the plaintiffs in the Poulos and
Ahearn actions, except that Schreier claimed to represent a more precisely
defined class of plaintiffs than Poulos or Ahearn.

In March 1997, various defendants (including Grand)Grand Casinos) filed motions
to dismiss or stay the consolidated action until the plaintiffs submitted their
claims to gaming authorities and those authorities considered the claims
submitted by the plaintiffs.

The plaintiffs have filed a motion seeking an order certifying the action
as a class action. Grand Casinos and certain of the defendants have opposed the
motion. The Court has not ruled on the motion.

41
42
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 2, 2000, JANUARY 3, 1999, AND DECEMBER 28, 1997 -- (CONTINUED)

STANDBY EQUITY COMMITMENT LITIGATION

The complaint alleges that Grand Casinos failed to perform under the
Standby Equity Commitment entered into between Stratosphere and Grand Casinos in
connection with Stratosphere's issuance of such first mortgage notes in March
1995. The complaint seeks an order compelling specific performance of what the
Trustee claims are Grand'sGrand Casinos' obligations under the Standby Equity
Commitment.

The Stratosphere Trustee filed the complaint in its alleged capacity as a
third party beneficiary under the Standby Equity Commitment. Pursuant to the
Second Amended Plan, a new limited liability company (the "Stratosphere LLC")
was formed to pursue certain alleged claims and causes of action that
Stratosphere and other parties may have against numerous third parties,
including Grand Casinos and/or officers and/or directors of Grand.Grand Casinos. The
Stratosphere LLC has been substituted for IBJ Schroeder Bank & Trust Company,
Inc. in this proceeding.

In OctoberAugust 2000, the Court and the parties agreed to try the action upon an
amended joint pre-trial order and a series of 1999, Motions for Summary Judgment by both parties were
denied. Grand's request for expedited appellate court reviewpost-trial briefs. Post-trial
briefing concluded on December 12, 2000 and oral argument was held on January
22, 2001. On April 4, 2001, the Court entered judgment in favor of Grand Casinos
and issued its findings of fact and conclusions of law. The plaintiff filed an
appeal with the denial as to
its motion for summary judgment was denied. The trial court is expected to hold
a pretrial conference to address discovery and scheduling issues. Lakes will
continue to defendNinth Circuit Court of Appeals on May 4, 2001, Case No.
01-15947. On August 13, 2002, the lawsuit diligently.Ninth Circuit affirmed the prior ruling in
favor of Grand.

STRATOSPHERE PREFERENCE ACTION

In April 1998, Stratosphere served on Grand Casinos and Grand Media &
Electronics Distributing, Inc., a wholly owned subsidiary of Grand Casinos
("Grand Media"), a complaint in the Stratosphere bankruptcy case seeking
recovery of certain amounts paid by Stratosphere to (i) Grand Casinos as
management fees and for costs and expenses under a management agreement between
Stratosphere and Grand Casinos, and (ii) Grand Media for electronic equipment
purchased by Stratosphere from Grand Media.

Stratosphere claims in its complaint that such amounts are recoverable by
Stratosphere as preferential payments under bankruptcy law. In May 1998, Grand
Casinos responded to Stratosphere's complaint. That response
deniescomplaint denying that Stratosphere is
entitled to recover the amounts described in the complaint. The matter is pending.Discovery was
completed on December 31, 2001 and the case proceeded to trial before the United
States Bankruptcy Court for the District of Nevada on June 20, 2002. A decision
has not yet been issued.

OTHER LITIGATION

The Company has recorded a reserve assessment related to various of the
above items. The reserve is reflected as a litigation and claims accrual on the
accompanying consolidated balance sheet as of January 2, 2000.sheets.

Grand Casinos and Lakes are involved in various other inquiries,
administrative proceedings, and litigation relating to contracts and other
matters arising in the normal course of business. While any proceeding or
litigation has an element of uncertainty, management currently believes that the
final outcome of these matters is not likely to have a material adverse effect
upon Grand'sGrand Casinos' or the Company's consolidated financial position or results
of operations.

9. SUBSEQUENT EVENTS:

OnITEM 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 18,4, 1999.

For the period from January 3, 2000 a Michigan Ingham County Circuit Judge ruled thatthrough December 30, 2001, the Michigan State Legislature acted improperly in 1998 when it approved casino
compacts by joint resolution. The Governorhigh and
low sales prices per share of the StateCompany's Common Stock are indicated below, as
reported on the Nasdaq National Market:

FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
----------- ----------- ----------- -----------

Year Ended December 31, 2000:
High $ 9.50 $ 10.13 $ 10.63 $ 9.38
Low 7.50 6.63 8.50 7.13

Year Ended December 30, 2001:
High $ 10.63 $ 10.25 $ 8.49 $ 7.00
Low 8.25 5.00 4.95 5.08

On March 19, 2002, the last reported sale price for the Common Stock was
$7.15 per share. As of MichiganMarch 19, 2002, the Company had approximately 1,026
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 Park Place, 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 Park Place which consent can be given or withheld
in Park Place's sole and absolute discretion. 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."

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/A, and in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere in this Form
10-K/A.

FISCAL YEARS ENDED OR AS OF:
------------------------------------------------------------------------------------
DECEMBER 30, DECEMBER 31, JANUARY 2, JANUARY 3, DECEMBER 28,
2001 2000 2000 1999 1997
------------- ------------- ------------- ------------- -------------
(RESTATED)(5) (RESTATED)(5)
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)

LAKES HISTORICAL
RESULTS OF OPERATIONS:
Total revenue (1) $ 35 $ 59 $ 55 $ 92 $ 79
Total operating income (loss) (1) 47 45 76 70
Net Earnings (loss) (3)(2) 14(3) 29 61 45
Net Earnings (loss) per share --
basic (0.27)(2) 1.36(3) 2.72 5.80 4.32
Net Earnings (loss) per share --
diluted (0.27)(2) 1.36(3) 2.67 5.71 4.20
OTHER OPERATING DATA:
EBITDA (4) 22 50 47 78 71
BALANCE SHEET:
Cash and cash
equivalents - unrestricted $ 43 $ 10 $ 24 $ 57 $ 33
Total assets 193 212 184 161 132
Total debt 7 2 2 1 1
Shareholders' equity 172 175 160 132 119

- ----------

(1) 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. 1998 results include $36.8 million in revenues
from the management contracts for Grand Casino Mille Lacs and Grand Casino
Hinckley that concluded during 1998.

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

(3) Includes a non-recurring, 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.

(4) EBITDA is earnings before interest, taxes, depreciation and
amortization, which can be computed by adding depreciation and amortization
to operating income. 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
30, 2001, December 31, 2000, January 2, 2000, January 3, 1999 and December
28, 1997 totaled $1.0 million, $3.0 million, $2.0 million, $2.0 million,
and $1.0 million, respectively.

(5) See Footnote 13 to the consolidated financial statements included in Item
8.

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

As discussed in Note 13, the accompanying consolidated financial statements have
been restated. The following Management's Discussion and Analysis reflects this
restatement.

OVERVIEW

As a result of the Distribution, Lakes operates the Indian casino
management business and holds various other assets previously owned by Grand
Casinos. Lakes' main business is the development, construction 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: (1) Lakes has a contract to be the exclusive developer and manager of an
Indian-owned gaming resort near New Buffalo, Michigan. (2) Lakes and another
company have formed partnerships with contracts to develop and manage two
casinos to be owned by Indian tribes in California, one near San Diego and the
other near Sacramento. (3) Lakes and another company have formed a partnership
with a contract to finance the construction of an Indian-owned casino 60 miles
north of San Francisco, California. (4) Lakes has also signed contracts with a
Massachusetts Indian tribe 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 indicated that heit will appealsubmit additional information for
reconsideration. See Item 1 - "Business".

Lakes' historical revenues have been derived almost exclusively from
management fees. During 2001, Lakes managed a land-based, Indian-owned casino,
Grand Casino Coushatta, in Kinder, Louisiana ("Grand Casino Coushatta").
Pursuant to the ruling.Coushatta management contract, Lakes received a fee based on the
net distributable profits (as defined in the contracts) generated by Grand
Casino Coushatta. The management contract expired January 16, 2002, and will not
be renewed. This non-renewal will result in the loss of revenues to the Company
derived from such contract, which will have a material adverse effect on the
Company's results of operations.

The Company also managed a second land-based, Indian-owned casino in
Marksville, Louisiana ("Grand Casino Avoyelles"). On March 31, 2000, the Company
reached an agreement with the tribe for the early buyout of the management
contract for Grand Casino Avoyelles, which was scheduled to expire on June 3,
2001. The early buyout of the contract was provided for in the original
seven-year management agreement and, under the agreement, Lakes was compensated
for the management fees the company would have received had it managed Grand
Casino Avoyelles through the original contract expiration date of June 3, 2001,
discounted to their present value. Lakes was also repaid all amounts owing to it
under its loan agreements with the Tribe.

Lakes' limited operating history may not be indicative of Lakes' future
performance. In addition, a comparison of results from year to year may not be
meaningful due to the opening of new facilities during each year and the buy-out
and/or cessation of other casino management contracts. Lakes' growth strategy
contemplates the expansion of existing operations, the pursuit of opportunities
to develop and manage additional gaming facilities and the pursuit of new
business opportunities. The successful implementation of this growth strategy is
contingent upon the satisfaction of various conditions, including obtaining
governmental approvals, the impact of increased competition, and the occurrence
of certain events, many of which are beyond the control of Lakes.

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.

REALIZABILITY OF NOTES RECEIVABLE: The Company's notes receivable from
Indian Tribes are generally for the 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 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. Through December 30, 2001, no amounts have
been withheld under these provisions. Management periodically evaluates the
recoverability of such notes receivable based on the current and projected
operating results of the underlying facility and historical collection
experience. 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.

The following discussion and analysis should be read in conjunction with
the consolidated financial statements and notes thereto for the years ended
December 30, 2001, December 31, 2000 and January 2, 2000.

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 are 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 30, 2001 COMPARED TO FISCAL YEAR ENDED DECEMBER 31,
2000

Revenues. Total revenues were $34.9 million for the fiscal year ended
December 30, 2001, compared to $59.0 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 current year were less
than the same period last year primarily due to the early buyout of the
Company's management contract for Grand Casino Avoyelles by the Tunica-Biloxi
Tribe of Louisiana at the end of the first quarter 2000, pursuant to the terms
of the contract. Revenues from Grand Casino Avoyelles contributed $19.8 million
for the twelve months ended December 31, 2000, including approximately $16.0
million in management fee income recognized due to the buyout of the management
contract. The decrease in revenues relates also to a decline in management fees
of $4.2 million from Grand Casino Coushatta due to construction interruption on
the main roads leading to the casino, along with intensive marketing campaigns
implemented by casinos in the competitive Lake Charles market and adverse
weather conditions in the area.

The management contract for Grand Casino Coushatta expired January 16, 2002
and will not be renewed. This expiration will result in the loss of revenues to
the Company derived from such contract, which will have a material adverse
effect on the Company's results of operations. As of this filing, no revenues
are being derived from casinos.

Costs and Expenses. Total costs and expenses increased $24.1 million, to
$36.0 million for the year ended December 30, 2001, from $11.9 million for the
prior year. Selling, general and administrative expenses increased $25.6
million, to $34.6 million for the year ended December 30, 2001 from $9.0 million
for the prior year. The increase primarily reflects the $22.1 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 to $16.0 million during 2001.
The use of the Shark Club property is discussed below under "Capital Resources,

Capital Spending and Liquidity". Depreciation and amortization expenses
decreased $1.6 million, to $1.3 million for the year ending December 30, 2001
from $2.9 million for the prior year, due to the early buyout of the Avoyelles
management contract in 2000.

Taxes. Benefit for income taxes was $2.0 million for the year ended
December 30, 2001, compared to a provision for income taxes of $12.1 million for
the prior year. The effective tax rates for 2001 and 2000 were 41.0% and 45.0%,
respectively.

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 the year ended December 31, 2000, there was a provision for
litigation loss of $18.0 million. This amount relates to a settlement agreement
reached in June 2000 regarding both the Stratosphere shareholders' litigation
and the Grand Casinos, Inc. shareholders' litigation. The settlement agreement
required Lakes to pay a total of $18.0 million, which has been reflected as a
non-operating expense. This amount was paid into escrow and related accounts in
July 2000 for full and final settlement for all federal and state related
actions. Such amounts were included as restricted cash on the accompanying
consolidated balance sheet as of December 31, 2000. The settlement agreement
received final approval by the respective courts, and distributions have been
made in accordance with the settlement agreement.

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. For the 2000
year, the $5.5 million charge for the write-down of unconsolidated affiliates
reflects the carrying value at December 31, 2000 for certain assets held as
investments including securities in Fanball.com, Inc., Interactive Learning
Group, Inc. and Trak 21 Development, LLC. Interest income decreased $3.9 million
to $2.0 million for the fiscal year ended December 30, 2001 from $5.9 million
for the prior year, primarily due to the payoff of notes receivable related to
Grand Casino Avoyelles in 2000, as well as, a decline in market interest rates.
Equity in loss of unconsolidated affiliates was $0.5 million and $2.9 million
for the years ended December 30, 2001 and December 31, 2000, respectively, the
current year decrease is the result of the write-off of investments in
Fanball.com, Interactive Learning Group and Trak 21 at the end of 2000.

Earnings (Loss) per Common Share and Net Earnings (Loss). For the fiscal
year ended December 30, 2001 basic and diluted losses per common share were
$0.27. This compares to basic and diluted earnings per common share of $1.36 for
the fiscal year ended December 31, 2000. Earnings decreased from $14.5 million
for the fiscal year ended December 31, 2000 to a loss of $2.9 million for the
fiscal year ended December 30, 2001.

Outlook. Except for fees earned from the management of Grand Casino
Coushatta through January 16, 2002, it is currently contemplated that there will
be no additional operating revenues for the remainder of 2002. Although none of
the existing casino development projects are expected to produce revenue in
2002, Lakes continues to evaluate potential new revenue-generating business
opportunities. Lakes continues to closely monitor its operating expenses. The
Company's strong cash position is considered adequate to cover expected 2002
operating expenses.

FISCAL YEAR ENDED DECEMBER 31, 2000 COMPARED TO FISCAL YEAR ENDED JANUARY 2,
2000

Revenues. Total revenues were $59.0 million for the fiscal year ended
December 31, 2000, compared to $54.7 million for the prior year. Aggregate
management fee income from the Avoyelles and Coushatta casinos increased to
approximately $58.6 million during the twelve months ended December 31, 2000
from $54.7 million in the previous year. Contributing to the increase of $3.9
million was the early buyout of the management agreement for Grand Casino
Avoyelles by the Tunica-Biloxi Tribe of Louisiana in the first quarter of 2000.

Under the early buyout agreement, the Company was compensated for the
management fees it would have received had it managed Grand Casino Avoyelles
through the original contract expiration date which was June 3, 2001. As a
result, management fee income from Grand Casino Avoyelles increased
approximately $5.6 million for the twelve months ended December 31, 2000
compared to the prior year. Also, despite a 5.0% increase in total revenue at
Grand Casino Coushatta, management fee income decreased approximately $1.7
million for the twelve months ended December 31, 2000 compared to the twelve
months ended January 2, 2000. This decrease is primarily due to increased
marketing and employee benefit costs at Grand Casino Coushatta.

As a result of the early buyout of the management agreement for Grand
Casino Avoyelles, the Company's revenues and earnings will not include
contributions from this operation going forward.

Cost and Expenses. Total costs and expenses increased $2.3 million, to
$11.9 million for the year ended December 31, 2000, from $9.7 million for the
prior year. Selling, general and administrative expenses increased $1.3 million,
to $9.0 million for the year ended December 31, 2000 from $7.8 million for the
prior year. The increase primarily reflects development costs relating to new
casino projects. Depreciation and amortization expenses increased $1.0 million,
to $2.9 million for the year ending December 31, 2000 from $1.9 million for the
prior year, due to increased amortization in the current year related to the
early buyout of the Avoyelles management contract.

Taxes. Provision for income taxes was $12.1 million for the year ended
December 31, 2000, compared to $22.1 million for the prior year. The effective
tax rates for 2000 and 1999 were 45.0% and 43.4%, respectively. The
reconciliation of the statutory federal tax rate of 35.0%, to the Company's
actual rate for each of the years is state income taxes, net of the federal
income tax benefit of 6.0%, and permanent differences in book to tax income of
4.0% and 2.4% for 2000 and 1999, respectively.

Other. Provision for litigation loss was $18.0 million for the year ended
December 31, 2000. This amount relates to a settlement agreement reached in June
2000 regarding both the Stratosphere shareholders' litigation and the Grand
Casinos, Inc. shareholders' litigation. The agreement required Lakes to pay a
total of $18.0 million, which has been reflected as a non-operating expense.
This amount was paid into escrow and related accounts in July 2000 for full and
final settlement for all federal and state related actions. Such amount is
included as restricted cash on the accompanying consolidated balance sheet as of
December 31, 2000. The settlement agreement is subject to final approval by the
respective courts.

The $5.5 million charge for the write down of unconsolidated affiliates
reflects the carrying value at December 31, 2000 for certain assets held as
investments including securities in Fanball.com, Inc., Interactive Learning
Group, Inc. and Trak 21 Development, LLC. Interest income decreased $1.7 million
to $5.9 million for the fiscal year ended December 31, 2000 from $7.6 million
for the prior year, primarily due to the early extinguishment of notes from the
Avoyelles casino and decreased cash balances. Equity in loss of unconsolidated
affiliates was $2.9 million for each of the years ended December 31, 2000 and
January 2, 2000, due primarily to losses of Fanball.com, Interactive Learning
Group and Trak 21 before these investments were written down in 2000.

Earnings per Common Share and Net Earnings. For the fiscal year ended
December 31, 2000 basic and diluted earnings per common share were $1.36. This
compares to basic and diluted earnings per common share of $2.72 and $2.67,
respectively, for the fiscal year ended January 2, 2000. Net earnings decreased
from $28.8 million for the fiscal year ended January 2, 2000 to $14.5 million
for the fiscal year ended December 31, 2000.

CAPITAL RESOURCES, CAPITAL SPENDING, AND LIQUIDITY

At December 30, 2001 Lakes had $51.8 million in restricted and unrestricted
cash and cash equivalents. The Company also had $2.0 million in short-term,
available-for-sale investments, consisting primarily of a fixed income portfolio
made up of various types of bonds which are rated A1 or better. The cash and
short-term investment balances are planned to be used for loans to current joint
venture and tribal partners to

develop existing and anticipated Indian casino operations, the pursuit of
additional business opportunities, and settlement of pending litigation matters.
The amount and timing of Lakes' cash outlays for casino development loans will
depend on the timing of the regulatory approval process and the availability of
external financing. When approvals are received, additional financing will be
needed to complete the projects. It is currently planned that this third-party
financing will be obtained by each individual tribe. However, there can be no
assurance that if third-party financing is not available, Lakes will not be
required to finance these projects directly. If Lakes must provide this
financing, Lakes expects to obtain debt or equity financing which it would loan
to the respective tribes as necessary. As part of a recently announced letter of
intent to invest in a joint venture which would televise poker tournaments, the
Company would be required to invest $0.1 million for an approximately 78%
ownership position in the joint venture. The Company would also be required to
loan up to $3.2 million to the joint venture as needed.

For the years ended December 30, 2001, December 31, 2000 and January 2,
2000, net cash provided by operating activities totaled $30.7 million, $35.0
million and $36.5 million, respectively. For the same periods, net cash provided
by (used in) investing activities totaled $2.0 million, ($49.0) million and
($69.3) million. Included in these investing activities for the years ended
December 30, 2001, December 31, 2000 and January 2, 2000 are proceeds primarily
from repayment of notes receivable from Indian-owned casinos of $16.7 million,
$18.0 million and $12.0 million, respectively. Also, during these periods,
payments for land held for development amounted to $22.5 million, $7.6 million
and $22.9 million, respectively.

As a part of the agreements resulting from Lakes' spin-off from Grand
Casinos and related transactions, Lakes has agreed to indemnify Grand Casinos
against all costs, expenses and liabilities incurred in connection with or
arising out of certain pending and threatened claims and legal proceedings to
which Grand Casinos and certain of its subsidiaries are likely to be parties.
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. See Item 3. Legal Proceedings.

As security to support Lakes' indemnification obligations to Grand Casinos,
Lakes agreed to deposit, in trust for the benefit of Grand Casinos, as a wholly
owned subsidiary of Park Place, an aggregate of $30 million, consisting of four
annual installments of $7.5 million, on each annual anniversary of the spin-off.
Lakes' ability to satisfy this funding obligation is materially dependent upon
the continued success of its operations and the general risks inherent in its
business. In the event Lakes is unable to satisfy its funding obligation, it
would be in breach of its agreement with Grand Casinos, possibly subjecting
itself to additional liability for contract damages, which could have a material
adverse effect on Lakes' business and results of operations. The Company made
the first deposit of $7.5 million on December 31, 1999. In 2000, Lakes deposited
$18.0 million into an escrow account on behalf of the recipients in the
Stratosphere shareholders' litigation and the Grand Casinos, Inc. shareholders'
litigation. Such amounts are included as restricted cash on the accompanying
consolidated balance sheets as of January 2, 2000 and December 31, 2000. As the
$18.0 million was paid out during 2001, the remaining deposit of $7.5 million is
included as restricted cash on the accompanying balance sheet as of December 30,
2001. In January 2001, Lakes also purchased the Shark Club property in Las Vegas
for $10.1 million in settlement of another obligation that was subject to the
indemnification obligations.

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. This transaction was accounted for
under the deposit method of accounting under the requirements of Statement of
Financial Accounting Standards No. 66, Accounting for Sales of Real Estate
rather than as a sale. Therefore, the fair value of the property is included as
land held under contract for sale on the accompanying balance sheet as of
December 30, 2001. The total price for this combined transaction was
approximately $30.9 million. Terms of the transaction include a $1.0 million
down payment, which was received in January 2002, a contractual commitment to
pay to Lakes $23.3 million by December 29, 2002, and a second contractual
commitment to pay Lakes $7.5 million on June 30, 2004. Lakes' collateral for the
two contractual commitments is the property and lease rights described above
which would revert back to Lakes in the event of default by Metroflag. The
transaction was closed subject to certain administrative post-closing conditions
that must be satisfied within six months after the closing. The post-closing
period has been extended through September 27, 2002. Certain of these conditions
have not yet been satisfied as of September 15, 2002. If the conditions are not
satisfied or waived by Metroflag within the prescribed period, Metroflag has the
right to require Lakes to repurchase the properties.

Lakes has approximately $53.0 million in notes receivable from Indian
tribes and other parties. Most of these amounts are advances made to the tribes
for the development of gaming properties managed by Lakes. See Note 3 to the
Consolidated Financial Statements.

Lakes continues to own the Shark Club property which is an approximate 3.5
acre undeveloped site adjacent to the Polo Plaza shopping center and Travelodge
sites. Lakes is currently in negotiations with a joint venture partner to
develop this site for an upscale time-share project. It is contemplated that
Lakes will contribute the property, valued at $16.0 million, and be required to
make no other material contributions of cash or property to the project. Lakes
has written down the Shark Club site to the estimated market value during the
fourth quarter of 2001. As a result of this write-down, the Company incurred a
pre-tax operating write-down of approximately $3.4 million. Further, the
contract for sale of the Polo Plaza property in Las Vegas, Nevada, the contract
for sale of the rights to the adjacent Travelodge property consisting of a
long-term land lease and a motel operation, and the lapsed option on the
adjacent Cable property during 2001 resulted in a pre-tax total loss and
impairment of approximately $25.8 million.

Notes receivable from the Coushatta Tribe of Louisiana were $12.2 million
at December 31, 2000 and $0.1 million at December 30, 2001. The outstanding
balance was repaid at the conclusion of the management agreement on January 16,
2002. In addition, Lakes was previously the guarantor of a loan agreement
entered into by the Coushatta Tribe in the amount of $25.0 million, with a
balance of $6.8 million outstanding at December 30, 2001. Lakes was released
from the guaranty agreement on January 16, 2002.

On January 2, 2002, the Company completed the purchase of its corporate
office building in Minnetonka, Minnesota. This transaction resulted in the
extinguishment of the Company's capital lease obligation related to the
building.

OBLIGATIONS

The Company has two notes payable with third parties. The first is
collateralized by certificates of deposit, with $1.0 million outstanding at
December 30, 2001 and December 31, 2000. Interest is compounded and paid on a
quarterly basis at 10%. The principal and any unpaid interest are due December
22, 2002. The second is collateralized by property with $0.4 million outstanding
at December 30, 2001. Interest is compounded and paid on a quarterly basis at
8.5%. The principal and any unpaid interest are due October 9, 2002.

Pursuant to the terms of the Distribution Agreement, Grand Casinos assigned
to Lakes, and Lakes assumed, a lease agreement dated February 1, 1996 covering
Lakes' current corporate office space of approximately 65,000 square feet with a
lease term of fifteen years. The lease commenced on October 14, 1996. During
2001, also pursuant to the terms of the Distribution Agreement, Lakes entered
into a capital lease arrangement for the corporate office space at which time
the operating lease was cancelled. Accordingly, Lakes recorded a capital leased
asset and liability in the amount of approximately $5.8 million. These amounts
are included on the accompanying consolidated balance sheet as of December 30,
2001. On January 2, 2002, as per the agreement with Grand Casinos, Lakes
purchased the building.

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.

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.

RECENT ACCOUNTING PRONOUNCEMENTS

In July 2001, the FASB issued SFAS No. 141, Business Combinations, and SFAS No.
142, Goodwill and Other Intangible Assets. SFAS No. 141 requires that all
business combinations be accounted for under a single method, the purchase
method. SFAS No. 142 addresses financial accounting and reporting for acquired
goodwill and other intangible assets and supersedes APB Opinion No. 17,
Intangible Assets.

In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations". SFAS No. 143 supersedes previous guidance for financial accounting
and reporting for obligations associated with the retirement of tangible
long-lived assets and the associated asset retirement costs. The statement
applies to legal obligations associated with the retirement of long-lived assets
that result from the acquisition, construction, development and/or the normal
operation of a long-lived asset.

In August 2001, the FASB issued SFAS No. 144, "Accounting for Impairment or
Disposal of Long-Lived Assets", which provides new accounting and financial
reporting guidance for the impairment or disposal of long-lived assets and the
disposal of segments of a business.

In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities". SFAS No. 146 requires that a liability for a
cost associated with an exit or disposal activity be recognized when the
liability is incurred. SFAS No. 146 eliminates the definition and requirement
for recognition of exit costs in Emerging Issues Task Force Issue No. 94-3 where
a liability for an exit is recognized at the date of an entity's commitment to
an exit plan. This statement is effective for exit or disposal activities
initiated after December 31, 2002.

The Company does not believe the adoption of these statements will have a
material impact on its results of operations, financial position and cash flows.

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/A 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.

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; 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/A for the fiscal year ended December 30, 2001.

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 30, 2001, the carrying value of the Company's cash and cash equivalents
approximates fair value. The Company's marketable debt securities (principally
consisting of commercial paper, corporate bonds, and government securities) have
a weighted average duration of one year or less. Consequently, such securities
are not subject to significant interest rate risk.

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. As of December 30, 2001, Lakes had $53.3 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 $3.2 million. A reference rate increase of
100 basis points would result in an increase in deferred interest income of $0.5
million. A 100 basis point decrease in the reference rate would result in a
decrease of $0.5 million in deferred interest income over the same twelve month
period.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA

LAKES GAMING, INC. AND SUBSIDIARIES

INDEX TO FINANCIAL STATEMENTS

PAGE
----

Report of Independent Public Accountants 25

Consolidated Balance Sheets as of December 30, 2001 (Restated)
and December 31, 2000 (Restated) 26

Consolidated Statements of Earnings (Loss) for the fiscal years
ended December 30, 2001 (Restated), December 31, 2000 (Restated) 27
and January 2, 2000

Consolidated Statements of Comprehensive Earnings (Loss) for the fiscal
years ended December 30, 2001 (Restated),
December 31, 2000 (Restated) and January 2, 2000 28

Consolidated Statements of Shareholders' Equity for the
fiscal years ended December 30, 2001 (Restated),
December 31, 2000 (Restated) and January 2, 2000 29

Consolidated Statements of Cash Flows for the fiscal years ended
December 30, 2001 (Restated), December 31, 2000 (Restated)
and January 2, 2000 30

Notes to Consolidated Financial Statements 31

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Lakes Gaming, Inc.:

We have audited the accompanying consolidated balance sheets of Lakes
Gaming, Inc. (a Minnesota corporation) and Subsidiaries as of December 30, 2001
and December 31, 2000 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 30, 2001. 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
Gaming, Inc. and Subsidiaries as of December 30, 2001 and December 31, 2000, and
the results of their operations and their cash flows for each of the three years
in the period ended December 30, 2001, in conformity with accounting principles
generally accepted in the United States of America.

As discussed in Note 13, the consolidated financial statements for the
years ended December 30, 2001 and December 31, 2000 have been restated.

Deloitte & Touche, LLP

Minneapolis, Minnesota,
September 10, 2002

LAKES GAMING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 30, 2001 AND DECEMBER 31, 2000
(IN THOUSANDS)

2001 2000
---------------- ----------------
ASSETS (AS RESTATED, SEE NOTE 13) (AS RESTATED, SEE NOTE 13)
Current Assets:

Cash and cash equivalents $ 42,638 $ 10,469
Short-term investments 2,027 32,477
Current installments of notes receivable 67 12,939
Related party receivables 4,000 3,740
Accounts receivable, net 3,601 2,373
Deferred tax asset 4,549 13,674
Other current assets 1,079 355
---------- ----------
Total Current Assets 57,961 76,027
---------- ----------
Property and Equipment-Net 6,300 539
---------- ----------
Other Assets:
Land held under contract for sale 30,826 --
Land held for development 24,965 62,800
Notes receivable-less current installments 53,201 32,083
Cash and cash equivalents-restricted 9,175 30,270
Investments in and notes from unconsolidated affiliates 839 3,209
Deferred tax asset 3,870 2,168
Other long-term assets 6,042 4,495
---------- ----------
Total Other Assets 128,918 135,025
---------- ----------
TOTAL ASSETS $ 193,179 $ 211,591
========== ==========

LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 105 $ 79
Current maturities of long-term debt 1,325 525
Current installments of capital lease obligations 123 --
Income taxes payable 3,906 5,479
Litigation and claims accrual 6,572 25,078
Accrued payroll and related 671 1,600
Other accrued expenses 2,670 2,921
---------- ----------
Total Current Liabilities 15,372 35,682
---------- ----------
Long-term Liabilities:
Long-term debt-less current maturities -- 1,325
Capital lease obligations-less current installments 5,591 --
Other long-term liabilities 225 --
---------- ----------
Total Long-Term Liabilities 5,816 1,325
---------- ----------
TOTAL LIABILITIES 21,188 37,007
---------- ----------

COMMITMENTS AND CONTINGENCIES (NOTES 8 AND 9)
Shareholders' Equity:
Capital stock, $.01 par value; authorized 100,000 shares; 10,638 common
shares issued and outstanding
at December 30, 2001, and December 31, 2000 106 106
Additional paid-in-capital 131,525 131,525
Retained Earnings 40,420 43,286
Accumulated other comprehensive loss (60) (333)
---------- ----------
Total Shareholders' Equity 171,991 174,584
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 193,179 $ 211,591
========== ==========

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.

LAKES GAMING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS (LOSS)
YEARS ENDED DECEMBER 30, 2001, DECEMBER 31, 2000 AND JANUARY 2, 2000
(IN THOUSANDS, EXCEPT PER SHARE DATA)

2001 2000 1999
--------- --------- ---------
(AS RESTATED, SEE NOTE 13)(AS RESTATED, SEE NOTE 13)

REVENUES:
Management fee income $ 34,854 $ 59,044 $ 54,716

COSTS AND EXPENSES:
Selling, general and administrative 34,649 9,025 7,750
Depreciation and amortization 1,329 2,910 1,916
--------- ---------- ---------

Total Costs and Expenses 35,978 11,935 9,666
--------- ---------- ---------

EARNINGS FROM OPERATIONS (1,124) 47,109 45,050
--------- ---------- ---------

OTHER INCOME (EXPENSE):
Interest income 1,983 5,878 7,580
Interest expense (170) (97) (98)
Equity in loss of unconsolidated affiliates (465) (2,904) (2,925)
Loss on land held for development (3,731) -- --
Gain on sale of securities -- 61 1,264
Provision for litigation loss -- (18,000) --
Write-down of investment in unconsolidated affiliates (666) (5,522) --
Other (684) 2 21
--------- ---------- ---------
Total other income (expense), net (3,733) (20,582) 5,842
--------- ---------- ---------

Earnings (loss) before income taxes (4,857) 26,527 50,892
Provision (benefit) for income taxes (1,991) 12,068 22,065
--------- ---------- ---------

NET EARNINGS (LOSS) $ (2,866) $ 14,459 $ 28,827
========= ========== =========

BASIC EARNINGS (LOSS) PER SHARE $ (0.27) $ 1.36 $ 2.72
========= ========== =========

DILUTED EARNINGS (LOSS) PER SHARE $ (0.27) $ 1.36 $ 2.67
========= ========== =========

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 10,638 10,635 10,600
DILUTIVE EFFECT OF STOCK COMPENSATION PROGRAMS -- 7 186
--------- ---------- ---------
WEIGHTED AVERAGE COMMON AND DILUTED
SHARES OUTSTANDING 10,638 10,642 10,786
========= ========== =========

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.

LAKES GAMING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS (LOSS)
YEARS ENDED DECEMBER 30, 2001, DECEMBER 31, 2000 AND JANUARY 2, 2000
(IN THOUSANDS)

2001 2000 1999
--------- --------- ---------
(AS RESTATED, SEE NOTE 13) (AS RESTATED, SEE NOTE 13)

NET EARNINGS (LOSS) $ (2,866) $ 14,459 $ 28,827

OTHER COMPREHENSIVE EARNINGS (LOSS),
NET OF TAX:
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) during the period (4) 181 (318)
Reclassification adjustment for losses (gains)
included in net earnings (loss) 277 (36) (796)
--------- --------- ---------

COMPREHENSIVE EARNINGS (LOSS) $ (2,593) $ 14,604 $ 27,713
========= ========= =========

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.

LAKES GAMING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 30, 2001, DECEMBER 31, 2000 AND JANUARY 2, 2000
(IN THOUSANDS)

Accumulated
Common Stock Other Total
-------------------- Additional Retained Comprehensive Shareholders'
Shares Amount Paid-in-Capital Earnings Earnings(Loss) Equity
--------- --------- --------------- --------- -------------- ---------

Balance, January 3, 1999 10,576 $ 106 $ 130,929 -- $ 636 $ 131,671

Issuance of stock options exercised - net 53 -- 477 -- -- 477

Other comprehensive loss -- -- -- -- (1,114) (1,114)

Net earnings -- -- -- $ 28,827 -- 28,827

--------- ------ ---------- --------- ---------- ----------
Balance, January 2, 2000 10,629 106 131,406 28,827 (478) 159,861

Issuance of stock on options exercised - net 9 -- 79 -- -- 79

Tax benefits from exercise of common stock options -- -- 40 -- -- 40

Other comprehensive earnings -- -- -- -- 145 145

Net earnings (as restated, see Note 13) -- -- -- 14,459 -- 14,459

--------- ------ ---------- --------- ---------- ----------
Balance, December 31, 2000 (as restated, see Note 13) 10,638 106 131,525 43,286 (333) 174,584

Other comprehensive earnings (as restated, see Note 13) -- -- -- -- 273 273

Net loss (as restated, see Note 13) -- -- -- (2,866) -- (2,866)

--------- ------ ---------- --------- ---------- ----------
Balance, December 30, 2001 (as restated, see Note 13) 10,638 $ 106 $ 131,525 $ 40,420 ($ 60) $ 171,991
========= ====== ========== ========= ========== ==========

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.

LAKES GAMING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 30, 2001, DECEMBER 31, 2000 AND JANUARY 2, 2000
(IN THOUSANDS)

2001 2000 1999
--------- --------- ---------
(AS RESTATED, SEE NOTE 13) (AS RESTATED, SEE NOTE 13)

OPERATING ACTIVITIES:
Net earnings (loss) $ (2,866) $ 14,459 $ 28,827
Adjustments to reconcile net earnings (loss) to net cash
provided by operating activities:
Depreciation and amortization 1,329 2,910 1,916
Loss (gain) on sale of securities 277 (61) (1,264)
Impairment of land held for development 25,410 -- --
Equity in loss of unconsolidated affiliates 465 2,904 2,925
Write down of assets held as investments 666 5,522 --
Loss on land held for development 3,731 -- --
Deferred income taxes 9,192 (9,480) (276)
Provision for litigation loss -- 18,000 --
Changes in operating assets and liabilities:
Accounts receivable (3,307) 3,240 9,604
Income taxes (1,573) (906) (4,638)
Accounts payable 26 (409) 488
Accrued expenses (873) (1,001) (661)
Other (1,762) (184) (465)
---------- ---------- ----------
Net Cash Provided by Operating Activities 30,715 34,994 36,456
---------- ---------- ----------

INVESTING ACTIVITIES:
Short-term investments, purchases (12,708) (52,795) (28,829)
Short-term investments, sales/maturities 43,618 48,080 500
Payments for land held for development (22,543) (7,637) (22,949)
Advances on notes receivable (21,778) (33,623) (12,406)
Proceeds from repayment of notes receivable 16,660 18,038 11,950
Investment in and notes receivable from
unconsolidated affiliates 1,144 (2,917) (8,035)
Increase in restricted cash, net (2,974) (18,121) (7,157)
Decrease (increase) in other long-term assets 662 26 (2,539)
Proceeds from sale of securities -- -- 389
(Increase) decrease in property and equipment, net (92) (47) (239)
---------- ---------- ----------
Net Cash Provided by (Used in) Investing Activities 1,989 (48,996) (69,315)
---------- ---------- ----------

FINANCING ACTIVITIES:
Proceeds from issuance of common stock -- 79 477
Payments on long-term debt and capital lease obligations (535) -- --
---------- ---------- ----------
Net Cash Provided by (Used in) Financing Activities (535) 79 477
---------- ---------- ----------

Net increase (decrease) in cash and cash equivalents 32,169 (13,923) (32,382)
Cash and cash equivalents - beginning of period 10,469 24,392 56,774
---------- ---------- ----------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 42,638 $ 10,469 $ 24,392
========== ========== ==========

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 170 $ 97 $ 98
Income taxes 4,002 23,090 23,676
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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 30, 2001, DECEMBER 31, 2000, AND JANUARY 2, 2000

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

Lakes Gaming, 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"). Pursuant
to the terms of a Distribution Agreement entered into between Grand Casinos and
Lakes and dated as of December 31, 1998 (the "Distribution Agreement"), Grand
Casinos shareholders received 0.25 of one share of Lakes Common Stock for each
share held in Grand Casinos.

Immediately following the Distribution, Grand Casinos merged with a
subsidiary of Park Place Entertainment Corporation, a Delaware corporation
("Park Place"), pursuant to which Grand Casinos became a wholly owned subsidiary
of Park Place (the "Merger"), Grand Casinos shareholders received one share of
Park Place common stock in the Merger for each share they held in Grand Casinos.
The merger and distribution received all necessary shareholder and regulatory
approvals and was completed on December 31, 1998. Grand Casinos obtained a
ruling directly affectsfrom the Internal Revenue Service (IRS) that the Distribution qualified
as a tax-free transaction, solely with respect to Grand Casinos shareholders
except to the extent that Grand Casinos shareholders received cash in lieu of
fractional shares.

During 2001, Lakes managed the largest casino resort in Louisiana and has
entered into development and management agreements with four separate tribes for
four new casino operations, one in Michigan, two in California, and one with the
Nipmuc Nation on the East coast. The Company also has agreements for the
development of a casino on Indian owned land in California through a joint
venture.

MANAGEMENT CONTRACTS OF LIMITED DURATION

The Company reached an agreement with the Tunica-Biloxi Tribe of Louisiana,
effective March 31, 2000, for the early buyout of the management contract for
Grand Casino Avoyelles. The Tunica-Biloxi Tribe of Louisiana elected to exercise
its option for the early buyout of the contract, which was scheduled to expire
on June 3, 2001. The early buyout of the contract was provided for in the
original seven-year management agreement and, under the agreement, Lakes was
compensated for the management fees the Company would have received had it
managed Grand Casino Avoyelles through the original contract expiration date of
June 3, 2001, discounted to their present value. Included in management fee
income for the year ended December 31, 2000 is approximately $16.0 million
relating to the early buyout. Lakes was also repaid all amounts owing to it
under its loan agreements with the Tribe. The management contract for Grand
Casino Coushatta expired January 16, 2002, which is seven years from the date
the casino opened, and was not renewed. Substantially, all of the Company's
revenues were derived from this contract during 2001. This expiration will
result in the loss of revenues to the Company derived from such contract, which
will have a material adverse effect on the Company's future results of
operations. As of December 30, 2001, the Company has no other management
contracts from which it will derive revenues in 2002.

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 30, 2001, DECEMBER 31, 2000, AND JANUARY 2, 2000 (CONTINUED)

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 and realizability of notes
receivable. Actual results could differ from those estimates.

YEAR END

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. Additionally, as a result of its
spin-off from Grand Casinos, Lakes received a 27 percent ownership interest in
New Horizon Kids Quest, Inc. (NHKQ), a publicly held provider of child care
facilities. In June 2001, Lakes entered into an agreement with NHKQ, pursuant to
which NHKQ would acquire Lakes' interest in NHKQ. As a result of this
transaction, Lakes incurred a one-time write-down charge of $0.7 million before
tax, during the second quarter of 2001. On December 31, 2000, Lakes wrote off
the carrying value, in the amount of $5.5 million, of certain investments in
unconsolidated affiliates. The investments include Fanball.com, Inc., a start-up
internet provider of fantasy sports services, Trak 21 Development, LLC, a
developer of player tracking systems for the casino industry, and Interactive
Learning Group, Inc., a consumer products company.

REVENUE AND EXPENSES

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

The operating expenses of the Company include the costs associated with the
management of all gaming operations for which the Company has a management
contract. Such amounts represent the direct cost of providing assistance in the
areas of casino operations, food and beverage operations, marketing and
promotion, customer service, accounting, legal and other functions.

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 consist primarily of funds deposited as security to support Lakes'
indemnification obligations to Grand Casinos under each of the Distribution
Agreement and the Merger Agreement, and funds designated as collateral relating
to land held for development.

SHORT-TERM INVESTMENTS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 30, 2001, DECEMBER 31, 2000, AND JANUARY 2, 2000 (CONTINUED)

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.

Included in the table below are available-for-sale securities that do not
have a single maturity date. These available-for-sale securities have maturities
over five years and less than ten years based on the securities' final maturity
dates and are classified as current assets because they are readily marketable.
As of December 30, 2001 and December 31, 2000, the cost basis, fair value, and
unrealized losses of the Company's investments consist of the following (in
thousands):

Cost Unrealized Fair
Basis Losses Value
-------- ---------- --------

2001
Available-for-sale securities $ 2,132 $105 $ 2,027

2000
Available-for-sale securities $ 33,042 $565 $ 32,477

PROPERTY AND EQUIPMENT

Building 40 years
Leasehold improvements 15 years or term of the lease
Furniture and equipment 3-10 years

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

2001 2000
-------- ------

Building under capital lease 5,768 --
Leasehold improvements -- 376
Furniture and equipment 1,950 1,513
--------- ---------
7,718 1,889
Less: Accumulated depreciation (1,418) (1,350)
--------- ---------
Property and equipment, net $ 6,300 $ 539
========= =========

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.

LAND HELD FOR DEVELOPMENT

At December 30, 2001, land held for development consists of amounts related
to an approximate 3.5 acre site in Las Vegas, Nevada, which the Company owns
(the Shark Club). Lakes is currently in negotiations with a joint venture
partner to develop this site for an upscale time-share project. As a result of
these negotiations, it is contemplated that Lakes will contribute the property,
valued at $16.0 million, and be required to make no

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 30, 2001, DECEMBER 31, 2000, AND JANUARY 2, 2000 (CONTINUED)

additional material contributions of cash or property to the project. Lakes
wrote down the Shark Club site to the $16.0 million market value from $19.4
million during 2001. As a result of this write-down, the Company incurred a
pre-tax operating write-down of approximately $3.4 million, which is reflected
in selling, general and administrative expenses in the accompanying consolidated
statement of loss.

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 $8.9
million and $4.1 million as of December 30, 2001 and December 31, 2000,
respectively.

LAND HELD UNDER CONTRACT FOR SALE

On December 28, 2001, the Company entered into a contract for sale of the
Polo Plaza shopping center property to Metroflag Polo, LLC. In conjunction with
this transaction, Lakes entered into a contract for sale to Metroflag BP, LLC,
of the rights and obligations of the adjacent Travelodge property consisting of
a long-term land lease and a motel operation. The total price for this combined
transaction was approximately $30.9 million.

Terms of the transaction include a $1.0 million down payment to be made on
January 2, 2002, a contractual commitment to pay Lakes $23.3 million by December
29, 2002, and a second contractual commitment to pay Lakes $7.5 million on June
30, 2004. Lakes' collateral is the property and lease rights described above
which would revert back to Lakes in the event of default by Metroflag. The
transaction was closed on December 28, 2001 subject to certain administrative
post-closing conditions that must be satisfied within six months after the
closing. The post-closing period has been extended through September 27, 2002.
Certain of these conditions have not yet been satisfied as of September 15,
2002. If the conditions are not satisfied or waived by Metroflag within the
prescribed period, Metroflag has the right to require Lakes to repurchase the
properties. This transaction does not qualify as a sale for financial reporting
purposes. The down payment will be recorded as a deposit when received. Further,
the option to purchase the adjacent Cable property for $39.1 million was allowed
to lapse during 2001. As a result of these transactions, a total pre-tax loss
and impairment of $25.8 million is included in the accompanying consolidated
statement of loss for the twelve months ended December 30, 2001.

INCOME TAXES

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 2,486,343 and 867,268 in 2001
and 2000, 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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 30, 2001, DECEMBER 31, 2000, AND JANUARY 2, 2000 (CONTINUED)

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, and
the Shingle Springs Band of Miwok Indians.

DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

Effective January 1, 2001, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 133, Accounting for Derivative Instruments and
Hedging Activities, as amended by SFAS No. 138, Accounting for Certain
Derivative Instruments and Certain Hedging Activities. SFAS No. 133 establishes
accounting and reporting standards for derivative instruments and for hedging
activities. It requires that all derivatives, including those embedded in other
contracts, be recognized as either assets or liabilities and that they be
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 Company's policy is
to not use freestanding derivatives and to not enter into contracts with whom Lakes has developmentterms
that cannot be designated as normal purchases or sales.

RECENT ACCOUNTING PRONOUNCEMENTS

In July 2001, the FASB issued SFAS No. 141, Business Combinations, and management contracts. Lakes is continuing to workSFAS No.
142, Goodwill and Other Intangible Assets. SFAS No. 141 requires that all
business combinations be accounted for under a single method, the purchase
method. SFAS No. 142 addresses financial accounting and reporting for acquired
goodwill and other intangible assets and supersedes APB Opinion No. 17,
Intangible Assets.

In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations". SFAS No. 143 supersedes previous guidance for financial accounting
and reporting for obligations associated with the Bandretirement of tangible
long-lived assets and the associated asset retirement costs. The statement
applies to legal obligations associated with the retirement of long-lived assets
that result from the acquisition, construction, development and/or the normal
operation of a long-lived asset.

The Company does not believe the adoption of these statements will have land accepted into Trust bya
material impact on its results of operations, financial position and cash flows.

RECLASSIFICATIONS

Certain amounts in the Secretary of Interior1999 consolidated financial statements have been
reclassified to conform to the 2001 and to have the management agreement approved by the NIGC.

422000 presentation. These
reclassifications had no effect on previously reported net earnings or
shareholders' equity.

35
43

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 30, 2001, DECEMBER 31, 2000, AND JANUARY 2, 2000 JANUARY 3, 1999, AND DECEMBER 28, 1997 -- (CONTINUED)

On February 7, 2000, Lakes announced that it reached an agreement2. MANAGEMENT CONTRACTS FOR INDIAN-OWNED CASINOS:

The Company held a management contract with the Coushatta Tribe of
Louisiana for a five year renewalgaming facility in Kinder, Louisiana, that expired on January
16, 2002, which is seven years from the date the casino opened, and was not
renewed. Substantially, all of the Company's revenues were derived from this
contract during 2001. This expiration will result in the loss of revenues to the
Company derived from such contract, which will have a material adverse effect on
the Company's future results of operations.

The early buyout of the contract was provided in the original seven-year
management agreement and the Company received full value for all contracted
obligations by the Tunica-Biloxi Tribe of Louisiana. Under the early buyout
agreement, the Company was compensated for the management fees, discounted to
present value, the Company would have received had it managed Grand Casino
Avoyelles through the original contract expiration date. 2000 results include
$19.8 million in revenues from the management contract for Grand Casino
Avoyelles, including $16.0 million related to the early buy-out of the
agreement. The Company's revenues and earnings will not include contribution
from this operation going forward.

The management contracts govern the relationship between the Company and
the tribes with respect to the construction and management of the casinos. The
construction or remodeling portion of the agreements commenced with the signing
of the respective contracts and continued until the casinos opened 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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 30, 2001, DECEMBER 31, 2000, AND JANUARY 2, 2000 (CONTINUED)

3. NOTES RECEIVABLE:

The notes receivable from Indian Tribes are generally for the 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 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. Through December 30, 2001, no amounts have been withheld
under these provisions.

Notes receivable consist of the following (in thousands): December 30, 2001 December 31, 2000
----------------- -----------------

Properties under development:

Notes from the Pokagon Band of Potawatomi Indians with variable interest
rates, (not to exceed 10%), (5.75% at December 30, 2001), receivable in 60
monthly installments
subsequent to commencement date $ 35,236 $ 21,918

Notes from the Shingle Springs Band of Miwok Indians with variable interest
rates (6.75% at December 30, 2001), receivable in 12 monthly installments
subsequent to
commencement date 6,684 3,542

Notes from the Jamul Indian Village with variable interest rates (6.75% at
December 30, 2001), receivable in 12 monthly
installments subsequent to commencement date 5,540 2,130

Other - primarily for development of gaming properties 5,741 5,205

Operating properties:

Notes from the Coushatta Tribe with variable interest rates (5.75% at
December 30, 2001), receivable in 84 monthly
installments through January 2002 67 12,227
--------- ----------

Total notes receivable 53,268 45,022
Less - current installments of notes receivable (67) (12,939)
--------- ----------
Notes receivable, less current installments $ 53,201 $ 32,083
========= ==========

Interest income 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
remaining life of the note using the effective interest method. As of December
30, 2001 and December 31, 2000, $6.1 million and $2.1 million of interest on
notes related to properties under development has been deferred.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 30, 2001, DECEMBER 31, 2000, AND JANUARY 2, 2000 (CONTINUED)

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 for 2001,
2000 and 1999 consisted of the following (in thousands):

YEARS ENDED
--------------------------------------------------
2001 2000 1999
-------------- -------------- --------------

Current:
Federal $ (8,665) $ 16,955 $ 17,649
State (2,434) 4,675 4,692
-------------- -------------- --------------
(11,099) 21,630 22,341
Deferred 9,108 (9,562) (276)
-------------- -------------- --------------
$ (1,991) $ 12,068 $ 22,065
============== ============== ==============

Reconciliations of the statutory federal income tax rate to the Company's
actual rate based on earnings before income taxes for 2001, 2000, and 1999 are
summarized as follows:

YEARS ENDED
---------------------------------------
2001 2000 1999
---------- ---------- ----------

Statutory federal tax rate (35.0%) 35.0% 35.0%
State income taxes, net of federal income taxes 2.3 6.0 6.0
Tax exempt income (3.4) 1.3 --
Other, net (4.9) 2.7 2.4
---------- ---------- ----------
(41.0%) 45.0% 43.4%
========== ========== ==========

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

2001 2000 1999
------------- ------------- -------------

Current deferred tax asset:
Accruals, reserves and other $ 4,549 $ 13,674 $ 6,301
============= ============= =============
Non-current deferred taxes:
Unrealized investment losses (gains) 3,064 4,245 1,815
Deferred interest 2,616 847 --
Capitalized interest (434) (1,737) (1,737)
Development cost amortization 98 (784)
(35)
Other 101 423 (80)
Valuation allowance (1,575) (1,575) --
------------- ------------- -------------
Net non-current deferred tax asset (liability) $ 3,870 $ 2,168 $ (786)
============= ============= =============

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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 30, 2001, DECEMBER 31, 2000, AND JANUARY 2, 2000 (CONTINUED)

Under the terms of its management
agreement.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 up
to a benefit of approximately $12.0 million to Lakes, which is not reflected in
the accompanying financial statements.

5. LONG-TERM DEBT:

6. CAPITAL LEASE OBLIGATIONS:

7. 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 contractoption to purchase one share of Lakes
common stock for each four options previously held, and one new option to
purchase one share of Park Place common stock for each option previously held.
The exercise price of the new options was apportioned between Lakes and Park
Place 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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 30, 2001, DECEMBER 31, 2000, AND JANUARY 2, 2000 (CONTINUED)

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

NUMBER OF COMMON SHARES
LAKES -------------------------------------------------------
OPTIONS AVAILABLE WEIGHTED AVE.
OUTSTANDING EXERCISABLE FOR GRANT EXERCISE PRICE
---------------- ---------------- ---------------- ----------------

Balance at January 3, 1999 1,054,846 -- $ 10.73
Additional Shares Authorized -- 2,700,000 --
Granted 1,845,000 (1,845,000) 8.56
Canceled (527,526) 527,526 9.35
Exercised (52,467) -- 9.12
---------------- ----------------
Balance at January 2, 2000 2,319,853 789,353 1,382,526 9.35
Granted 105,500 (105,500) 8.04
Canceled (85,080) 85,080 10.32
Exercised (9,555) -- 8.33
---------------- ----------------
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
================ ================ ================ ================

Options Outstanding at December 30, 2001 Options Exercisable at
- -------------------------------------------------------------------------- December 30, 2001
Range of Weighted Average -------------------------------------
Exercise Number Remaining Weighted-Average Number Weighted-Average
Prices Outstanding Contractual Life Exercise Price Exercisable Price
- --------------- ----------------- ----------------- ----------------- ----------------- -----------------

$ (5.24-7.75) 195,563 8.0 years $ 7.48 28,563 $ 7.42
(7.88-11.34) 2,261.905 6.3 years 9.20 1,361,905 9.62
(13.53-17.72) 28,875 5.6 years 15.34 28,875 15.34
- --------------- ----------------- ----------------- ----------------- ----------------- -----------------
$ (5.24-17.72) 2,486,343 6.4 years $ 9.14 1,419,343 $ 9.70
=============== ================= ================= ================= ================= =================

The Company accounts for these plans under Accounting Principles Board
Opinion No. 25, under which no compensation cost has been recognized. Had
compensation cost for these plans been determined consistent with SFAS No. 123,
the Company's net earnings (loss) would have been as follows (in thousands):

2001 2000 1999
-------------- -------------- --------------

Net earnings (loss):
As reported $ (2,866) $ 14,459 $ 28,827
Pro forma (346) 15,644 28,431
Net earnings (loss) per share:
As reported -- Basic $ (0.27) $ 1.36 $ 2.72
Pro forma -- Basic (0.03) 1.47 2.68
As reported -- Diluted (0.27) 1.36 2.67
Pro forma -- Diluted (0.03) 1.47 2.64

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 30, 2001, DECEMBER 31, 2000, AND JANUARY 2, 2000 (CONTINUED)

The SFAS No. 123 method of accounting has not been applied to NIGC approval. Net distributable
profits, if any,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 new agreementoption 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:

2001 2000 1999
--------------- --------------- ---------------

Risk-free interest rate 5.21-5.68% 6.45-6.92% 5.20-6.50%
Expected life 10 years 10 years 10 years
Expected volatility .394-.515 .453-.538 .452-.485
Expected dividend yield -- -- --
Weighted average fair value $ 5.07 $ 5.82 $ 5.69

8. 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 $.10 million, $.09
million, and $.03 million during 2001, 2000, and 1999, respectively. Company
contributions are vested over a period of five years.

9. COMMITMENTS AND CONTINGENCIES:

Operating Leases

During 2001 the Company leased certain property and equipment, including
the corporate office building and an airplane, under non-cancelable operating
leases. Rent expense, under non-cancelable operating leases, exclusive of real
estate taxes, insurance, and maintenance expense was $1.2 million, $1.4 million,
and $1.3 million for 2001, 2000 and 1999, respectively.

In January 2002, the Company purchased the corporate office building;
therefore, no rent payments will be determineddue going forward related to the building.
The airplane lease expires May 1, 2003 and provides for two one-year renewal
terms. Approximate future minimum lease payments due under this lease as of
December 30, 2001, considering both one-year renewals are taken are as follows
(in thousands):

2002 $ 600
2003 600
2004 600
2005 200
--------
$ 2,000
========

Purchase Options

The Company has the right to purchase the airplane it leases during the
base lease term and any renewal term for approximately $8 million.

During 2001, the option to purchase the Cable property in accordance with
IGRA and distributed each month 90%Las Vegas, Nevada
for the purchase price of $39.1 million was allowed to lapse.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 30, 2001, DECEMBER 31, 2000, AND JANUARY 2, 2000 (CONTINUED)

Loan Guaranty Agreement

On May 1, 1997, the Company entered into a guaranty agreement related to a
loan agreement entered into by the Coushatta Tribe of Louisiana in the amount of
$25.0 million, for the purpose of constructing a hotel and 10%acquiring additional
casino equipment. The loan term is approximately five years. As of December 30,
2001 and December 31, 2000, the amounts outstanding were $6.8 million and $13.0
million, respectively. Lakes was released from this guaranty agreement at the
conclusion of the management agreement on January 16, 2002.

Indemnification Agreement

As a part of the agreements resulting from the Company's spin-off from
Grand Casinos and related transactions, the Company has agreed to indemnify
Grand Casinos against all costs, expenses and liabilities incurred in connection
with or arising out of certain pending and threatened claims and legal
proceedings to which Grand Casinos and certain of its subsidiaries are likely to
be parties. 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 security to support Lakes' indemnification obligations to Grand Casinos
under each of the Grand Casinos Distribution Agreement and the Park Place Merger
Agreement, and as a condition to the consummation of the Merger, Lakes has
agreed to deposit, in trust for the benefit of Grand Casinos, as a wholly owned
subsidiary of Park Place, an aggregate of $30.0 million, to cover various
commitments and contingencies related to or arising out of, Grand Casinos'
non-Mississippi business and assets (including by way of example, but not
limitation, tribal loan guarantees, real property lease guarantees for Lakes'
subsidiaries and director and executive officer indemnity obligations)
consisting of four annual installments of $7.5 million, during the four-year
period subsequent to the Effective Date of the Transaction. Any surplus proceeds
remaining after all the secured obligations are indefeasibly paid in full and
discharged shall be paid over to Lakes. Lakes made the first deposit of $7.5
million on December 31, 1999 and in July, 2000, Lakes deposited $18.0 million in
an escrow account in partial satisfaction of the indemnification obligation.
Such amounts are included as restricted cash on the accompanying balance sheets
as of December 31, 2000 and January 2, 2000. As the $18.0 million was paid out
during 2001, the remaining $7.5 million is included as restricted cash on the
accompanying balance sheet as of December 30, 2001. In January 2001, Lakes also
purchased the Shark Club property in Las Vegas for $10.1 million in settlement
of another obligation that was subject to the indemnification obligations.

The following summaries describe certain known legal proceedings to which
Grand Casinos is a party which Lakes has assumed, or with respect to which Lakes
may have agreed to indemnify Grand Casinos, in connection with the Distribution.

SLOT MACHINE LITIGATION

In April 1994, William H. Poulos brought an action in the U.S. District
Court for the Middle District of Florida, Orlando Division -- William H. Poulos,
et al v. Caesars World, Inc. et al -- Case No. 39-478-CIV-ORL-22 -- in which
various parties (including Grand Casinos) alleged to operate casinos or be slot
machine manufacturers were named as defendants. The plaintiff sought to have the
action certified as a class action.

A subsequently filed Action -- William Ahearn, et al v. Caesars World, Inc.
et al -- Case No. 94-532-CIV-ORL-22 -- made similar allegations and was
consolidated with the Poulos action.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 30, 2001, DECEMBER 31, 2000, AND JANUARY 2, 2000 (CONTINUED)

on false beliefs regarding how such machines operate and the extent to which a
player is likely to win on any given play.

In December 1994, the consolidated actions were transferred to the U.S.
District Court for the District of Nevada.

In March 1997, various defendants (including Grand Casinos) filed motions
to dismiss or stay the consolidated action until the plaintiffs submitted their
claims to gaming authorities and those authorities considered the claims
submitted by the plaintiffs.

In December 1997, the court denied all of the motions submitted by the
defendants, and ordered the plaintiffs to file a new consolidated and amended
complaint. That complaint has been filed. Grand Casinos has filed its answer to
the new complaint. The plaintiffs have filed a motion seeking an order
certifying the action as a class action. Grand Casinos and certain of the
defendants have opposed the motion. The Court has not ruled on the motion.

STANDBY EQUITY COMMITMENT LITIGATION

In September 1997, the Stratosphere Trustee under the indenture pursuant to
which Stratosphere issued its first mortgage notes filed a complaint in the U.S.
District Court for the District of Nevada - IBJ Schroeder Bank & Trust Company,
Inc. v. Grand Casinos, Inc. - File No. CV-S-97-01252-DWH (RJJ) - naming Grand as
defendant.

The complaint alleges that Grand Casinos failed to perform under the
Standby Equity Commitment entered into between Stratosphere and Grand Casinos in
connection with Stratosphere's issuance of such first mortgage notes in March
1995. The complaint seeks an order compelling specific performance of what the
Trustee claims are Grand Casinos' obligations under the Standby Equity
Commitment.

The Stratosphere Trustee filed the complaint in its alleged capacity as a
third party beneficiary under the Standby Equity Commitment. Pursuant to the
Second Amended Plan, a new limited liability company (the "Stratosphere LLC")
was formed to pursue certain alleged claims and causes of action that
Stratosphere and other parties may have against numerous third parties,
including Grand Casinos and/or officers and/or directors of Grand Casinos. The
Stratosphere LLC has been substituted for IBJ Schroeder Bank & Trust Company,
Inc. in this proceeding.

In August 2000, the Court and the parties agreed to try the action upon an
amended joint pre-trial order and a series of post-trial briefs. Post-trial
briefing concluded on December 12, 2000 and oral argument was held on January
22, 2001. On April 4, 2001, the Court entered judgment in favor of Grand Casinos
and issued its findings of fact and conclusions of law. The plaintiff filed an
appeal with the Ninth Circuit Court of appeals on May 4, 2001, Case No.
01-15947. On August 13, 2002, the Ninth Circuit affirmed the prior ruling in
favor of Grand.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 30, 2001, DECEMBER 31, 2000, AND JANUARY 2, 2000 (CONTINUED)

STRATOSPHERE PREFERENCE ACTION

Stratosphere claims in its complaint that such amounts are recoverable by
Stratosphere as preferential payments under bankruptcy law. In May 1998, Grand
Casinos responded to Stratosphere's complaint denying that Stratosphere is
entitled to recover the amounts described in the complaint. Discovery was
completed on December 31, 2001 and the case proceeded to trial before the United
States Bankruptcy Court for the District of Nevada on June 20, 2002. A decision
has not yet been issued.

OTHER LITIGATION

The Company has recorded a reserve assessment related to various of the
above items. The reserve is reflected as a litigation and claims accrual on the
accompanying consolidated balance sheets.

Grand Casinos and Lakes are involved in various other inquiries,
administrative proceedings, and litigation relating to contracts and other
matters arising in the normal course of business. While any proceeding or
litigation has an element of uncertainty, management currently believes that the
final outcome of these matters is not likely to have a material adverse effect
upon Grand Casinos' or the Company's consolidated financial position or results
of operations.

10. SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED):

Year ended January 2,December 30, 2001 (in thousands, except per share amounts):

FIRST QUARTER SECOND QUARTER
-------------------------- --------------------------
As previously As previously
reported Restated reported Restated
------------- ----------- ------------- -----------

Net revenues $ 9,223 $ 9,223 $ 9,599 $ 9,599
Earnings (loss)
from operations 6,312 6,312 6,330 6,330
Net earnings (loss) 4,717 4,165 4,180 3,587
Earnings (loss) per share:
Basic $ .44 $ .39 $ .39 $ .34
Diluted .44 .39 .39 .33

THIRD QUARTER FOURTH QUARTER
-------------------------- ---------------------------
As previously As previously
reported Restated reported Restated
------------- ----------- ------------- -----------

Net revenues $ 8,664 $ 8,664 $ 7,368 $ 7,368
Earnings (loss)
from operations 5,800 5,800 2,484 (19,566)
Net earnings (loss) 4,143 3,483 (13,361) (14,101)
Earnings (loss) per share:
Basic $ .39 $ .33 (1.25) (1.33)
Diluted .39 .33 (1.25) (1.32)

Year ended December 31, 2000 (in thousands, except per share amounts):

FIRST QUARTER SECOND THIRD FOURTH
QUARTER
QUARTER QUARTER QUARTER
------- ------- ------- --------------------------------- ---------------------------
As previously As previously
reported Restated reported Restated
------------- ----------- ------------- -----------

Net revenues...................................... $15,109 $14,892 $14,440 $10,275revenues $ 31,053 $ 31,053 $ 10,655 $ 10,655
Earnings (loss)
from operations.......................... 12,923 11,521 13,111 7,495operations 27,078 27,078 7,580 7,580
Net earnings...................................... 8,562 8,622 7,440 4,203
Earnings (loss) 16,115 16,035 (5,311) (5,552)
Earnings (loss) per share:
Basic...........................................Basic $ .811.52 $ .811.51 $ .70(.50) $ .40
Diluted......................................... .80 .80 .68 .39

Year ended January 3, 1999 (in thousands, except per share amounts):

(.52)
Diluted 1.52 1.51 (.50) (.52)

FIRST SECOND THIRD QUARTER FOURTH QUARTER
QUARTER QUARTER QUARTER
------- ------- ------- --------------------------------- --------------------------
As previously As previously
reported Restated reported Restated
----------- ------------- ----------- -----------

Net revenues...................................... $23,030 $19,718 $21,582 $28,017revenues $ 10,684 $ 10,684 $ 6,652 $ 6,652
Earnings (loss)
from operations.......................... 17,783 18,328 19,603 20,238operations 7,708 7,708 4,743 4,743
Net Earnings...................................... 11,703 12,319 25,283 11,875
Earnings (loss) 4,976 4,629 (103) (653)
Earnings (loss) per share:
Basic...........................................Basic $ 1.11.47 $ 1.17.44 $ 2.39(.02) $ 1.13
Diluted......................................... 1.08 1.14 2.37 1.12(.07)
Diluted .46 .43 (.02) (.06)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 30, 2001, DECEMBER 31, 2000, AND JANUARY 2, 2000 (CONTINUED)

11. RELATED PARTY TRANSACTIONS

During 2001 and 2000, Lakes made a total of $4.0 million in unsecured loans
to ViatiCare Financial Services, LLC, which has since been acquired by Living
Benefits Financial Services ("Living Benefits"). Living Benefits acquires and
services life insurance policies of terminally ill individuals. In March 2001,
the Board of Directors of Lakes decided not to make further loans to ViatiCare.
The outstanding note receivable balance from Living Benefits to Lakes was $4.0
million and $3.7 million as of December 30, 2001 and December 31, 2000,
respectively. A $4.0 million impairment charge for this note was recorded during
the quarter ended June 30, 2002 due to increased competition in the viatical
business and restrictions on ability to make further policy acquisitions.

Subsequent to the decision by the Lakes Board to make no further loans to
ViatiCare, L. B. Acquisitions, LLC, which is owned by Lyle Berman, the chief
executive officer and Director of Lakes, made loans to Living Benefits. Advances
outstanding were approximately $4.9 million as of December 30, 2001. As an
incentive to make the loans, L. B. Acquisitions was granted an initial 9% voting
interest in Living Benefits and was given the option to convert the loan balance
into 45% of the voting interest in Living Benefits. Therefore, Lyle Berman,
through L. B. Acquisitions, beneficially owns a total of 55% of the voting
interest of Living Benefits.

Lakes has formed two partnerships with Kean Argovitz Resorts, LLC ("KAR"),
a limited liability company based in Houston, Texas. The purpose of these
partnerships is to develop and manage casino resort projects with the Shingle
Springs Band of Miwok Indians and the Jamul Indian Village, both in California.
Lakes has notes receivable from KAR in the amount of $1.9 million as of December
30, 2001 and December 31, 2000. Lakes also has a long-term receivable from Kevin
Kean, the President of KAR, in the amount of $1.7 million as of December 30,
2001.

During 2001 and 2000, Lakes rented the use of Company equipment to another
company that has a mutual Board member. Receivables of $121,000 and $44,000, as
of December 30, 2001 and December 31, 2000, respectively, are included in
accounts receivable, net in the accompanying balance sheets. The transaction was
for full value of the associated use and all payments for such use have been
received.

12. SUBSEQUENT EVENTS

On January 2, 2002, the Company completed the purchase of its corporate
office building in Minnetonka, Minnesota for $6.4 million, including transaction
expenses. This transaction resulted in the extinguishment of the Company's
capital lease obligation related to the building.

On March 1, 2002, the Company announced it had signed a letter of intent
with respect to an investment in a joint venture with Steven Lipscomb, a
producer of televised poker tournaments. The purpose of this joint venture would
be to launch the World Poker Tour and establish poker as the next significant
televised mainstream sport. The terms of this investment would require Lakes to
make an investment of $100,000 for an approximate 78% ownership position in the
joint venture. Lakes would also be required to lend up to $3.2 million to the
joint venture as needed. The joint venture would issue a note to Lakes at 6.2%
interest per annum with principal payable at the end of three years. The Lakes'
note would be secured by a blanket security interest in all assets of the joint
venture. If certain predetermined goals are not achieved by the joint venture,
Lakes would have the right to stop advances on the note. If Lakes were to elect
to stop funding the joint venture, all outstanding principal amounts would be
due one year from the date Lakes stopped funding.

13. RESTATEMENT OF FINANCIAL RESULTS FOR 2001 AND 2000

Subsequent to the issuance of the Company's financial statements for the
year ended December 30, 2001, management of the Company determined that the
contract to sell the Polo Plaza Shopping Center property entered into in
December 2001 should not have been recognized as a sale for accounting purposes,
but should have been accounted for under the deposit method of accounting as
specified by SFAS No. 66, Accounting for Sales of Real Estate. In addition,
management determined that the interest on notes receivable related to the
development of casinos should have been deferred because the interest is not
payable until the casinos are open and generating operating cash flow. As a
result, the accompanying consolidated financial statements for the years ended
December 30, 2001 and December 31, 2000 have been restated to correct the
accounting for these transactions.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 30, 2001, DECEMBER 31, 2000, AND JANUARY 2, 2000 (CONTINUED)

A summary of the significant effects of the restatement is as follows:

December 30, 2001 December 31, 2000
----------------------------- -----------------------------
As previously As previously
Balance Sheets: reported Restated reported Restated
------------- ------------- ------------- -------------

Current installments of notes receivable $ 28,273 $ 67 $ 16,679 $ 12,939
Land held under contract for sale -- 30,826 -- --
Notes receivable less current installments 67,525 53,201 35,337 32,083
Interest receivable 6,147 10 2,028 25
Other long-term assets 7,527 9,902 5,853 6,638
Total Shareholders' Equity 175,754 171,991 175,802 174,584

December 30, 2001 December 31, 2000
------------------------------ -----------------------------
As previously As previously
Statements of Earnings (Loss): reported Restated reported Restated
------------- ------------- ------------- -------------

Interest income $ 6,297 $ 1,983 $ 7,943 5,878
Earnings (loss) before income taxes (543) (4,857) 28,592 26,527
Provision (benefit) for income taxes (222) (1,991) 12,915 12,068
Net Earnings (loss) (321) (2,866) 15,677 14,459
Basic Earnings (loss) Per Share $ (0.03) $ (0.27) $ 1.47 $ 1.36
Diluted Earnings (loss) Per Share $ (0.03) $ (0.27) $ 1.47 $ 1.36

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

None.

43
44

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information beginning immediately following the caption "Election of
Directors"Information in response to but not including, the caption "Compensation Committee Interlocks
and Insider Participation" in the Company's 1999 Proxy Statement,this item is incorporated herein by reference to
our definitive proxy statement to be filed with the Securities and Exchange Commissionpursuant to Regulation 14A within 120
days after the closeend of the Company'sfiscal year ended January 2, 2000 and forwardedcovered by this 10-K.

ITEM 11. EXECUTIVE COMPENSATION

Information in response to shareholders prior to
the Company's 1999 Annual Meeting of Shareholders (the "1999 Proxy Statement"),this item is incorporated herein by reference.

ITEM 11. EXECUTIVE COMPENSATION

The information inreference to
our definitive proxy statement to be filed pursuant to Regulation 14A within 120
days after the 1999 Proxy Statement beginning immediately followingend of the caption "Executive Compensation" to, but not including, the caption
"Director Compensation", is incorporated hereinfiscal year covered by reference.this 10-K.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The informationInformation in the 1999 Proxy Statement beginning immediately following
the caption "Voting Securities and Principal Holders Thereof"response to but not
including, the caption "Election of Directors",this item is incorporated herein by reference.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

NEW HORIZON KIDS QUEST, INC.

New Horizon Kids Quest owns and operates Kids Quest child care
entertainment centers and operated such child care centers in casinos previously
managed by Lakes. Lakes beneficially owned approximately 27% of New Horizon Kids
quest common stock until June 2001, when lakes divested its interest in that
company. Lyle Berman, Chairman of the Board and a principal shareholder of
Lakes, is a director of New Horizon Kids Quest. The informationagreements under which New
Horizon Kids Quest operated child care centers typically provided for a minimum
guaranteed management fee to be paid to New Horizon Kids Quest by each property
previously managed by Lakes, which varied by location, as well as a child care
rate subsidy from each previously-managed property against New Horizon Kids
Quest's operating losses at those respective locations.

Pursuant to an indemnification agreement entered into as of December 1998,
by and between Lakes and Mr. Berman, Lakes agreed to indemnify Mr. Berman for
any damages incurred by Mr. Berman arising out of his acts and omissions as a
director of New Horizon Kids Quest.

PARK PLACE ENTERTAINMENT CORPORATION

Lyle Berman entered into an employment agreement with Park Place as of
January 1, 1999 (the "Park Place Employment Agreement") pursuant to which he
serves as a part-time employee of Park Place for an initial term of 4 years,
unless earlier terminated by Park Place. As a part-time employee of Park Place.
Mr. Lyle Berman received compensation during 2001 of $10,000 and will receive
compensation in 2002 of an amount not less than Ten Thousand Dollars ($10,000).
In connection with his execution of the Park Place Employment Agreement, Mr.
Berman received stock options to purchase an aggregate of four hundred thousand
(400,000) shares of Park Place common stock at a per share exercise price of Six
Dollars and Sixty-Seven Cents ($6.67), said options to vest at the rate of one
hundred thousand (100,000) shares per year on the anniversary date of the Park
Place Employment Agreement. The Park Place Employment Agreement also contains a
noncompetition covenant under which Mr. Berman is prohibited, subject to certain
exceptions, from participating in the 1999 Proxy Statement underownership, management or control of any
business that is engaged in a gaming enterprise that competes or would compete
with Park Place. Additionally, Mr. Berman must present any gaming opportunities
and projects to Park Place in the caption "Certain
Transactions"first instance. If Park Place determines not
to pursue any venture or opportunity presented by Mr. Berman, only then may that
opportunity be presented to and pursued by Lakes. The following exceptions are
not subject to Mr. Berman's noncompetition agreement: (i) the management of
Indian owned casinos and related amenities; (ii) the development of the Polo
Plaza project in Las Vegas, NV; and (iii) internet, cable television or other
electronic media-based gaming enterprises. The terms of Mr. Berman's employment
with Park Place may substantially limit the number and scope of opportunities
that Lakes will be able to consider and pursue.

LOANS TO VIATICARE AND LIVING BENEFITS FINANCIAL SERVICES

During 2001 and 2000, Lakes made a total of $4.0 million in unsecured loans
to ViatiCare Financial Services, LLC, ("ViatiCare") which has since been
acquired by Living Benefits Financial Services, LLC ("Living Benefits"). Living
Benefits has provided an unsecured guarantee of the ViatiCare obligation to
Lakes. A $4.0 million impairment charge for this note was recorded during the
quarter ended June 30, 2002 due to increased competition in the viatical
insurance business and restrictions on ability to make further policy
acquisitions.

Subsequent to the decision by Lakes' Board to make no further loans to
ViatiCare, LB Acquisitions, LLC, which is incorporated hereinowned by reference.

44Lyle Berman, the chief
executive office and director of Lakes, has made loans to Living Benefits of
approximately $6.7 million. The principal balance of the loans is required to be
repaid to LB Acquisitions, without interest, commencing in June 2005. LB
Acquisitions is also entitled to a percentage of certain profits and cash flow
of Living Benefits. As an incentive to make the loans, LB Acquisitions was
granted an initial 9 percent voting interest in Living Benefits and was given
the option to convert the loan balance into an additional 46 percent of the
voting interest in Living Benefits. Therefore, Lyle Berman, through LB
Acquisitions, beneficially owns a total of 55 percent of the voting interest of
Living Benefits. To secure the repayment of the LB Acquisitions loans, which are
due commencing in 2005, Living Benefits granted to LB Acquisitions a security
interest in its personal property, including the profits on those life insurance
policies acquired by Living Benefits and transferred to a related trust on or
after June 15, 2001. The security interest also covers Living Benefits'
accounts, inventory, equipment, general intangibles and investment property.

48
45

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a)(1) Consolidated Financial Statements:

PAGE
----

LAKES GAMING, INC. AND SUBSIDIARIES

Report of Independent Public Accountants....................Accountants 25

Consolidated Balance Sheets as of January 2,December 30, 2001 (Restated)
and December 31, 2000 and
January 3, 1999...........................................(Restated) 26

Consolidated Statements of Earnings (Loss) for the fiscal years
ended December 30, 2001 (Restated), December 31, 2000 (Restated)
and January 2, 2000 January 3, 1999 and December 28,
1997...................................................... 27

Consolidated Comprehensive Statements of Comprehensive Earnings (Loss) for
the fiscal years ended December 30, 2001 (Restated), December 31,
2000 (Restated) and January 2, 2000 January 3, 1999 and
December 28, 1997......................................... 28

Consolidated Statements of Shareholders' Equity for the
fiscal years ended December 30, 2001 (Restated), December 31, 2000
(Restated) and January 2, 2000 January 3, 1999 and
December 28, 1997......................................... 29

Consolidated Statements of Cash Flows for the fiscal years
ended December 30, 2001 (Restated), December 31, 2000
(Restated) and January 2, 2000 January 3, 1999 and December 28,
1997...................................................... 30

Notes to Consolidated Financial Statements..................Statements 31

- ----------
(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 10.110.2 to Lakes' Form 8-K dated
January 8, 1999.)

10.2 Employee Benefits and Other Employment Matters Allocation10.3 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 10.210.5
to Lakes' Form 8-K dated January 8, 1999.)

10.3 Intellectual Property License10.4 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 10.510.3
to Lakes' Form 8-K dated January 8, 1999.)

10.410.5 Tax Allocation and IndemnityEscrow Agreement by and betweenamong Grand Casinos, Inc. and, Lakes
Gaming, Inc., and First Union National Bank as Escrow Agent,
dated as of December 31, 1998. (Incorporated herein by
reference to Exhibit 10.310.4 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.)

45
46

EXHIBITS DESCRIPTION
- -------- -----------
10.6 Insurance Receivable Agreement by and between Grand Casinos,
Inc. and Lakes Gaming, Inc., dated as of December 31, 1998.
(Incorporated herein by reference to Exhibit 10.6 to Lakes'
Form 8-K dated January 8, 1999.)

10.7 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.)

10.81999).

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.)

10.910.8 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.)*

10.1010.9 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.)*

10.11 Amended10.10 Indemnification Agreement, dated as of December 31, 1997, by
and Restated Management & Construction Agreement,
Loan Agreement, Promissory Note, and Security Agreement
between the Tunica-Biloxi Tribe of Louisiana and Grand Casinos, of Louisiana, Inc. -- Tunica-Biloxi, dated November
1, 1991.and Lyle Berman.
(Incorporated herein by reference to Exhibit 10BB
to Grand's Registration Statement on Form S-1, as amended,
File No. 33-46798.)

10.12 Amended and Restated Management & Construction Agreement,
Loan Agreement, Promissory Note, and Security Agreement
between the Coushatta Tribe of Louisiana and Grand Casinos
of Louisiana, Inc. -- Coushatta, dated February 25, 1992.
(Incorporated herein by reference to Exhibit 10CC to Grand's
Registration Statement on Form S-1, as amended, File No.
33-42281.)

10.13 Agreement among Grand, Bob Stupak, Bob Stupak Enterprises,
Inc. and Grand Casinos Resorts, Inc. dated November 15, 1993
and First and Second Amendments thereto dated December 22,
1993 and January 25, 1994. (Incorporated herein by reference
to Exhibit 10.4610.79 to
Grand's Report on Form 10-K for the fiscal year ended
January 1, 1995 (File No. 0-195650).)

10.14 Letter Agreement dated as of June 1, 1994 between
Stratosphere Corporation, Grand Casinos, Inc., Grand Casinos
Resorts, Inc., Bob Stupak Enterprises, Inc. and Bob Stupak.
(Incorporated herein by reference to Exhibit 10.80 to
Grand's Report on Form 10-Q for the quarter ended July 3,
1994 (File No. 0-19565).)

10.15 Amendment to June 1, 1994 Letter Agreement dated November
16, 1994 between Stratosphere Corporation, Grand Casinos
Resorts, Inc., Grand Casinos, Inc. Bob Stupak Enterprises,
Inc. and Bob Stupak. (Incorporated herein by reference to
Exhibit 10.48 to Grand's Report on Form 10-K for the fiscal
year ended January 1, 1995 (File No. 0-19565).)

10.16 Management and Development Agreement dated July 1, 1994, by
and between Stratosphere Corporation and Grand Casinos, Inc.
(Incorporated herein by reference to Exhibit 10.49 to
Grand's Report on Form 10-K for the fiscal year ended
January 1, 1995 (File No. 0-19565).)

10.17 Memorandum of Agreement dated as of February 16, 1995 by and
among Stratosphere Corporation and Grand Casinos, Inc.
(Incorporated herein by reference to Exhibit 10.50 to
Grand's Report on Form 10-K for the fiscal year ended
January 1, 1995 (File No. 0-19565).)

10.18 Standby Equity Commitment dated March 9, 1995 by and between
Grand Casinos, Inc. and Stratosphere Corporation.
(Incorporated herein by reference to Exhibit 10.51 to
Grand's Report on Form 10-K for the fiscal year ended
January 1, 1995 (File No. 0-19565).December 28, 1997.)

4650
47

EXHIBITS DESCRIPTION
- -------- -----------

10.19 Notes Completion Guarantee dated March 9, 1995 by and
between Grand Casinos, Inc. and American Bank National
Association. (Incorporated herein by reference to Exhibit
10.52 to Grand's Report on Form 10-K for the fiscal year
ended January 1, 1995 (File No. 0-19565).)

10.20 Completion Guarantor Subordination Agreement dated March 9,
1995 between Grand Casinos, Inc. and American Bank National
Association. (Incorporated herein by reference to Exhibit
10.53 to Grand's Report on Form 10-K for the fiscal year
ended January 1, 1995 (File No. 0-19565).)

10.21 Funding Agreement dated as of September 27, 1996 by and
among Grand Casinos, Inc., and Stratosphere Corporation.
(Incorporated herein by reference to Exhibit 10.1 to Grand's
Report on Form 10-Q for the quarter ended September 30,
1996.)

10.22 Letter Agreement dated as of September 27, 1996 by and among
Grand Casinos, Inc., Stratosphere Corporation and
Stratosphere Gaming Corp. (Incorporated herein by reference
to Exhibit 10.2 to Grand's Report on Form 10-Q for the
quarter ended September 30, 1996.)

10.23 Restructuring Agreement Regarding Pre-Negotiated Plan of
Reorganization by and among Stratosphere Corporation,
Stratosphere Gaming Corp. and Grand Casinos, Inc. and Member
of AD Hoc Committee of holders of $203,000,000 of 14 1/4%
First Mortgage Notes Due 2002. (Incorporated herein by
reference to Exhibit 99.2 to Stratosphere Corporation's Form
8-K dated January 6, 1997.)

10.24 Lease Agreement, dated as of June 17, 1996, by and between
Brooks Family Trust and Nevada Brooks Cook as Landlord and
Cloobeck Enterprises and Grand Casinos Nevada I, Inc. as
Tenants. (Incorporated herein by reference to Exhibit 10.76
to Grand's Report on Form 10-K for the fiscal year ended
December 28, 1997.)

10.25 First Amendment to Ground Lease, dated November 25, 1997, by
and between MacGregor Income Properties West I, Inc. and
Grand Casinos Nevada I, Inc. (Incorporated herein by
reference to Exhibit 10.77 to Grand's Report on Form 10-K
for the fiscal year ended December 28, 1997.)

10.26 Ground Lease, dated July 31, 1996, by and between MacGregor
Income Properties West I, Inc. and Cloobeck Enterprises.
(Incorporated herein by reference to Exhibit 10.78 to
Grand's Report on form 10-K or the fiscal year ended
December 28, 1997.)

10.27 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.)

10.28 Carlson Center Office Lease by and between Carlson Real
Estate Company, a Minnesota Limited Partnership, as Landlord
and Grand Casinos, Inc. as Tenant, dated February 1, 1996,
as Amended by that First Amendment to Lease dated August 23,
1996. (Incorporated herein by reference to Exhibit 10.32 to
the Lakes Form 10.)

10.29 Sublease entered into effective as of the 30th day of
December 1998, between Grand Casinos, Inc., a Minnesota
Corporation ("Sublessor"), and Lakes Gaming, Inc., a
Minnesota Corporation ("Sublessee"). (Incorporated herein by
reference to Exhibit 10.29 to Lakes' Form 10-K dated March
26, 1999.)

10.30 Release and Assumption Agreement dated as of December 31,
1998, among Hibernia National Bank, the Coushatta Tribe of
Louisiana, the Coushatta Tribe of Louisiana Building
Authority, Grand Casinos of Louisiana, Inc. -- Coushatta,
Grand Casinos, Inc., Lakes Gaming, Inc., a Minnesota
corporation and a subsidiary of Grand and Grand Casinos of
Louisiana, LLC -- Coushatta, a Minnesota limited liability
company and a subsidiary of Lakes. (Incorporated herein by
reference to Exhibit 10.1 to Lakes' Report on Form 10-Q for
the quarter ended April 4, 1999.)

47
48

EXHIBITS DESCRIPTION
- -------- -----------

10.31 Commercial Guaranty Agreement made and entered into
effective as of February 15, 1999, by Lakes Gaming, Inc., a
Minnesota corporation and Grand Casinos of Louisiana,
LLC -- Coushatta, a Minnesota limited liability company in
favor of Hibernia National Bank, guaranteeing the
Indebtedness (as defined) of the Coushatta Tribe of
Louisiana and the Coushatta Tribe of Louisiana Building
Authority. (Incorporated herein by reference to Exhibit 10.2
to Lakes' Report on Form 10-Q for the quarter ended April 4,
1999.)

10.32 Subordination Agreement Granted by Lakes Gaming, Inc., a
Minnesota corporation, in favor of Hibernia National Bank
entered into as of February 15, 1999. (Incorporated herein
by reference to Exhibit 10.3 to Lakes' Report on Form 10-Q
for the quarter ended April 4, 1999.)

10.33 Subordination Agreement Granted by Grand Casinos of
Louisiana, LLC, a Minnesota limited liability company in
favor of Hibernia National Bank entered into as of February
15, 1999. (Incorporated herein by reference to Exhibit 10.4
to Lakes' Report on Form 10-Q for the quarter ended April 4,
1999.)

10.34 Dominion Account Agreement dated as of May 1, 1997 between
the Coushatta Tribe of Louisiana, a federally recognized
Indian tribe, the Coushatta Tribe of Louisiana Building
Authority, an instrumentality of the Coushatta Tribe, Grand
Casinos of Louisiana, Inc. -- Coushatta, a Minnesota
corporation, Grand Casinos, Inc., a Minnesota corporation,
the Cottonport Bank, a bank chartered under the laws of the
State of Louisiana, and Hibernia National Bank, a national
banking association. (Incorporated herein by reference to
Exhibit 10.5 to Lakes' Report on Form 10-Q for the quarter
ended April 4, 1999.)

10.35 Subordination Agreement Granted by Lakes Gaming, Inc., a
Minnesota corporation, in favor of Hibernia National Bank
entered into as of February 15, 1999. (Incorporated herein
by reference to Exhibit 10.6 to Lakes' Report on Form 10-Q
for the quarter ended April 4, 1999.)

10.36 Subordination Agreement granted by Grand Casinos of
Louisiana, LLC - Coushatta, a Minnesota limited liability
company, in favor of Hibernia National Bank entered into as
of February 15, 1999. (Incorporated herein by reference to
Exhibit 10.7 to Lakes' Report on Form 10-Q for the quarter
ended April 4, 1999.)

10.37 Dominion Account Agreement, dated effective as of December
17, 1997, between the Coushatta Tribe of Louisiana, a
federally recognized Indian Tribe, Grand Casinos of
Louisiana, Inc. -- Coushatta, a Minnesota corporation, Grand
Casinos, Inc. a Minnesota corporation, the Cottonport Bank,
a bank chartered under the laws of the State of Louisiana,
and Hibernia National Bank, a national banking association.
(Incorporated herein by reference to Exhibit 10.8 to Lakes'
Report on Form 10-Q for the quarter ended April 4, 1999.)

10.38 Intercreditor Agreement dated as of February 4, 1998,
between Hibernia National Bank and Grand Casinos of
Louisiana, Inc. -- Coushatta and Grand Casinos, Inc.
(Incorporated herein by reference to Exhibit 10.9 to Lakes'
Report on Form 10-Q for the quarter ended April 4, 1999.)

10.39 Counterpart Signature Page, dated as of February 15, 1999,
to that certain Intercreditor Agreement dated as of February
4, 1998 (the First Intercreditor Agreement), by and among
Hibernia National Bank, Grand Casinos, Inc. and Grand
Casinos of Louisiana, Inc. -- Coushatta; entered into
pursuant to Section 2 of that certain Release and Assumption
Agreement dated as of December 31, 1998, by and among the
Hibernia National Bank, Grand Casinos, Inc., Grand Casinos
of Louisiana, Inc. -Coushatta, the Coushatta Tribe of
Louisiana, the Coushatta Tribe of Louisiana Building
Authority, Lakes Gaming, Inc. and Grand Casinos of
Louisiana, LLC -- Coushatta. (Incorporated herein by
reference to Exhibit 10.10 to Lakes' Report on Form 10-Q for
the quarter ended April 4, 1999.)

10.40 Subordination Agreement granted by Lakes Gaming, Inc., a
Minnesota Corporation, in favor of Hibernia National Bank
entered into as of February 15, 1999. (Incorporated herein
by reference to Exhibit 10.11 to Lakes' Report on Form 10-Q
for the quarter ended April 4, 1999.)

48
49

EXHIBITS DESCRIPTION
- -------- -----------

10.41 Subordination Agreement granted by Grand Casinos of
Louisiana, LLC -Coushatta, a Minnesota Limited Liability
Company, in favor of Hibernia National Bank entered into as
of February 15, 1999. (Incorporated herein by reference to
Exhibit 10.12 to Lakes' Report on Form 10-Q for the quarter
ended April 4, 1999.)

10.42 Dominion Account Agreement, dated effective as of December
18, 1998, between the Coushatta Tribe of Louisiana, a
federally recognized Indian tribe, Grand Casinos of
Louisiana, LLC -- Coushatta, a Minnesota limited liability
company, Lakes Gaming, Inc., a Minnesota corporation, the
Cottonport Bank, a bank chartered under the laws of the
State of Louisiana, and Hibernia National Bank, a national
banking association. (Incorporated herein by reference to
Exhibit 10.13 to Lakes' Report on Form 10-Q for the quarter
ended April 4, 1999.)

10.43 Second Intercreditor Agreement dated as of December 18,
1998, between Hibernia National Bank, Grand Casinos of
Louisiana, Inc. -- Coushatta and Grand Casinos, Inc.
(Incorporated herein by reference to Exhibit 10.14 to Lakes'
Report on Form 10-Q for the quarter ended April 4, 1999.)

10.44 Counterpart Signature Page, dated as of February 15, 1999,
to that certain Second Intercreditor Agreement dated as of
December 18, 1998 (the Second Intercreditor Agreement), by
and among Hibernia National Bank, Grand Casinos, Inc. and
Grand Casinos of Louisiana, Inc. -- Coushatta; entered into
pursuant to Section 2 of that certain Release and Assumption
Agreement dated as of December 31, 1998, by and among the
Hibernia National Bank, Grand Casinos, Inc., Grand Casinos
of Louisiana, Inc. -- Coushatta, the Coushatta Tribe of
Louisiana, the Coushatta Tribe of Louisiana Building
Authority, Lakes Gaming, Inc. and Grand Casinos of
Louisiana, LLC -- Coushatta. (Incorporated herein by
reference to Exhibit 10.15 to Lakes' Report on Form 10-Q for
the quarter ended April 4, 1999.)

10.45 Release and Assumption Agreement dated as of December 31,
1998, among Cottonport Bank, the Tunica-Biloxi Tribe of
Louisiana, Grand Casinos of Louisiana,
Inc. -- Tunica-Biloxi, Grand Casinos, Inc., Lakes Gaming,
Inc., a Minnesota corporation and a subsidiary of Grand and
Grand Casinos of Louisiana, LLC -- Tunica-Biloxi, a
Minnesota limited company and a subsidiary of Lakes Gaming,
Inc. (Incorporated herein by reference to Exhibit 10.16 to
Lakes' Report on Form 10-Q for the quarter ended April 4,
1999.)

10.46 Commercial Guaranty Agreement made and entered into
effective as of February 15, 1999, by Lakes Gaming, Inc., a
Minnesota corporation and Grand Casinos of Louisiana,
LLC -- Tunica-Biloxi, a Minnesota limited liability company
in favor of the Cottonport Bank, guaranteeing the
Indebtedness (as defined) of the Tunica-Biloxi Tribe of
Louisiana. (Incorporated herein by reference to Exhibit
10.17 to Lakes' Report on Form 10-Q for the quarter ended
April 4, 1999.)

10.47 Subordination Agreement granted by Lakes Gaming, Inc., a
Minnesota corporation, in favor of the Cottonport Bank
entered into as of February 15, 1999. (Incorporated herein
by reference to Exhibit 10.18 to Lakes' Report on Form 10-Q
for the quarter ended April 4, 1999.)

10.48 Subordination Agreement granted by Grand Casinos of
Louisiana, LLC -- Tunica-Biloxi, a Minnesota limited
liability company, in favor of the Cottonport Bank entered
as of February 15, 1999. (Incorporated herein by reference
to Exhibit 10.19 to Lakes' Report on Form 10-Q for the
quarter ended April 4, 1999.)

10.49 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.)

10.50 Equipment Loan Promissory Note in the principal amount of
$6,000,000 by and among the Tunica-Biloxi Tribe of
Louisiana, as Borrower and Hibernia National Bank, as Lender
executed as of May 28, 1999. (Incorporated herein by
reference to Exhibit 10.1 to Lakes' Report on Form 10-Q for
the quarter ended July 4, 1999.)

49
50

EXHIBITS DESCRIPTION
- -------- -----------

10.51 Dominion Account Agreement, dated effective as of May 28,
1999, between the Tunica-Biloxi Tribe of Louisiana, a
federally recognized Indian tribe, Grand Casinos of
Louisiana, LLC -- Tunica-Biloxi, a Minnesota limited
liability company, Lakes Gaming, Inc., a Minnesota corpora-
tion, the Cottonport Bank, a bank chartered under the laws
of the State of Louisiana, and Hibernia National Bank, a
national banking association. (Incorporated herein by
reference to Exhibit 10.2 to Lakes' Report on Form 10-Q for
the quarter ended July 4, 1999.)

10.52 Subordination Agreement Granted by Lakes Gaming, Inc., in
Favor of Hibernia National Bank entered into as of May 28,
1999. (Incorporated herein by reference to Exhibit 10.3 to
Lakes' Report on Form 10-Q for the quarter ended July 4,
1999.)

10.53 Intercreditor Agreement dated as of May 28, 1999, between
The Cottonport Bank, Hibernia National Bank and Grand
Casinos of Louisiana, LLC -- Tunica-Biloxi and Lakes Gaming,
Inc. (Incorporated herein by reference to Exhibit 10.4 to
Lakes' Report on Form 10-Q for the quarter ended July 4,
1999.)

10.54 Commercial Security Agreement entered into between the
Tunica-Biloxi Tribe of Louisiana (as Grantor) and Hibernia
National Bank (as Lender). (Incorporated herein by reference
to Exhibit 10.5 to Lakes' Report on Form 10-Q for the
quarter ended July 4, 1999.)

10.55 Subordination Agreement Granted by Grand Casinos of
Louisiana, LLC -- Tunica-Biloxi in Favor of Hibernia
National Bank entered into as of May 28, 1999. (Incorporated
herein by reference to Exhibit 10.6 to Lakes' Report on Form
10-Q for the quarter ended July 4, 1999.)

10.56 Equipment Loan Agreement dated effective as of May 28, 1999
made by and between the Tunica-Biloxi Tribe of Louisiana and
Hibernia National Bank, a national banking association.
(Incorporated herein by reference to Exhibit 10.7 to Lakes'
Report on Form 10-Q for the quarter ended July 4, 1999.)

10.57 Subscription Agreement and Investment Letter by and among
Lakes Gaming, Inc., a Minnesota corporation (the
"Subscriber") and Fanball.com, Inc., a Minnesota corporation
(the "Company") dated as of June 15, 1999. (Incorporated
herein by reference to Exhibit 10.1 to Lakes' Report on Form
10-Q for the quarter ended October 3, 1999.)

10.58 Stock Purchase Agreement dated as of June 15, 1999 between
Lakes Gaming, Inc. (the "Buyer") and Richard Kallio (the
"Seller"). (Incorporated herein by reference to Exhibit 10.2
to Lakes' Report on Form 10-Q for the quarter ended October
3, 1999.)

10.59 Subscription Agreement and Investment Letter by and among
Lakes Gaming, Inc. a Minnesota corporation (the
"Subscriber") and Interactive Learning Group, Inc., a
Minnesota corporation (the "Company") dated as of June 25,
1999. (Incorporated herein by reference to Exhibit 10.3 to
Lakes' Report on Form 10-Q for the quarter ended October 3,
1999.)

10.60 Mutual Termination Agreement by and Among the Registrant,
Rainforest Cafe, Inc. and RFC Acquisition Co. dated as of
January 24, 2000. (Incorporated herein by reference to
Exhibit 10.1 to Lakes' Report on Form 8-K dated as of
January 25, 2000.)

10.6110.12 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. 10.62(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. 10.63(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. 10.64(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 Promissory Note (the "Transition Loan Note"to Lakes'
Report on Form 10-K for the fiscal year ended December 31,
2000.)

dated as of
July 8, 1999 by and among the Pokagon Band of Potawatomi
Indians and Lakes Gaming, Inc., a Minnesota corporation.

50
51

EXHIBITS DESCRIPTION
- -------- -----------

10.6610.17 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. 10.67(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. 10.68(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.
10.69(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. 10.70(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.
10.71(Incorporated herein by reference to Exhibit 10.70 to Lakes'
Report on Form 10-K for the fiscal year ended December 31,
2000.)

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. 10.72(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. 10.73(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. 10.74(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
Corporationcorporation and Lakes KAR --- Shingle Springs, LLC, a Delaware
limited liability company. 10.75(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 KARSS --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. 10.76(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. 10.77(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. 10.78(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. 10.79(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. 10.80(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.)

EXHIBITS DESCRIPTION
-------- -----------

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.)

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.)

EXHIBITS DESCRIPTION
-------- -----------

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.)

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.

** Filed with original Form 10-K report for the year ended December 30, 2001, as
filed on March 28, 2002.

EXHIBITS DESCRIPTION
-------- -----------

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.

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.

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.

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.

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.

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.

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.

21 ** Subsidiaries of the Company.

23 Consent of Independent Public Accountants Dated March 24,
2000.

27September
10, 2002.

99 ** Letter regarding Arthur Andersen LLP

99.1 Certification of Chief Executive Officer

99.2 Certification of Chief Financial Data Schedule.Officer

- -------------------------
* Management Compensatory Plan or Arrangement.Arrangement

(b) Reports on Form 8-K.

(i) A Form 8-K, Item 5. Other Events;Events and Item 7.7, Financial Statements,
Pro Forma Financial Information and Exhibits, was filed on January 2,
2002.

(ii) A Form 8-K, Item 5, Other Events and Item 7, Financial
Statements, Pro Forma Financial Information and Exhibits, was filed on
February 4, 2002.

(iii) A Form 8-K, Item 5, Other Events and Item 7, Financial
Statements, Pro Forma Financial Information and Exhibits, was filed on
March 1, 2002.

** Filed with original Form 10-K report for the year ended December 23, 1999.
(c) See Part IV, Item 14 (a)(3) and the exhibit list immediately above.
(d) None.

5130,
2001, as filed on March 28, 2002.

55
52

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 GAMING, INC.
Registrant

By: /s/ LYLE BERMAN
-----------------------------------------------------------------
Name: Lyle Berman
Title: Chairman of the Board and
Chief Executive Officer
Dated as of March 28, 2000

In accordanceSeptember 18, 2002

CERTIFICATIONS

I, Lyle Berman, certify that:

1. I have reviewed this annual report on Form 10-K/A 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 Exchange Act,period covered by
this annual report; and

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, has been signed below byfairly present in all material
respects the following persons on behalffinancial condition, results of operations and cash flows of
the registrant and in the capacities
indicated as of, March 28, 2000.

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/ DAVID L. ROGERS Director
- ---------------------------------------------
David L. Rogers

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

/s/ JOEL N. WALLER Director
- ---------------------------------------------
Joel N. Waller

52and for, the periods presented in this annual report.

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

I, Timothy J. Cope, certify that:

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

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.

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