UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_______________

Form 10-K

(Mark One)

For the fiscal year ended December 31, 2016

or

For the transition period from                to                

Commission File No. 0-24993000-24993

LAKES ENTERTAINMENT, INC.Golden Entertainment, Inc.

(Exact name of registrant as specified in its charter)

6595 S Jones Boulevard - Las Vegas, Nevada 89118

130 Cheshire Lane, Suite 101, Minnetonka, Minnesota 55305

(Address of principal executive offices)

(702) 893-7777

(952) 449-9092

(Registrant’sRegistrant��s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act:

None.None

(Title of Class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ☐     No  ☑

☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  ☐    No  ☑

☒

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  ☑☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ☑☒    No  ☐

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of the Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ☑

☒

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes  ☐    No  ☑☒

As of March 9, 2015, 13,391,578 shares of the Registrant’s Common Stock were outstanding. Based upon the last sale price of the Common Stockregistrant’s common stock, $0.01 par value, as reported on the NASDAQ Global Market on June 27, 201430, 2016 (the last business day of the Registrant’sregistrant’s most recently completed second quarter), the aggregate market value of the Common Stockcommon stock held by non-affiliates of the Registrantregistrant as of such date was $96.2 million.$125,010,452. For purposes of these computations affiliatesonly, all of the Registrant are deemed only to be the Registrant’s executive officers and directors.directors and entities affiliated with them have been deemed to be affiliates.

As of March 15, 2017, 22,248,972 shares of the registrant’s common stock, $0.01 par value, were outstanding.

Forward-Looking StatementsDOCUMENTS INCORPORATED BY REFERENCE

The PrivatePortions of the Proxy Statement for the registrant’s 2017 annual meeting of shareholders, to be filed with the Securities Litigation Reform Actand Exchange Commission within 120 days after the registrant’s year ended December 31, 2016, are incorporated by reference into Part III of 1995 provides a “safe harbor” for forward-looking statements. Certainthis Annual Report on Form 10-K where indicated. Except with respect to information includedspecifically incorporated by reference in this Annual Report on Form 10-K, and other materials filed orthe Proxy Statement is not deemed to be filed by Lakesas part hereof.

PART I

As used in this Annual Report on Form 10-K, unless the context suggests otherwise, the terms “Golden,” “we,” “our” and “us” refer to Golden Entertainment, Inc. with the United States Securities and Exchange Commission (“SEC”) as well as information included in oralits subsidiaries.

Forward-Looking Statements

This Annual Report on Form 10-K, including Management’s Discussion and Analysis of Financial Condition and Results of Operations, contains forward-looking statements or other written statements made or to be made by Lakes Entertainment, Inc. contain statementsregarding future events and our future results that are forward-looking, such as plans for future expansion and other business development activities as well as other statements regarding capital spending, financing sourcessubject to the safe harbors created under the Securities Act of 1933 and the effectsSecurities Exchange Act of regulation (including gaming and tax regulation), competition, and1934, or the Merger discussed herein. These forward-lookingExchange Act. Forward-looking statements maycan generally be identified by the use of words such as “expect,” “anticipate,” “believe,” “continue,” “could,” “estimate,” “potential,“expect,” “should”, “will”“forecast,” “intend,” “plan,” “project,” “seek,” “should,” “think,” “will,” “would” and similar expressions. In addition, forward-looking statements include statements regarding our strategies, objectives, business opportunities and plans for future expansion, developments or similar words intendedacquisitions, anticipated future growth and trends in our business or key markets, projections of future financial condition, operating results, income, capital expenditures, costs or other financial items, anticipated regulatory and legislative changes, our ability to identify informationutilize our net operating loss carryforwards (“NOLs”) to offset future taxable income, as well as other statements that isare not statements of historical in nature.fact. Forward-looking statements are based on our current expectations and assumptions regarding our business, the economy and other future conditions. These forward-looking statements are based on current expectations andsubject to assumptions, of management of Lakes Entertainment, Inc. and such forward looking information involves important risks and uncertainties that could significantly affect the anticipated results in the futuremay change at any time, and accordingly,readers are therefore cautioned that actual results maycould differ materially from those expressed in any forward-looking statements made by or on behalfstatements. Factors that could cause actual results to differ include: our ability to realize the anticipated cost savings, synergies and other benefits of Lakes Entertainment, Inc.

These risks, uncertainties and changes in circumstances include, but are not limited to (a) the need for potential future financing to meet Lakes Entertainment, Inc.’s development needs and expansion goals; (b)the highly competitive industry in which Lakes Entertainment, Inc. operates; (c) possible changes in regulations; (d) risks of entry into new businesses; (e) reliance on Lakes Entertainment, Inc.’s management; and (f) litigation costs.

In addition, the risks, uncertainties and changes in circumstances relating to the proposed Merger (as defined below) with Sartini Gaming Inc. (“Sartini Gaming”) and the related Merger Agreementacquisitions of distributed gaming assets in Montana, and provisions therein, as discussed elsewhereintegration risks relating to such transactions, changes in this Annual Report on Form 10-K, include, but are not limitednational, regional and local economic and market conditions, legislative and regulatory matters (including the cost of compliance or failure to (a)comply with applicable laws and regulations), increases in gaming taxes and fees in the possibility that the Merger does not close when expected or at all; (b) the ability and timing to obtain required regulatory approvals (including approval from gaming regulators) and approval by the shareholders of Lakes Entertainment, Inc., and to satisfy or waive other closing conditions, including expiration of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (if applicable), or that the parties to the Merger Agreement may be required to modify aspects of the Merger Agreement to achieve regulatory approval; (c) the occurrence of any event, change or other circumstance that could give rise to the termination of the Merger Agreement or could otherwise cause the Merger to fail to close; (d) the ability of Lakes Entertainment, Inc., and Sartini Gaming, Inc. to promptly and effectively integrate their respective businesses; (e) the outcome of any legal proceedings that may be institutedjurisdictions in connection with the Merger; (f) the receipt of an unsolicited offer from another party for an alternative business transaction that could interfere with the proposed Merger; (g) the ability of Lakes Entertainment, Inc. to monetize non-core assets prior to the closing of the Merger; (h) thewhich we operate, litigation, increased competition, our ability to retainrenew our distributed gaming contracts, reliance on key employeespersonnel (including our Chief Executive Officer, Chief Operating Officer and Chief Strategy and Financial Officer), the level of Lakes Entertainment, Inc.our indebtedness and Sartini Gaming, Inc.; (i)our ability to comply with covenants in our debt instruments, terrorist incidents, natural disasters, severe weather conditions (including weather or road conditions that there may be a material adverse change affecting Lakes Entertainment, Inc. or Sartini Gaming, Inc.limit access to our properties), or that the respective businesseseffects of Lakes Entertainment, Inc. or Sartini Gaming, Inc. may suffer as a resultenvironmental and structural building conditions, the effects of uncertainty surrounding the Merger; (j)disruptions to our information technology and other systems and infrastructure, the occurrence of an “ownership change,”change” as defined in Section 382 of the Internal Revenue Code of 1986, as amended;(the “Code”), factors affecting the gaming, entertainment and (k)hospitality industries generally, and other factors identified under the risks described in theheading “Risk Factors” section in Part I, Item 1A of this Annual Report on Form 10-K.    

Forward-looking statements speak only as ofreport, elsewhere in this report and in our other filings with the date of this Annual Report on Form 10-K.Securities and Exchange Commission (“SEC”). Readers are cautioned not to place undue reliance on any forward-looking statements, which speak only as of these forward-looking statements.

PART I

ITEM 1.  BUSINESS

Business Overview

Lakes Entertainment, Inc., a Minnesota corporation (“Lakes”, “we”, “our” or “us”), develops, finances, manages and owns casino properties. We own and operate the Rocky Gap Casino Resort in Allegany County, Maryland (“Rocky Gap”) which includes a gaming facility, hotel, an event and conference center, spa, four restaurants and the only Jack Nicklaus signature golf course in Maryland.We began managing the Red Hawk Casino in California for the Shingle Springs Band of Miwok Indians (the “Shingle Springs Tribe”) when it opened to the public on December 17, 2008 and terminated the management agreement on August 29, 2013. See note 20,Segment Information, to our consolidated financial statements included in Item 8filing date of this Annual Report on Form 10-Kreport. We undertake no obligation to revise or update any forward-looking statements for information on our segments.any reason. 

Corporate Information

History

Lakes was formedWe were incorporated in Minnesota in 1998 under the name of GCI Lakes, Inc., which name was subsequently changed to Lakes Gaming, Inc. in August 1998, and to Lakes Entertainment, Inc. in 2002. LakesJune 2002 and to Golden Entertainment, Inc. in July 2015. Our shares began trading publicly in January 1999. The mailing address of our headquarters is the successor to the Indian6595 S Jones Boulevard, Las Vegas, Nevada 89118, and our telephone number at that location is (702) 893-7777.

Business Overview

We are a diversified group of gaming business of Grand Casinos, Inc. (“Grand Casinos”)companies that focus on distributed gaming (including tavern gaming) and became a public company through a spin-off transaction in which shares of Lakes’ common stock were distributed to the shareholders of Grand Casinos. Lakes managed various casinos under contracts held by Grand Casinos through 2002. Lakes had a management contract for the Cimarron Casino in Oklahoma from 2006 through May 2010, for the Four Winds Casino Resort in Michigan from August 2007 through June 2011casino and for the Red Hawk Casino in California from December 2008 through August 2013. Lakes purchased and began operating Rocky Gap on August 3, 2012.resort operations.

Pending Merger withOn July 31, 2015, we acquired Sartini Gaming Inc.

On January 25, 2015, Lakes enteredthrough the merger of a wholly owned subsidiary of Golden with and into an agreement and plan of merger (the "Merger Agreement") with Sartini Gaming, Inc. (“Golden Gaming”), which owns and operates Golden Gaming, LLC. Golden Gaming is a leading owner and operator of distributed gaming, taverns and casinos, all of which are focused on the Nevada local gaming market. At closing, Golden Gaming will combine with a wholly-owned subsidiary of Lakes, with GoldenSartini Gaming surviving as a wholly-ownedwholly owned subsidiary of LakesGolden (the “Merger”). Lakes will remain publicly tradedThe results of operations of Sartini Gaming and be renamed Golden Entertainment, Inc. upon closing. The legacy Golden Gaming shareholder will be issued shares of Lakesits subsidiaries have been included in our results subsequent to that date. Our common stock undercontinues to be traded on the Merger Agreement. Lakes’ shareholders atNASDAQ Global Market, and our ticker symbol was changed from “LACO” to “GDEN” effective August 4, 2015.

During the timethird quarter of 2015, we redefined our reportable segments to reflect the change in our business following the Merger. As a result of the Merger, closing will retainwe now conduct our business through two reportable operating segments: Distributed Gaming and Casinos. Prior to the existing Lakes common stock.Merger, we conducted our business through the following two segments: Rocky Gap and Other. Prior period information has been recast to reflect the new segment structure and present comparative year-over-year results. See Note 17, Segment Information, in the accompanying consolidated financial statements for financial information regarding our segments.

Distributed Gaming

UnderOur Distributed Gaming segment involves the termsinstallation, maintenance and operation of gaming and amusement devices in certain strategic, high-traffic, non-casino locations (such as grocery stores, convenience stores, restaurants, bars, taverns, saloons and liquor stores) in Nevada and Montana, and the operation of traditional, branded taverns targeting local patrons, primarily in the greater Las Vegas, Nevada metropolitan area. As of December 31, 2016, our distributed gaming operations comprised approximately 10,400 gaming devices in approximately 960 locations. In January 2016, we completed the acquisition of approximately 1,100 gaming devices from a distributed gaming operator in Montana, as well as certain other non-gaming assets and the right to operate within certain locations (the “Initial Montana Acquisition”). Additionally, in April 2016, we completed the acquisition of approximately 1,800 gaming devices from a second distributed gaming operator in Montana, as well as amusement devices and other non-gaming assets and the right to operate within certain locations (the “Second Montana Acquisition” and, together with the Initial Montana Acquisition, the “Montana Acquisitions”); see Note 3, Merger and Acquisitions, in the accompanying consolidated financial statements for information regarding the Montana Acquisitions.

Nevada law limits distributed gaming operations (more commonly known as “restricted gaming” operations) to certain types of non-casino locations, including grocery stores, drug stores, convenience stores, restaurants, bars, taverns, saloons and liquor stores, where gaming is incidental to the primary business being conducted at the location and games are limited to 15 or fewer gaming devices and no other forms of gaming activity. The gaming area in these business locations is typically small, and in many instances, segregated from the primary business area, including the use of alcoves in grocery stores and drug stores and installation of gaming devices into the physical bar (more commonly known as “bar top” gaming devices) in bars, taverns and saloons. Such segregation provides greater oversight and supervision of the Merger Agreement, Lakes is valuedgaming devices. Under Montana law, distributed gaming operations are limited to business locations licensed to sell alcoholic beverages for on-premises consumption only, with such locations restricted to offering a maximum of 20 gaming devices.

Gaming and amusement devices are placed in locations where we believe they will receive maximum customer traffic, generally near a store’s entrance. In Nevada, we generally enter into three types of gaming device placement contracts as part of our distributed gaming business: space lease, revenue share and participation agreements. Under space lease agreements, we pay a fixed monthly rental fee for the right to install, maintain and operate our gaming devices at $9.57 pera business location. Under revenue share subject to working capital and various other adjustments underagreements, we pay the Merger Agreement. The value of Golden Gaming under the Merger Agreement will be determined by multiplying 7.5 times Golden Gaming’s trailing twelve-month consolidated earnings before interest, taxes, depreciation and amortization, less debt and subject to working capital and various other adjustments. The termsbusiness location a percentage of the transactiongaming revenue generated from our gaming devices placed at the location, rather than a fixed monthly rental fee. With regard to both space lease and Merger Agreementrevenue share agreements, we hold the applicable gaming license to conduct gaming at the location (although revenue share locations are explainedrequired to obtain separate regulatory approval to receive a percentage of the gaming revenue). Under participation agreements, the business location holds the applicable gaming license and retains a percentage of the gaming revenue that it generates from our gaming devices. In Montana, our gaming and amusement device placement contracts are all revenue share agreements. We also opened our first brewery in greater detailLas Vegas, PT’s Brewing Company, during the first quarter of 2016 to produce craft beer for our taverns, as well as other establishments licensed to sell liquor for on-premises consumption.

Our branded taverns offer a casually upscale environment catering to local patrons offering superior food, beer and other alcoholic beverages and typically include 15 onsite gaming devices. As of December 31, 2016, we operated 53 taverns, which offered approximately 850 onsite gaming devices. Most of our taverns are located in the Current Report on Form 8-K filed by Lakes withgreater Las Vegas, Nevada, metropolitan area and cater to locals seeking to avoid the SEC, which is available on the SEC's website at www.sec.gov under "Lakes Entertainment".

Completioncongestion of the Merger is subjectLas Vegas Strip. Our tavern brands include PT’s Pub, PT’s Gold, PT’s Place, PT’s Brewing Company, Sierra Gold, SG Bar and Sean Patrick’s. Our taverns also serve as an incubator for new games and technology that can then be rolled out to various customary closing conditions, including, but not limitedour third party distributed gaming customers within the segment and to (i) approval by Lakes’ shareholders of the issuance of shares of Lakes common stock under the Merger Agreement, (ii) the expiration or termination of any applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (if applicable), (iii) certain gaming approvals having been obtained from the relevant gaming authorities, (iv) the absence of any order or injunction prohibiting the consummation of the Merger, (v) no material adverse effect or other specified adverse events occurring with respect to Lakes or Golden Gaming, (vi) the refinancing of certain indebtedness of Golden Gaming, (vii) subject to certain exceptions, the accuracy of the representationsour Casinos segment.

Casinos

We own and warranties of the parties, and (viii) performance and compliance in all material respects with agreements and covenants contained in the Merger Agreement.

The Merger Agreement also contains certain termination rights for each of Lakes and Golden Gaming, including if the Merger is not consummated by November 3, 2015 (subject to automatic extension to February 1, 2016 if all conditions to closing other than specified gaming approvals have been satisfied or waived). The Merger Agreement further provides that, upon termination of the Merger Agreement, under specified circumstances, Lakes is required to pay Golden Gaming a cash termination fee of $5.0 million or reimburse Golden Gaming’s transaction expenses up to $0.5 million. In addition, the Merger Agreement provides that, upon termination of the Merger Agreement, under specified circumstances, Golden Gaming will be required to reimburse Lakes’ transaction expenses up to $0.5 million.

Contemporaneous with entering into the Merger Agreement, Lakes has also amended and restated its Rights Agreement dated as of December 12, 2013, to help preserve its ability to utilize approximately $89.0 million of federal net operating tax loss carryforwards by, among other things, lowering the voting securities ownership threshold of an acquiring person from 15% to 4.99%, and making such other changes which Lakes deemed necessary to effectuate the purposes of the Rights Agreement in light of the transactions contemplated by the Merger Agreement.

Rocky Gap Casino Resort

Lakes owns and operatesoperate the Rocky Gap Casino Resort in Allegany County,Flintstone, Maryland (“Rocky Gap”) and three casinos in Pahrump, Nevada: Pahrump Nugget Hotel Casino (“Pahrump Nugget”), Gold Town Casino and Lakeside Casino & RV Park. Pahrump is located approximately 60 miles from Las Vegas and is a gateway to Death Valley National Park. All of our casinos emphasize gaming device play.

Rocky Gap is situated on approximately 270 acres in the Rocky Gap State Park, which Lakes acquired on August 3, 2012 for $6.8 million. The resort includedare leased from the Maryland Department of Natural Resources (the “Maryland DNR”) under a hotel, convention center,40-year operating ground lease expiring in 2052 (plus a 20-year option renewal). As of December 31, 2016, Rocky Gap offered 662 gaming devices, 17 table games, two casino bars, three restaurants, a spa two restaurants and the only Jack Nicklaus signature golf course in Maryland. In connectionRocky Gap is a AAA Four Diamond Award® winning resort with approximately 200 hotel rooms, as well as an event and conference center.

Our Pahrump Nugget casino is located on approximately 40 acres and, as of December 31, 2016, offered 453 gaming devices, as well as 11 table games (which include three live poker tables), a race and sports book, a 208-seat bingo facility and a bowling center. Pahrump Nugget is our largest property in the closingNevada market with approximately 70 hotel rooms.

Our Gold Town Casino is located on four leased parcels of land, comprising approximately nine acres in the aggregate also in Pahrump, Nevada, and, as of December 31, 2016, offered 238 gaming devices and a 125-seat bingo facility. The leases for the parcels of land have various expiration dates beginning in 2026 (for the parcel on which our main casino building is located, which we lease from a competitor).

Our Lakeside Casino & RV Park is located on approximately 35 acres also in Pahrump, Nevada, and, as of December 31, 2016, offered 190 gaming devices and a recreational vehicle park surrounding a lake with approximately 160 RV hook-up sites.

Sales and Marketing

Distributed Gaming

We conduct our operations in our Distributed Gaming segment in Nevada and Montana. Our Distributed Gaming customer base is comprised of the acquisitionthird party distributed gaming customers with whom we enter into gaming and

amusement device placement contracts for the installation, maintenance and operation of gaming and amusement devices at non-casino locations, the primarily local patrons that use our gaming and amusement devices in such locations and the primarily local patrons of our traditional, branded taverns. We seek to place our gaming and amusement devices in strategic, high-traffic areas, including in our branded taverns, and the majority of our marketing efforts are focused on maximizing profitability from a high-frequency, convenience-driven customer base in the counties in which we operate.

Our marketing efforts also seek to capitalize on repeat visitation through the use of loyalty programs, such as our Golden Rewards promotional program for our taverns. Members of our Golden Rewards programs earn points based on play, which points are redeemable for complimentary slot play, food and beverages and other items. Our rewards technology is designed to track customer behavior indicators such as visitation, customer spend and customer engagement. Brand equity is also leveraged in our taverns through the number of our branded tavern locations located throughout the greater Las Vegas, Nevada metropolitan area. Our advertising initiatives include both traditional and non-traditional channels such as direct mail, email, radio, print, television, social media, search engine optimization and static/dynamic billboards.

Casinos

Rocky Gap is located in western Maryland in close proximity to the affluent and heavily populated metropolitan areas of Pittsburgh, Pennsylvania, Baltimore, Maryland and Washington, D.C., as well as two major interstate freeways. Rocky Gap serves as a premier destination for both local and out-of-market patrons. Our marketing efforts for Rocky Gap are primarily focused on attracting patrons through local and regional campaigns promoting both the amenities of Rocky Gap Lakes entered into a 40 year operating ground lease (the “Lease Agreement”) withand the Maryland Departmentvast array of Natural Resources (the “Maryland DNR”) for approximately 268 acresoutdoor activities available in the Rocky Gap State Park on whichPark. A portion of Rocky Gap business is situated. The Lease Agreement contains an optionalso arranged through group sales and bus coach wholesalers.

Our Nevada casinos are located in Pahrump, Nevada, which serves as a gateway to renewDeath Valley National Park. Accordingly, we market our Nevada casino properties to both the locals market and tourist traffic, targeting the value-driven customer. We seek to attract local residents to our Nevada casinos through promotions geared towards enhancing local play, including dining offerings at our casino restaurants and promotions of our bowling and bingo amenities. Promotional programs for 20 years afterout-of-market patrons focus primarily on our newly remodeled hotel rooms at Pahrump Nugget and our award-winning recreational vehicle park surrounding a lake at the initial 40-year term.Lakeside Casino & RV Park.

After acquiringOur casino sales and marketing efforts also include rewards programs designed to encourage repeat business. We offer our Rewards Club promotional program at Rocky Gap Lakes convertedand our Gold Mine Rewards promotional program at our Nevada casinos. The close proximity of our three Nevada casino properties allows us to leverage the then-existing convention center into a gaming facility whichopened to the public on May 22, 2013 and features 577 video lottery terminals (“VLTs”), 15 table games, two poker tables, a casino bar and a lobby food and beverage outlet. The AAA Four Diamond Award® winningresort also includes an event and conference center that opened during the fourth quarter of 2013, which is able to accommodate large groups and features flexible use meeting rooms.The total cost of the Rocky Gap project was approximately $35.0 million, which included the initial acquisition cost. Lakes has a financing facility that was used to finance $13.4 million of the project costs.The amount outstanding on this financing facility as of December 28, 2014 was $11.7 million.

Investment in Rock Ohio Ventures, LLC

As of December 28, 2014, Lakes had a 10% ownership investment in Rock Ohio Ventures, LLC (“Rock Ohio Ventures”), a privately-held company, that owned 80% of each of the Horseshoe Casino Cleveland in Cleveland, Ohio which opened to the public in May 2012; the Horseshoe Casino Cincinnati in Cincinnati, Ohio which opened in March 2013; the Thistledown Racino in North Randall, Ohio which added VLTs to its existing racetrack in April 2013; and Turfway Park, a thoroughbred horseracing track located in Florence, Kentucky. As of December 28, 2014, Lakes had invested a total of $21.0 million in Rock Ohio Ventures. During fiscal 2014, this cost method investment was determined to have experienced an other-than-temporary impairment and was reduced to its estimated fair value of zero. Effective January 25, 2015, Lakes sold its investment in Rock Ohio Ventures to DG Ohio Ventures, LLC for approximately $0.8 million.

Investment in Dania Entertainment Holdings, LLC

Lakes had an investment in Dania Entertainment Holdings, LLC (“DEH”) that maintained an ownership interest in Dania Entertainment Center, LLC (“DEC”), which owns and operates the Dania Casino and Jai Alai in Dania Beach, Florida. As partconvenience of a previous plan to purchase the property, during 2011 Lakes loaned $4.0 million to DECone-card player rewards system, where reward points and other benefits can be earned and redeemed across all three of our Nevada casinos via a single card. Members of our rewards programs earn points based on gaming activity and amounts spent on rooms, food, beverage and resort activities, which was written down to zero during the third quarter of 2011 when the acquisition did not close. On April 21, 2014, Lakes entered into a redemption agreement with DEH that resulted in DEH redeeming Lakes’ 20% ownership in DEH in exchange for DEH granting to Lakes 5% ownership in DEC. Concurrently, Lakes entered into an agreement with ONDISS Corp. (“ONDISS”) to sell its ownership in DEC to ONDISS. Lakes received $2.4 million from ONDISS during fiscal 2014 in exchange for its entire ownership interest in DEC.

Indian Casino Business

Development and Management of the Red Hawk Casino

Lakes developed and had a seven-year contract to manage the Red Hawk Casino that was builtpoints may be redeemable (depending on the Rancheriaprogram) for complimentary slot play, food, beverages and hotel rooms, among other items.

Intellectual Property

Our policy is to pursue registration of our important trademarks and service marks in the Shingle Springsstates where we do business and with the United States Patent and Trademark Office. We have registered and/or have pending, among other trademarks and service marks, “Golden Entertainment,” “Golden Gaming,” “Golden Rewards,” “P.T.’s,” “Sierra Gold,” “PT’s Brewing Company” and “Pahrump Nugget Hotel Casino,” as trademarks with the United States Patent and Trademark Office. In addition, we have also registered or applied to register numerous other trademarks in various jurisdictions in the United States in connection with our properties, facilities and development projects. We also hold a patent in the United States related to player tracking systems.

Sale of Jamul Tribe in El Dorado County, California, adjacent to U.S. Highway 50, approximately 30 miles east of Sacramento, California. Lakes began managing the Red Hawk Casino when it opened to the public on December 17, 2008.

Promissory Note

On July 17, 2013, Lakes entered into a debt termination agreement with the Shingle Springs Tribe relating to amounts Lakes had previously advanced to the Shingle Springs TribeDecember 9, 2015, we sold our $60.0 million subordinated promissory note (the “Shingle Springs Notes”“Jamul Note”) for the development of the Red Hawk Casino (the “Debt Termination Agreement”). The Debt Termination Agreement required certain conditions to be met, including a lump sum payment by theShingle Springs Tribe to Lakes of $57.1 million (the “Debt Payment”). The Debt Payment was made on August 29, 2013 (the “Payment Date”) and constituted full and final payment of all debt owed to Lakes as of that date. As a result of the receipt of the Debt Payment, during the third quarter of 2013, Lakes recognized approximately $17.4 million in recovery of impairment on notes receivable because the Shingle Springs Notes had previously been impaired and were valued at $39.7 million. The face value of the Shingle Springs Notes including accrued interest was $69.7 million as of the Payment Date. The management agreement under which Lakes was managing the Red Hawk Casino also terminated on the Payment Date.

Development and Financing of the Jamul Casino

Lakes entered into an agreement withfrom the Jamul Indian Village (the “Jamul Tribe”) during 1999 to develop and manage a casino on behalfsubsidiary of the Jamul Tribe on the Jamul Tribe’s existing reservation approximately 20 miles east of San Diego, California (the “Jamul Casino Project”Penn National Gaming, Inc. (“Penn National”). Lakes terminated the agreement with the Jamul Tribe for $24.0 million in March 2012. As of the date of termination, Lakes had advanced approximately $57.5 million including accrued interest to the Jamul Tribe related to casino development efforts. Lakes made total advances of $1.8 million to the Jamul Tribe during fiscal 2012, $0.5 million of which had been made as of the date of the termination of the agreement. Pursuant to the agreement with the Jamul Tribe, Lakes advanced an additional $1.3 million subsequent to the date of termination. All of the fiscal 2012 advances are included as impairment charges in Lakes’ consolidated statement of operations for the fiscal year ended December 30, 2012. Lakes hascash. We determined the fair value of its notes receivable from the Jamul TribeNote to be zero as of December 28, 2014 and December 29, 2013.

During the third quarter of 2012, Lakes entered into a Subordination and Intercreditor Agreement (“Intercreditor Agreement”) with Penn National Gaming, Inc. (“Penn National”) and the Jamul Tribe. Pursuant to theIntercreditor Agreement, Lakes modified2014. Under the terms of its outstanding debtthe January 2015 merger agreement with Sartini Gaming (the “Merger Agreement”) and subject to applicable law, we agreed that the proceeds received from the sale of the Jamul TribeNote, net of related costs, would be distributed in a special cash dividend to reflect that the total debt outstanding, including accrued interest, is $60.0 million, and that interest on such debt will accrue at 4.25% after the opening of a casino to be developed by Penn National on the Jamul Tribe’s trust land. Additionally, Lakes’ debt and collateral interest in all revenues from any future casino owned by the Jamul Tribe and in such casino’s furnishings and equipment will be subordinate to the senior financing until such financing is paid in full. Current interest on the subordinated debt will be paid to Lakes on a quarterly basis when the Penn National casino opens, so longour shareholders holding shares as there is no default under the senior financing agreement. When the senior financing is paid in full, Lakes will receive repayment of outstanding principal and interest.

Also during the third quarter of 2012, Lakes entered into a ten-year option agreement with Penn National that granted Penn National the right to purchase approximately 98 acres of land which Lakes owns adjacent to the Jamul Tribe’s trust land (“Original Option Agreement”).

On April 24, 2014, Lakes entered into Amendment No. 1 to the Intercreditor Agreement (“Amended Intercreditor Agreement”) with Penn National and the Jamul Tribe. The Amended Intercreditor Agreement gives Penn National the right to refinance the senior debt, provided that the outstanding senior debt does not exceed $400 million and the maturity date is not extended beyond seven years after the opening of the gaming facility. If the senior debt is not repaid withinrecord date for such seven year period, Lakes will have thedividend (other than shareholders that had waived their right to receive upsuch dividend). On June 17, 2016, our Board of Directors approved and declared the special dividend to $1.5 million in principal payments per quarter basedthe eligible shareholders of record on a formulathe close of business on June 30, 2016 (the “Record Date”) of cash availability.in the aggregate amount of approximately $23.5 million (the “Special Dividend”), which was paid on July 14, 2016. The $1.71 per share amount of the Special Dividend was calculated by dividing the aggregate amount of the Special Dividend by 13,759,374 outstanding shares of common stock held by eligible shareholders on the Record Date (rounded down to the nearest whole cent per share).

Lakes also entered into an AmendedIn connection with the special dividend and Restated Option Agreement (“Amended Option Agreement”)in accordance with Penn National on May 15, 2014. The Original Option Agreement provided thatour equity incentive plans approved by our shareholders, equitable anti-dilutive adjustments were made to the purchase price for the land would be $7.0 million, increasing 1% each year, but that Penn National had no obligationexercise prices of outstanding stock options to purchase shares of our common stock in order to preserve the land. The Amended Option Agreement reducedvalue of such stock options following the purchasespecial dividend. Accordingly, effective as of the close of business on the dividend payment date of July 14, 2016, the exercise price of each stock option under our equity incentive plans outstanding on the landRecord Date was reduced by $1.71 per share. See Note 10, Share-Based Compensation, in the accompanying consolidated financial statements for information on our anti-dilutive adjustments to $5.5 million, but requires Penn National to purchase the land within ten days after the Jamul Tribe opens a casino on its reservation. Annual option payments of less than $0.1 million are required to be made by Penn National to Lakes.outstanding stock options.

Competition

Overall

The gaming industry is highly competitive and continues to proliferate throughout the country as more jurisdictions are choosing to allow gaming or the expansion thereof. 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 and dog racing, sports bookmaking, card rooms and online gaming. The casinos managed or invested in by Lakes compete with all of these forms ofdistributed gaming and willcasino resort industries are highly competitive. We face direct competition for our space lease, revenue share and participation locations from others involved in the distributed gaming business, as well as substantial competition for customers from other operators of casinos, hotels, taverns and other entertainment venues. With respect to our casinos, we compete for local gaming customers with any new forms of gaming that may be legalized in additional jurisdictions,other locals-oriented casino-hotels, as well as with other typescasinos and restricted gaming locations in the vicinity of entertainment. Lakes also competes with otherour properties. We compete for customers primarily on the basis of location, customer service, range and pricing of amenities (including food and entertainment), gaming companies for opportunities to acquire legal gaming sites in emerging gaming jurisdictionsdevice payout rates, convenience and for the opportunity to manage casinos on Indian land. Someoverall atmosphere. Many of Lakes’our regional and national competitors have greater financialbrand recognition and significantly greater resources than we have. Their greater resources may also provide them with the ability to expand operations in the future.

In addition, we also face ever-increasing competition from online gaming, including mobile gaming applications for smart phones and tablet computers, state-sponsored lotteries, card clubs, and other resources than Lakes. Furtherforms of legalized gaming. In addition, various forms of internet gaming have been approved in Nevada, and legislation permitting internet gaming has been proposed by the federal government and other states. The expansion of internet gaming in Nevada and other jurisdictions could also significantly affect Lakes’ business.

Rocky Gap Casino Resort

VLT operationsresult in Maryland are regulated by the Maryland Lottery and Gaming Control Agency. State legislation restricts the number of licenses the State of Maryland can issue to six. The Allegany County license was awarded to Rocky Gap. Licenses have been previously granted for Anne Arundel, Baltimore, Cecil and Worcester counties and the locationssignificant additional competition. Furthermore, several states are currently in operation. A license was awarded for Prince George’s county and the project is currently in the development stage. Any additional forms or expansion of commercialconsidering legalizing casino gaming in Maryland is prohibited, unless approved by a voter referendum. Rocky Gap also competes for customers withdesignated areas, and Native American tribes may develop or expand gaming properties in adjacentmarkets located more closely to our customer base. Legalized casino gaming in neighboring states including Pennsylvania and West Virginia.   on Native American land could result in strong competition that could adversely affect our business, financial condition, results of operations and prospects, particularly to the extent that such gaming is conducted in areas close to our gaming operations.

Regulation 

Gaming Regulation

GamingRegulation

The ownership, managementAs the owner and operationoperator of gaming facilities, we are subject to extensive federal, state, provincial, tribal and/orand local laws, regulationsregulation. State and ordinances,local government authorities in the jurisdictions in which are administered by the relevant regulatory agency or agencies in each jurisdiction (“Regulatory Authorities”). These laws, regulationswe operate require us to obtain gaming licenses and ordinances vary from jurisdictionrequire our officers, key employees and business entity affiliates to jurisdiction, but generally pertaindemonstrate suitability to the responsibility, financial stability and character of the owners and managers of gaming operations as well as persons financially interested orbe involved in gaming operations. Certain basic provisions thatThese 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 it obtains proper licenses, permits and approvals. Generally, 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 finds a person with such material relationship to Lakes to be unsuitable, Lakes may be sanctioned, and may lose its licenses and approvals. 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 require security holders to provide the background information requested by Regulatory Authorities and authorize Lakes to redeem securities held by persons whose status as a security holder, in the opinion of the Lakes’ Board of Directors, jeopardizes gamingprivileged licenses or approvals of Lakes or its subsidiaries. Once obtained, licenses, permits and approvals must be periodically renewed and generallywhich are not transferable. The Regulatory Authoritiesguaranteed by statute or regulation. State and local government authorities may at any timelimit, condition, suspend or revoke suspend, condition, limit or restrict a license, for a violation of its gaming ordinances.

Fines for violations may be levied against the holder of a licenseimpose substantial fines, 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 ortake other actions, 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 interpretationswhich could have a material adverse effect on Lakes.our business, financial condition, results of operations and prospects. We cannot assure you that we will be able to obtain and maintain the gaming licenses and

related approvals necessary to conduct our gaming operations. Any failure to maintain or renew our existing licenses, registrations, permits or approvals could have a material adverse effect on our business, financial condition, results of operations and prospects. Furthermore, if additional gaming laws or regulations are adopted, these regulations could impose additional restrictions or costs that could have a significant adverse effect on us and our business.

Gaming authorities may, in their sole and absolute discretion, require the holder of any securities issued by us to file applications, be investigated, and be found suitable to own our securities if they have reason to believe that the security ownership would be inconsistent with the declared policies of their respective states. Further, the costs of any investigation conducted by any gaming authority under these circumstances is typically required to be paid by the applicant, and refusal or failure to pay these charges may constitute grounds for a finding that the applicant is unsuitable to own the securities. If any gaming authority determines that a person is unsuitable to own our securities, then, under the applicable gaming laws and regulations, we can be sanctioned, including the loss of our privileged licenses or approvals, if, without the prior approval of the applicable gaming authority, we conduct certain business with the unsuitable person. 

Non-GamingRegulationOur officers, directors, and key employees are also subject to a variety of regulatory requirements and various privileged licensing and related approval procedures in the various jurisdictions in which we operate gaming facilities. If any gaming authority with jurisdiction over our business were to find an officer, director or key employee of ours unsuitable for licensing or unsuitable to continue having a relationship with us, we would have to sever all relationships with that person. Furthermore, such gaming authorities may require us to terminate the employment of any person who refuses to file appropriate applications. Either result could have a material adverse effect on our business, operations and prospects.

LakesApplicable gaming laws and regulations also restrict our ability to issue securities, incur debt, and undertake other financing activities. Such transactions would generally require approval of gaming authorities, and our financing counterparties, including lenders, might be subject to various licensing and related approval procedures in the various jurisdictions in which we operate gaming facilities. If state regulatory authorities were to find any person unsuitable with regard to his, her or its relationship to us or any of our subsidiaries, we would be required to sever our relationship with that person, which could materially adversely affect our business.

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

From time to time, local and state lawmakers, as well as special interest groups, have proposed legislation that would expand, restrict or prevent gaming operations in the jurisdictions in which we operate. Any such change to the regulatory environment or the adoption of new federal, state or local government legislation could have a material adverse effect on our business, financial condition, results of operations and prospects.

Alcoholic Beverage and Food Service Regulation

Our brewery operations at PT’s Brewing Company in Las Vegas, Nevada require federal, state, and local licenses, permits and approvals. Our restaurant and on-site brewery at PT’s Brewing Company operate pursuant to exceptions to the “tied house” laws, which in Nevada generally prohibit a manufacturer or supplier of brewery products from engaging in the business of wholesaling and prevent a wholesaler from engaging, directly or indirectly, in retail sales.

The manufacture and sale of alcoholic beverages is a highly regulated and taxed business. Our brewery operations are subject to more restrictive regulations and increased taxation by federal, state and local governmental entities than are those of non-alcohol related beverage businesses. Federal, state and local laws and regulations govern the production and distribution of beer, including permitting, licensing, trade practices, labeling, advertising, marketing, distributor relationships and related matters. Federal, state and local governmental entities also levy various taxes, license fees, and other similar charges and may require bonds to ensure compliance with applicable laws and

regulations. Failure to comply with applicable federal, state or local laws and regulations could result in higher taxes, penalties, fees, and suspension or revocation of permits, licenses or approvals and could have a material adverse effect on our business, financial condition, results of operations and prospects.

From time to time, local and state lawmakers, as well as special interest groups, have proposed legislation that would increase the federal and/or state excise tax on alcoholic beverages or certain types of alcoholic beverages. If adopted, such measures could affect some or all of our proprietary craft beer production. If federal or state excise taxes are increased, we may have to raise prices to maintain our current profit margins. Higher taxes may reduce overall demand for beer, thus negatively impacting sales of our beer. Further federal or state regulation may be forthcoming that could further restrict the distribution and sale of alcohol products. Any material increase in taxes or fees, or the adoption of additional taxes or fees or regulations, could have a material adverse effect on our business, financial condition, results of operations and prospects.

In addition, each restaurant we operate must obtain a food service license from local authorities. Failure to comply with such regulations could cause our licenses to be revoked or our related restaurant business or businesses to be forced to cease operations. Moreover, state liquor laws may prevent the expansion of restaurant operations into certain markets.

Other Regulation

We are also subject to extensive federal, state and local safety and health laws, regulations and ordinances that apply to non-gaming businesses generally, such as the Clean Air Act, Clean Water Act, Occupational Safety and Health Act, Resource Conservation Recovery Act and the Comprehensive Environmental Response, Compensation and Liability Act. We believe that we are 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 our operations.

We are also subject to a variety of other rules and regulations, including minimum wage, zoning, environmental, construction and land-use laws, regulations and permits. Any changes to these laws could have a material adverse effect on our business, financial condition, results of operations and prospects.

Real Estate HoldingsSeasonality

Lakes owns parcels of undeveloped landWe believe that our Distributed Gaming and Casinos segments are affected by seasonal factors, including holidays, weather and travel conditions. Rocky Gap typically experiences higher revenues during summer months and may be significantly adversely impacted by inclement weather during winter months. Our casinos and distributed gaming business in California related to its previous involvement in a potential Indian casino project with the Jamul Tribe. This land is currently under option by Penn National. Lakes also owned undeveloped land in Oklahoma related to its previous involvement in a potential casino project with the Iowa Tribe of Oklahoma, which Lakes soldNevada have historically experienced lower revenues during the third quartersummer as a result of 2014. In August 2012, Lakes acquired Rocky Gap in Allegany County, Maryland,fewer tourists due to higher temperatures, as well as increased vacation activity by local residents. Our Nevada distributed gaming operations typically experience higher revenues during the fall which is situated on approximately 268 acrescorresponds with several professional sports seasons. Our Montana distributed gaming operations typically experience higher revenues during the fall due to the inclement weather in the Rocky Gap State Park which is subjectstate and less opportunity for outdoor activities, in addition to the Lease Agreement withimpact from professional sports seasons. While other factors like unemployment levels, market competition and the Maryland DNR.diversification of our business may either offset or magnify seasonal effects, some seasonality is likely to continue, which could result in significant fluctuation in our quarterly operating results.

Employees

Lakes owns an office building and related land in Minnesota for its corporate offices. In connection with entering into the Merger Agreement with Golden Gaming during fiscal 2015, Lakes plans to sell its corporate office facility and related land in Minnesota.

Employees

AtAs of December 28, 2014, Lakes31, 2016, we had 5042,802 total employees, of which 365approximately 10.3% were full-time employees. The majority of Lakes’ employees are employees of Rocky Gap, and approximately 60% of these employees are covered by a collective bargaining agreement. The collective bargaining agreement, thatwhich relates to employees at Rocky Gap, became effective on November 1, 2013. The collective bargaining agreement2013 and expires on November 1, 2019.Lakes believes its2019. We consider our employee relations with employees are satisfactory.to be good.

Executive Officers

Set forth below is information concerning our executive officers, and their ages as of December 31, 2016.

Lakes has assembled a strong team of gaming industry experts, well-versed in all aspects of casino development, construction and management. The Lakes team has individual specialists on staff mirroring each

Blake L. Sartini joined Golden as Chairman of the functional areas foundBoard, President and Chief Executive Officer in July 2015 in connection with the Merger. Prior to the Merger, Mr. Sartini served as the president and chief executive officer of Sartini Gaming from its formation in January 2012, and as the founder and chief executive officer of Golden Gaming, LLC (“Golden Gaming”), which he founded in 2001. Prior to establishing Golden Gaming, Mr. Sartini served in various management and executive positions with Station Casinos, LLC, including executive vice president and chief operating officer. Mr. Sartini also served as a casino project. The functional areas include gamingdirector of Station Casinos, LLC from 1993 until 2001. Mr. Sartini is a member of the University of Nevada, Las Vegas Foundation’s Board of Trustees and was appointed to the Nevada Gaming Policy Committee in March 2014 by the Governor of Nevada. Mr. Sartini received a bachelor of science degree in business administration from the University of Nevada, Las Vegas.

Stephen A. Arcana joined Golden as Executive Vice President and Chief Operating Officer in July 2015 in connection with the Merger. Prior to the Merger, Mr. Arcana served as the chief operating officer for Golden Gaming from August 2003 until the closing of the Merger. From November 1995 to March 2003, Mr. Arcana held several executive positions with Station Casinos, LLC. Prior to joining Station Casinos, LLC, Mr. Arcana held a variety of hotel operations construction and development, finance/accounting, legal/regulatory, systems/information technology, food and beverage marketingpositions over a ten-year period with the Sands Hotel in Atlantic City, New Jersey. Mr. Arcana received a bachelor of science degree in hotel and human resources.restaurant management from Widener University School of Hotel and Restaurant Management in Chester, Pennsylvania.

Charles H. Protell joined Golden as Executive Vice President, Chief Strategy Officer and Chief Financial Officer in November 2016. Prior to joining Golden, Mr. Protell served as Managing Director at Macquarie Capital’s investment banking group since May 2011, and as Co-Founder and a Managing Director at REGAL Capital Advisors from January 2009 until its acquisition by Macquarie Capital in May 2011.  Prior to co-founding REGAL Capital Advisors, Mr. Protell held various investment banking roles at Credit Suisse, Deutsche Bank and CIBC World Markets.  Mr. Protell received a bachelor of science degree in commerce from the University of Virginia.

Lakes’ management believes this team representsSean T. Higgins joined Golden as Senior Vice Presidentof Government Affairs and Business Development in March 2016 and was promoted to Executive Vice President of Governmental Affairs and Business Development and Chief Legal Officer in October 2016. Prior to joining Golden, Mr. Higgins served as principal of STH Strategies, a valuable assetfirm he founded in early 2015. From August 2011 to January 2015, Mr. Higgins was managing principal of Porter Gordon Silver Communications, a full-service government affairs and business strategic consulting firm. From July 2010 to January 2015, Mr. Higgins was a partner in the law firm of Gordon Silver. Prior to that, providesMr. Higgins spent 17 years as general counsel and head of government affairs for a competitive advantagemultijurisdictional gaming company. Mr. Higgins received his law degree from Santa Clara University School of Law and his undergraduate degree in pursuingbusiness administration from Southern Methodist University. He is licensed to practice law in the state of Nevada.

Blake L. Sartini II joined Golden as Senior Vice President of Distributed Gaming in July 2015 in connection with the Merger. In his current position, he oversees all distributed gaming operations in Nevada and Montana, as well as the Nevada tavern locations operating under the brand names PT’s, Sierra Gold, SG Bar and Sean Patrick’s. From January 2010 until the Merger, Mr. Sartini II served in various roles with Sartini Gaming, including as Vice President of Operations for Golden Route Operations, LLC (“GRO”), a subsidiary of Sartini Gaming, from September 2014 until the Merger, as Assistant Director for GRO from January 2012 to September 2014, and as a Marketing Manager from January 2010 to January 2012. Prior to joining Sartini Gaming, Mr. Sartini II served as Senior Business Associate with the Ultimate Fighting Championship for its international event operations and talent relations in the United Kingdom. Mr. Sartini II received a bachelor of science degree in business administration from Chapman University in Orange, California.

Gary A. Vecchiarelli joined Golden as Senior Vice President of Finance and Accounting in January 2017. From May 2012 to December 2016, Mr. Vecchiarelli served as Chief Financial Officer of Galaxy Gaming, Inc., a public company that develops, manufactures and distributes casino table games and otherwagering platforms. Prior to that, Mr. Vecchiarelli spent most of his career working in public accounting including Audit Manager for BDO USA, LLP and Audit Supervisor for McGladrey & Pullen, LLP. Mr. Vecchiarelli received a bachelor of science degree in business opportunities.administration in accounting from California State University at San Jose and is currently President of Financial Executives International, Las Vegas Chapter. Mr. Vecchiarelli is a member of the American Institute of Certified Public Accountants and maintains active CPA licenses in California and Nevada.

Website and Available Information

Our website is located at www.lakesentertainment.com. Informationwww.goldenent.com. Through a link on the Investors section of our website, does not constitute part of this Annual Report on Form 10-K.

Wewe make the following filings available free of charge and as soon as reasonably practicable after they are electronically filed or furnished with the SEC: our Annual Reports on Form 10-K, our Proxy Statement on Form DEF 14A, our Quarterly Reports on Form 10-Q, our Current Reports on Form 8-K and any amendments to such reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities and Exchange Act of 1934 as soon as reasonably practicable after such forms are filed with or furnished to the SEC.1934. Copies of these documents are also available to our shareholders at our website or upon written request to our PresidentChief Financial Officer at 6595 S Jones Boulevard, Las Vegas, Nevada 89118. Information on the website does not constitute part of this Annual Report on Form 10-K.

These filings are also available free of charge on the SEC’s website at www.sec.gov. In addition, any materials filed with the SEC may be read and copied at the SEC’s Public Reference Room at 100 F Street, NE, Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.

You should consider each of the following factors as well as the other information in this Annual Report on Form 10-K in evaluating our business and prospects. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently consider immaterial may also materially adversely impact our business operations. If any of the following risks actually occur, our business, financial condition, results of operations or prospects could be materially harmed and the trading price of our common stock could decline. You should also refer to the other information set forth in this Annual Report on Form 10-K, including our consolidated financial statements and the related notes.

Any failure to successfully integrate our businesses and businesses we acquire, including Sartini Gaming’s legacy business and the Montana Acquisitions, could materially adversely affect our business, and we may not realize the full benefits of the Merger or our other strategic acquisitions.

Our ability to realize the anticipated benefits of the Merger, the Montana Acquisitions or our other strategic acquisitions will depend, to a large extent, on our ability to successfully integrate our businesses and businesses we acquire, including Sartini Gaming’s legacy business and the distributed gaming businesses in Montana. Integrating and coordinating certain aspects of the operations and personnel of multiple businesses and managing the expansion in the scope of our operations and financial systems involves complex operational, technological and personnel-related challenges. The potential difficulties, and resulting costs and delays, relating to the integration of our business and Sartini Gaming’s legacy businesses, the Montana distributed gaming business or other strategic acquisitions include:

There is no assurance that we will successfully or cost-effectively integrate our businesses and businesses we acquire. The costs of achieving systems integration may substantially exceed our current estimates. As non-public companies, neither Sartini Gaming nor the distributed gaming businesses acquired in Montana had to comply with the requirements of the Sarbanes-Oxley Act of 2002 for internal control over financial reporting and other procedures. Bringing the legacy systems for these businesses into compliance with those requirements may cause us to incur substantial additional expense. Furthermore, as discussed in “Part II, Item 9A, “Controls and Procedures,” our Chief Executive Officer and Chief Financial Officer at 130 Cheshire Lane, Suite 101, Minnetonka, MN 55305.concluded that a material weakness existed in our internal control over financial reporting as of December 31, 2016. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the registrant’s annual or interim financial statements will not be prevented or detected on a timely basis. The material weakness identified was that account reconciliations were not consistently prepared on a timely basis and subjected to proper review and written approval by a person not involved in their preparation. There can be no assurance that we will be able to fully remediate this material weakness. If we fail to remediate this material weakness or otherwise maintain effective internal control over financial reporting in the future, the existence of one or more internal control deficiencies could result in errors in our financial statements, and substantial costs and resources may be required to rectify internal control deficiencies. If we cannot produce reliable financial reports, investors could lose confidence in our reported financial information, the market price of our stock could decline significantly, we may be unable to obtain additional financing to operate and expand our business, and our business and financial condition could be harmed.

ITEM 1A.  RISK FACTORS

In addition, to factors discussed elsewhere in this Annual Report onForm 10-K, the following are important factors that could cause actualresults or events to differ materially from those contained in any forward-lookingstatement made by or on behalf of us.

Risks Relating to our Business

Economic conditionsintegration process may cause declinesan interruption of, or loss of momentum in, casino gaming activity and other consumer spending which could adversely affect the financial performanceactivities of our combined business. If management is not able to effectively manage the integration process, or if any significant business activities are interrupted as a result of the casinointegration process, our business could suffer and our results of operations and financial condition may be harmed. 

Even if our businesses are successfully integrated, weown may not realize the full benefits of the Merger, the Montana Acquisitions or our other strategic acquisitions, including anticipated synergies, cost savings or growth opportunities, within the expected timeframes or at all. In addition, we have incurred, and result in lower revenuemay incur additional, significant integration and incomerestructuring expenses to us.

Our operating results and performance depend significantly on economic conditions andrealize synergies. However, many of the expenses that will be incurred are, by their impact on consumer spendingnature, difficult to estimate accurately. These expenses could, particularly in the casinonear term, exceed the savings that we own.  A decline in consumer spendingexpect to achieve from elimination of duplicative expenses and the realization of economies of scale and cost savings. Although we expect that the realization of efficiencies related to the integration of the businesses may cause the revenue generated from the casinooffset incremental transaction, Merger-related and restructuring costs over time, we own tocannot give any assurance that this net benefit will be adversely impacted.

Extreme competition existsachieved in the gaming industry.

The gaming industry is highly competitive and continues to proliferate throughout the country as more jurisdictions are choosing to allow gamingnear term, or its expansion, including online gaming. The casino owned by us competes with all formsat all. Any 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. We also compete 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 our competitors have greater financial and other resources than we do which limits our ability to pursue certain opportunities. Further expansion of gamingthese matters could also significantlymaterially adversely affect our business.

businesses or harm our financial condition, results of operations and prospects.

Because ourprimary source of revenue is generated from the operation of Rocky Gap, our failure to develop new profitableOur business opportunities,either through the Merger with Golden Gaming or otherwise,will impact our future growth, cash flow and profitability.

A significant source of our historical revenues was generated from our management and development of Indian casinos. We have no current existing agreements to manage Indian casinos. Currently, our only source of operating revenue is from the operation of Rocky Gap. If Rocky Gap isn’t profitable, or if we fail to develop new profitable business opportunities, either through the Merger with Golden Gaming or otherwise, our future growth, cash flow and profitability willmay be adversely impacted.

Our entry into new businesses may result in future losses.

We may diversify intoaffected by economic conditions, acts of terrorism, natural disasters, severe weather, contagious diseases and other businesses, including the businessesfactors affecting discretionary consumer spending, any of Golden Gaming if the Merger is completed. Such businesses could involve business risks separate from the risks we have historically faced and these investments may result in future losses to us. 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. Diversification activities may never successfully add to our future revenues and income and the costs of evaluating potential business opportunities may adversely impact our profitability during the periods they are incurred.

The commencement or completion offuture potentialcasino development projects, if any are attempted, may be significantly delayed or prevented due to a variety of factors, many of which are beyond our control, which could have a material adverse effect on our profitability, cash flow and financial condition.

business.

The opening of any future facility will be contingent upon, among other things, receipt of all regulatory licenses, permits, allocationsdemand for gaming, entertainment and authorizations,leisure activities is highly sensitive to downturns in the completion of constructioneconomy and the hiring and training of sufficient personnel. The scope ofcorresponding impact on discretionary consumer spending. Any actual or perceived deterioration or weakness in general, regional or local economic conditions, unemployment levels, the approvals required to construct and open a facility will be extensive, and the failure to obtain such approvals could preventjob or delay the completion of constructionhousing markets, consumer debt levels or opening of all or part of a facility or otherwise affect the design and features of a proposed casino.

Even once a schedule for such construction and development activities is established, such development activities may not begin or be completed on time, or atconsumer confidence, as well as any other time. The budget for a project may also be exceeded.

In addition, the regulatory approvals necessary for the construction and operation of casinos are often challengedincrease in litigation brought by government entities, citizens groups and other organizations and individuals. Such litigation can significantly delay the construction and opening of casinos.

Major construction projects entail significant risks, including shortages of materials or skilled labor; unforeseen engineering, environmental and geological problems; work stoppages; weather interference; unanticipated cost increases; and non-availability of construction equipment. These factorsgasoline prices, tax rates, interest rates, inflation rates or other delaysadverse economic or difficulties in obtainingmarket conditions, may lead to our customers having less discretionary income to spend on gaming, entertainment and discretionary travel, any of the requisite licenses, permits and authorizations from regulatory authorities could increase the total cost, delay, or prevent the construction or opening of any of the planned casino development, or otherwise affect its design.

Because our operating results are highly dependent on the timing of any projects under development, delays could cause our results to fluctuate significantly and may adversely affect our profitability, cash flow and financial condition.

Failure of existingorotherpotentialcasino projects to successfully competewhich may have a material adverse effect on our business, financial condition, results of operations cash flowand financial condition. prospects.

The gaming industry is highly competitive. Gaming activities include: traditional land-based casinosActs of terrorism, natural disasters, severe weather conditions and gaming machines; river boatactual or perceived outbreaks of public health threats and dockside gaming; casino gaming on Indian land; state-sponsored lotteries and video poker in restaurants, bars and hotels; pari-mutuel betting on horse racing and dog racing; sports bookmaking; online gaming; and card rooms. The casinos owned or gaming facilities invested in by us compete, and will in the future compete, with all these forms of gaming, and will compete with any new forms of gaming that may be legalized in additional jurisdictions, as well as with other types of entertainment.

We also currently compete with other gaming companies for opportunities to acquire legal gaming sites in emerging and established gaming jurisdictions and for the opportunity to develop and/or manage casinos on Indian land. Many of our competitors have more personnel and may have greater financial and other resources than us. Suchcompetition in the gaming industry could adversely affect our ability to attract customers which would adversely affect our operating results. In addition, further expansion of gaming into new jurisdictionspandemics could also adverselysignificantly affect our business by diverting customers from our casinos to competitors in such jurisdictions.

If we fail to comply with the laws, regulationsdemand for gaming, entertainment and ordinances (including tribaland/or local laws) applicable to gaming facilities, we may be unable to operate or develop casino projects.

The ownership, management leisure activities and operation of gaming facilities are subject to extensive federal, state, tribal and local laws, and 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 us to accurately predict the effects that an adoption of or changes in the gaming laws, regulations and ordinances will have on us. However, our failure, or the failure ofdiscretionary travel, any of our key personnel, significant shareholders, or joint venture partners, to obtain or retain required gaming regulatory licenses could prevent us from expanding into new markets, prohibit us from generating revenues in certain jurisdictions, and subject us to sanctions and fines.

Defaults, downgrades, widening credit spreads or other events impairing the value of the fixed maturity securitiesthat we invest incould adversely affect us.

At December 28, 2014, we had $46.6 million in short-term investments which are invested in commercial paper, certificates of deposit and corporate bonds. These short-term investments represented approximately 38% of our total assets.We are subject to the risk that the issuers, guarantors, and/or counterparties of the fixed maturity securities we own may default on principal and/or interest payments they owe us. Our investments in these securities represent an unsecured obligation of the issuer. In these cases, many factors can influence the overall creditworthiness of the issuer and ultimately its ability to service and repay our holdings. This can include changes in the global economy; the company's assets, strategy, or management; shifts in the dynamics of the industries in which they compete; their access to additional funding; and the overall health of the credit markets.

Our investments in certificates of deposit are federally-insured.All of our investments in commercial paper and corporate bonds carry a rating by one or more of the nationally recognized statistical rating organizations. Any change in such rating agencies' approach to evaluating credit and assigning an opinion could negatively impact the fair value of our investments. Any credit-related declines in the fair value of any of our investments we believe are not temporary in nature will negatively impact our net income through impairment losses.

In addition to our exposure to the underlying credit strength of various issuers of fixed maturity securities, we are also exposed to credit spreads, primarily related to market pricing and variability of future cash flows associated with credit spreads. A widening of credit spreads could reduce the value of our existing investments and create unrealized losses in our investment portfolio. This could, however, increase the net investment income on new credit investments. Conversely, a tightening of credit spreads could increase the value of our existing portfolio and create unrealized gains on our investment portfolio. This could reduce the net investment income available to us on new credit investments.

The amounts due to us from the Jamul Tribe will likely not be paid unless and until the Jamul Tribe opens a gaming facility on its reservation.

We terminated our agreement with the Jamul Tribe in March 2012. As of the date of termination, we had advanced approximately $57.5 million including accrued interest to the Jamul Tribe related to casino development efforts. As a result of the application of applicable accounting standards, upon termination of our agreement with the Jamul Tribe, we wrote down the value of the notes receivable from the Jamul Tribe to zero. Under the agreement relating to the Merger, it is contemplated than any proceeds received by us as a result of the monetization of these notes within three years of the opening of a casino by the Jamul Tribe would, subject to certain exceptions, be distributed to our shareholders, excluding the current shareholder of Golden Gaming, at such time, if ever, it is received. Although the Jamul Tribe remains obligated to repay all advances including accrued interest, it is not contemplated that the Jamul Tribe will have sufficient funds to make such payments unless it opens a gaming facility on its reservation. We continue to have a subordinated collateral interest in all revenues from any future casino owned by the Jamul Tribe and in such casino’s furnishings and equipment. Although Penn National is pursuing the development of a casino with the Jamul Tribe, we cannot be assured that we will ultimately be able to monetize the notes from the Jamul Tribe or that amounts owing thereunder will be repaid at all or ever.

We are dependent on the ongoing services of our senior corporate management, and the loss of their services could have a detrimental effect on the pursuit of our business objectives, profitability and the price of our common stock.

Our success depends largely on the efforts and abilities of our senior corporate management, particularly Lyle Berman, our 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 us.our business, financial condition, results of operations and prospects. Furthermore, our properties are subject to the risk that operations could be halted for a temporary or extended period of time, as a result of casualty, flooding, forces of nature, adverse weather conditions, mechanical failure, or extended or extraordinary maintenance, among other causes. If there is a prolonged disruption at any of our casino properties due to natural disasters, terrorist attacks or other catastrophic events, our business, financial condition, results of operations and prospects could be materially adversely affected. Additionally, if extreme weather adversely impacts general economic or other conditions in the areas in which our properties are located or from which we draw our patrons or prevents patrons from easily coming to our properties, our business, financial condition, results of operations and prospects could be materially adversely affected.

We face substantial competition in both of our business segments, and may lose market share.

The distributed gaming and casino resort industries are highly competitive. We face direct competition for our space lease, revenue share and participation locations from others involved in the distributed gaming business, as well as substantial competition for customers from other operators of casinos, hotels, taverns and other entertainment venues. With respect to our casinos, we compete for local gaming customers with other locals-oriented casino-hotels, as well as with other casinos and restricted gaming locations in the vicinity of our properties. We compete for customers primarily on the basis of location, customer service, range and pricing of amenities (including food and entertainment), gaming device payout rates, convenience and overall atmosphere. Many of our regional and national competitors have greater brand recognition and significantly greater resources than we have. Their greater resources may also provide them with the ability to expand operations in the future.

In addition, we also face ever-increasing competition from online gaming, including mobile gaming applications for smart phones and tablet computers, state-sponsored lotteries, card clubs, and other forms of legalized gaming. In addition, various forms of internet gaming have been approved in Nevada, and legislation permitting internet gaming has been proposed by the federal government and other states. The expansion of internet gaming in Nevada and other jurisdictions could result in significant additional competition. Furthermore, several states are currently considering legalizing casino gaming in designated areas, and Native American tribes may develop or expand gaming properties in markets located more closely to our customer base. Legalized casino gaming in neighboring states and on Native American land could result in strong competition that could materially

adversely affect our business, financial condition, results of operations and prospects, particularly to the extent that such gaming is conducted in areas close to our gaming operations. 

We are subject to extensive state and local regulation and licensing from gaming and other government authorities, and gaming authorities have significant control over our operations.

As the owner and operator of gaming facilities, we are subject to extensive federal, state, and local regulation. State and local government authorities in the jurisdictions in which we operate require us to obtain gaming licenses and require our officers, key employees and business entity affiliates to demonstrate suitability to be involved in gaming operations. These are privileged licenses or approvals that are not guaranteed by statute or regulation. State and local government authorities may limit, condition, suspend or revoke a license, impose substantial fines, and take other actions, any of which could have a material adverse effect on our business, financial condition, results of operations and prospects. We cannot assure you that we will be able to obtain and maintain the gaming licenses and related approvals necessary to conduct our gaming operations. Any failure to maintain or renew our existing licenses, registrations, permits or approvals could have a material adverse effect on our business, financial condition, results of operations and prospects. Furthermore, if additional gaming laws or regulations are adopted, these regulations could impose additional restrictions or costs that could have a significant adverse effect on us and our business.

Gaming authorities may, in their sole and absolute discretion, require the integrityholder of any securities issued by us to file applications, be investigated, and be found suitable to own our securities if they have reason to believe that the security ownership would be inconsistent with the declared policies of their respective states. Further, the costs of any investigation conducted by any gaming authority under these circumstances is typically required to be paid by the applicant, and refusal or failure to pay these charges may constitute grounds for a finding that the applicant is unsuitable to own the securities. If any gaming authority determines that a person is unsuitable to own our securities, then, under the applicable gaming laws and regulations, we can be sanctioned, including the loss of our computer systemsprivileged licenses or approvals, if, without the prior approval of the applicable gaming authority, we conduct certain business with the unsuitable person.

Our officers, directors, and internal customer informationkey employees are also subject to a variety of regulatory requirements and various privileged licensing and related approval procedures in the various jurisdictions in which we operate gaming facilities. If any gaming authority with jurisdiction over our business were to find an officer, director or key employee of ours unsuitable for licensing or unsuitable to continue having a relationship with us, we would have to sever all relationships with that person. Furthermore, such gaming authorities may require us to terminate the employment of any person who refuses to file appropriate applications. Either result could have a material adverse effect on our business, operations and prospects.

Applicable gaming laws and regulations also restrict our ability to issue securities, incur debt, and undertake other financing activities. Such transactions would generally require approval of gaming authorities, and our financing counterparties, including lenders, might be subject to various licensing and related approval procedures in the various jurisdictions in which we operate gaming facilities. If state regulatory authorities were to find any person unsuitable with regard to his, her or its relationship to us or any of our subsidiaries, we would be required to sever our relationship with that person, which could materially adversely affect our business.

From time to time, local and state lawmakers, as well as special interest groups, have proposed legislation that would expand, restrict or prevent gaming operations in the jurisdictions in which we operate. Any such change to the regulatory environment or the adoption of new federal, state or local government legislation could have a material adverse effect on our business, financial condition, results of operations and prospects.

Federal, state and local beer, liquor and food service regulations may have a significant adverse impact on our operations.

Our brewery operations at PT’s Brewing Company in Las Vegas, Nevada require federal, state, and local licenses, permits and approvals. Our restaurant and on-site brewery at PT’s Brewing Company operate pursuant to exceptions to the “tied house” laws, which in Nevada generally prohibit a manufacturer or supplier of brewery products from engaging in the business of wholesaling and prevent a wholesaler from engaging, directly or indirectly, in retail sales.

The manufacture and sale of alcoholic beverages is a highly regulated and taxed business. Our brewery operations are subject to more restrictive regulations and increased taxation by federal, state and local governmental entities than are those of non-alcohol related beverage businesses. Federal, state and local laws and regulations govern the production and distribution of beer, including permitting, licensing, trade practices, labeling, advertising, marketing, distributor relationships and related matters. Federal, state and local governmental entities also levy various taxes, license fees, and other similar charges and may require bonds to ensure compliance with applicable laws and regulations. Failure to comply with applicable federal, state or local laws and regulations could result in damagehigher taxes, penalties, fees, and suspension or revocation of permits, licenses or approvals and could have a material adverse effect on our business, financial condition, results of operations and prospects. 

From time to time, local and state lawmakers, as well as special interest groups have proposed legislation that would increase the federal and/or state excise tax on alcoholic beverages or certain types of alcoholic beverages. If adopted, such measures could affect some or all of our proprietary craft beer production. If federal or state excise taxes are increased, we may have to raise prices to maintain our current profit margins. Higher taxes may reduce overall demand for beer, thus negatively impacting sales of our beer. Further federal or state regulation may be forthcoming that could further restrict the distribution and sale of alcohol products. Any material increase in taxes or fees, or the adoption of additional taxes or fees or regulations, could have a material adverse effect on our business, financial condition, results of operations and prospects.

In addition, each restaurant we operate must obtain a food service license from local authorities. Failure to comply with such regulations could cause our licenses to be revoked or our related restaurant business or businesses to be forced to cease operations. Moreover, state liquor laws may prevent the expansion of restaurant operations into certain markets.

Changes to state and federal minimum wage laws or other laws could have a material adverse effect on our operations and financial condition.

Our business segments operate in the larger hospitality and service industry. Many of our employees, especially those that interact with our customers, receive a base salary or wage that is established by applicable state and federal laws that establish a minimum hourly wage that is, in turn, supplemented through tips and gratuities from customers. In February 2017, a former employee filed a purported class action lawsuit on behalf of similarly situated individuals employed by us in Nevada alleging that we violated certain Nevada labor laws, including payment of an hourly wage below the statutory minimum wage without providing a qualified health insurance plan and an associated failure to pay proper overtime compensation.  For additional information, please see Part I, Item 3 of this Annual Report on Form 10-K under the heading “Legal Proceedings.” From time to time, state and federal lawmakers have increased the minimum wage. It is difficult to predict when such increases may take place. Any such change to the minimum wage could have a material adverse effect on our business, financial condition, results of operations and prospects.

We are subject to a variety of other rules and regulations, including zoning, environmental, construction and land-use laws, regulations and permits. Any changes to these laws could have a material adverse effect on our business, financial condition, results of operations and prospects.

Changes to applicable tax laws could have a material adverse effect on our financial condition.

Gaming companies are generally subject to significant revenue-based taxes and fees in addition to normal federal, state, and local income taxes, and such taxes and fees are subject to increase at any time. We pay substantial taxes and fees with respect to our reputationoperations. From time to time, federal, state and local legislators and other government officials have proposed and adopted changes in tax laws, or in the administration or interpretation of such laws, affecting the gaming industry. In addition, any worsening of economic conditions and the large number of state and local governments with significant current or projected budget deficits could intensify the efforts of state and local governments to raise revenues through increases in gaming taxes and/or subjectproperty taxes. It is not possible to determine with certainty the likelihood of changes in tax laws or in the administration or interpretation of such laws. Any material increase, or the adoption of additional taxes or fees, could have a material adverse effect on our business, financial condition, results of operations and prospects.

Our business is geographically concentrated, which subjects us to fines, payment of damages, lawsuitsgreater risks from changes in local or restrictions on our use or transfer of data.

regional conditions.

We collect information relatingcurrently conduct our distributed gaming (including tavern gaming) business solely in Nevada and Montana and operate casinos solely in Pahrump, Nevada and Flintstone, Maryland. Due to this geographic concentration, our results of operations and financial condition are subject to greater risks from changes in local and regional conditions, such as:

As a result of the geographic concentration of our businesses, we face a greater risk of a negative impact on our business, financial condition, results of operations and prospects in the event that any of the geographic areas in which we operate is more severely impacted by any such adverse condition, as compared to other areas in the United States and other jurisdictions around the world. Privacy regulations continue to evolve andStates.  

The success of our distributed gaming business is dependent on occasion may be inconsistent from one jurisdiction to another. Compliance with applicable privacy regulations may increase our operating costs and/or adversely impact our ability to marketrenew our products,contracts.

We conduct the majority of our distributed gaming business under space lease, revenue share and participation contracts with third parties. Contracts with chain store and street customers are renewable at the option of the owner of the applicable chain store or street account. As our distributed gaming contracts expire, we are required to compete for renewals. If we are unable to renew a material portion of our space lease, revenue share and participation contracts, this could have a material adverse effect on our business, financial condition, results of operations and prospects. We cannot assure you that our existing space lease, revenue share and participation contracts will be renewed on reasonable or comparable terms, or at all.

The casino, hotel and hospitality industry is capital intensive and we may not be able to finance expansion and renovation projects, which could put us at a competitive disadvantage.

Our casino and tavern properties have an ongoing need for renovations and servicesother capital improvements to our guests.remain competitive, including replacement, from time to time, of furniture, fixtures and equipment. We may also need to make capital expenditures to comply with applicable laws and regulations. Renovations and other capital improvements of casino properties in particular require significant capital expenditures. In addition, non-compliance with applicable privacy regulations by us (or in some circumstances non-compliance by third parties engaged by us)any such renovations and capital improvements usually generate little or a breach of security on systems storing our datano cash flow until the projects are completed. We may result in damagenot be able to our reputation and/or subject usfund such projects solely from cash provided from operating activities. Consequently, we may have to fines, payment of damages, lawsuits or restrictions on our use or transfer of data. We also rely extensively on computer systems to process transactions, maintain information and manage our businesses. Disruptions inupon the availability of debt or equity capital to fund renovations and capital improvements, and our computer systems, through cyber-attacksability to carry them out will be limited if we cannot obtain satisfactory debt or otherwise,equity financing, which will depend on, among other things, market conditions. We cannot assure you that we will be able to obtain additional equity or debt financing on favorable terms or at all. Our failure to renovate and maintain our casino and tavern properties from time to time may put us at a competitive disadvantage to casinos or taverns offering more modern and better maintained facilities, which could have a material adverse effect on our business, financial condition, results of operations and prospects.

We incurred significant indebtedness in connection with the Merger and our significant indebtedness could adversely affect our financial health and prevent us from fulfilling our obligations.

We incurred significant indebtedness in connection with the Merger and the associated refinancing of both Sartini Gaming’s senior secured indebtedness and our former financing facility for Rocky Gap. As of December 31, 2016, our total indebtedness, excluding unamortized debt issuance costs, was $185.0 million and our debt service obligations, comprised of scheduled principal repayments and interest (excluding capital leases and equipment

notes), during the next 12 months were approximately $12.0 million. As a result of the increases in our outstanding debt, demands on our cash resources have increased. The increased level of debt could, among other things:

Any of these risks could impact our ability to fund our operations or limit our ability to expand our business, which could have a material adverse effect on our business, financial condition, results of operations and prospects.

We may incur additional indebtedness, which could further increase the risks associated with our leverage.

We may incur significant additional indebtedness in the future, which may include financing relating to capital expenditures, potential acquisitions or business expansion, working capital or general corporate purposes. As of December 31, 2016, we had undrawn availability of $20.0 million under our senior secured revolving facility (the “Revolving Credit Facility”) in our Credit Agreement with Capital One, National Association (as administrative agent) and the lenders named therein (the “Credit Agreement”). In addition, the Credit Agreement permits us, subject to specific limitations, to incur additional indebtedness. If new indebtedness is added to our current level of indebtedness, the related risks that we now face could intensify.

We may not be able to generate sufficient cash to service all of our indebtedness and fund our working capital and capital expenditures, and may be forced to take other actions to satisfy our obligations under our indebtedness, which may not be successful.

Our ability to make scheduled payments on or refinance our indebtedness will depend upon our future operating performance and our ability to generate cash flow in the future, which are subject to general economic, financial, business, competitive, legislative, regulatory and other factors that are beyond our control. We cannot assure you that our business will generate sufficient cash flow from operations, or that future borrowings, including borrowings under the Credit Agreement, will be available to us in an amount sufficient to enable us to pay our indebtedness or fund our other liquidity needs. If our cash flows and capital resources are insufficient to fund our debt service obligations, we could face substantial liquidity problems and could be forced to reduce or delay investment and capital expenditures or to dispose of material assets or operations, seek additional debt or equity capital or restructure or refinance our indebtedness. We may not be able to effect any such alternative measures, if necessary, on commercially reasonable terms or at all and, even if successful, such alternative actions may not allow us to meet our scheduled debt service obligations. The Credit Agreement restricts our ability to dispose of assets and use the proceeds from the disposition, and may also restrict our ability to raise debt or equity capital to repay or service our customersindebtedness. If we cannot make scheduled payments on our debt, we will be in default and, adversely affectas a result, our saleslenders could declare all outstanding amounts to be due and payable, terminate or suspend their commitments to loan money and foreclose against the assets securing such debt, and we could be forced into bankruptcy or liquidation, any of which could have a material adverse effect on our business, financial condition, results of operations.operations and prospects and could result in you losing your investment in our company.

Covenants in our debt instruments restrict our business and could limit our ability to implement our business plan.

Our ArticlesThe Credit Agreement contains, and any future debt instruments likely will contain, covenants that may restrict our ability to implement our business plan, finance future operations, respond to changing business and economic conditions, secure additional financing, and engage in opportunistic transactions, such as strategic acquisitions. The Credit Agreement includes covenants restricting, among other things, our ability to do the following:

In addition, the Credit Agreement requires us to comply with certain financial covenants, including a maximum total leverage ratio and minimum interest coverage ratio. The Credit Agreement is secured by first-priority liens on substantially all of our and the subsidiary guarantors’ present and future personal and real property (subject to receipt of certain approvals).

If we default under the Credit Agreement because of a covenant breach or otherwise, all outstanding amounts thereunder could become immediately due and payable. We cannot assure you that we will be able to comply with our financial or other claimscovenants under the Credit Agreement or that any covenant violations will be waived. Any violation that is not waived could result in an event of default and, as a result, our lenders could declare all outstanding amounts to be due and payable, terminate or suspend their commitments to loan money and foreclose against the assets securing such debt, and we could be forced into bankruptcy or liquidation, any of which could have a material adverse effect on our directors.

business, financial condition, results of operations and prospects and could result in you losing your investment in our company. 

Our Articlesability to utilize our Net Operating Losses (“NOLs”) would be negatively impacted if an ownership change (as defined in Section 382 of Incorporationthe Code) occurs.

As of December 31, 2016, we had approximately $75.7 million of NOLs, which begin to expire in 2032. While these NOLs have a potential to be used to offset future ordinary taxable income and Bylaws provide,reduce future cash tax liabilities, our ability to utilize these NOLs would be negatively impacted if we were to experience an “ownership change,” as defined in Section 382 of the Code. In general terms, an “ownership change” can occur whenever one or more “5% stockholders” collectively change the ownership of a company by more than 50 percentage points within a three-year period. The occurrence of such a change generally limits the amount of NOLs a company could utilize in a given year to the fullest extent permittedaggregate fair market value of the company’s common stock immediately prior to the ownership change, multiplied by Minnesota law,the long-term tax-exempt interest rate in effect for the month of the ownership change. The issuance of shares of our common stock in connection with the Merger significantly increased the risk of such an ownership change occurring. To help preserve our ability to utilize our NOLs to offset future taxable income following the Merger, we have amended our Rights Agreement to deter acquisitions of shares of our common stock that would result in a shareholder owning 4.99% or more of our directors shall have no personal liability for breaches of their fiduciary duties to us.common stock. In addition, we have entered into a NOL Preservation Agreement with the former shareholder of Sartini Gaming, Lyle A. Berman (a director and shareholder of the Company) and certain shareholders affiliated with Mr. Berman or another director of Golden which restrict the ability of such shareholders to take specified actions which could cause such an ownership change to occur. Although our bylaws provide for mandatory indemnification of directorsRights Agreement and officersthe NOL Preservation Agreement are intended to the fullest extent permitted by Minnesota law. These provisions may reduce the likelihood of derivative litigation against our directorsan adverse ownership change under Section 382, they may not prevent such an ownership change from occurring. The determination of whether an ownership change has occurred for purposes of Section 382 of the Code

is complex and may discourage shareholders from bringing a lawsuit against directors for a breachrequires significant judgment. Moreover, the number of their duty.

Our Articles of Incorporation contain provisions that could discourage or prevent a potential takeover, even if the transaction would be beneficial to our shareholders.

Our Articles of Incorporation authorize our Board of Directors to issue up to 100 million shares of capital stock, the terms of which may be determined at the time of issuance by the Board of Directors, without further action by our shareholders. The Board of Directors may authorize additional classes or series of shares that may include voting rights, preferences as to dividends and liquidation, conversion and redemptive rights and sinkingfund provisions that could adversely affect the rights of holders of our common stock outstanding at any particular time for purposes of Section 382 of the Code (and our Rights Agreement) may differ from the number of shares that we report as outstanding in our filings with the SEC. In the event that the measures we have taken to help preserve our NOLs prove ineffective and reducean ownership change occurs, our ability to utilize our NOLs would be negatively impacted, which could have a material adverse impact on our business, financial condition, results of operations and prospects.

We may be unable to obtain gaming devices or related technology from our third party suppliers on a timely, cost-effective basis.

We currently primarily rely on a limited number of suppliers for our gaming devices and related technology. We cannot assure you that we can obtain gaming devices or related technology on a cost-effective basis. As a result, we may be forced to incur significant unanticipated costs to secure alternative third party suppliers or adjust our operations, which could have a material adverse effect on our business, financial condition, results of operations and prospects.

We may experience seasonal fluctuations that could significantly impact our quarterly operating results.

We may experience seasonal fluctuations that could significantly impact our quarterly operating results. Rocky Gap typically experiences higher revenues during summer months and may be significantly adversely impacted by inclement weather during winter months. Our casinos and distributed gaming business in Nevada have historically experienced lower revenues during the summer as a result of fewer tourists due to higher temperatures, as well as increased vacation activity by local residents. Our Nevada distributed gaming operations typically experience higher revenues during the fall which corresponds with several professional sports seasons. Our Montana distributed gaming operations typically experience higher revenues during the fall due to the inclement weather in the state and less opportunity for outdoor activities, in addition to the impact from professional sports seasons. While other factors like unemployment levels, market competition and the diversification of our business may either offset or magnify seasonal effects, some seasonality is likely to continue, which could result in significant fluctuation in our quarterly operating results.

Our reputation and business could be materially harmed as a result of data breaches, data theft, unauthorized access or hacking.

Our success depends, in part, on the secure and uninterrupted performance of our information technology and other systems and infrastructure. An increasing number of companies have disclosed breaches of their security, some of which have involved sophisticated and highly targeted attacks on their computer networks. Because the techniques used to obtain unauthorized access, disable or degrade service, or sabotage systems, change frequently and often are not recognized until launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures. If unauthorized parties gain access to our information technology and other systems, they may be able to misappropriate assets or sensitive information (such as personally identifiable information of our customers, business partners and employees), cause interruption in our operations, corruption of data or computers, or otherwise damage our reputation and business. In such circumstances, we could be held liable to our customers or other parties, or be subject to regulatory or other actions for breaching privacy rules. Any compromise of our security could result in a loss of confidence in our security measures, and subject us to litigation, civil or criminal penalties, and negative publicity, any of which could have a material adverse effect on our business, financial condition, results of operations and prospects. Further, if we are unable to comply with the security standards established by banks and the payment card industry, we may be subject to fines, restrictions, and expulsion from card acceptance programs, which could materially adversely affect our operations.  

Our insurance coverage may not be adequate to cover all possible losses that our properties could suffer. In addition, our insurance costs may increase and we may not be able to obtain the same insurance coverage in the future.

We have comprehensive property and liability insurance policies for our properties in operation, with coverage features and insured limits that we believe are customary in their breadth and scope. Market forces beyond our control may nonetheless limit the scope of the insurance coverage we can obtain or our ability to obtain coverage at

reasonable rates. Certain types of losses, generally of a catastrophic nature, such as earthquakes, hurricanes, floods or terrorist acts, or certain liabilities may be uninsurable or too expensive to justify obtaining insurance. As a result, we may not be successful in obtaining insurance without increases in cost or decreases in coverage levels. In addition, in the event of a substantial loss, the insurance coverage we carry may not be sufficient to pay the full market value or replacement cost of our lost investment or in some cases could result in certain losses being totally uninsured. As a result, we could lose some or all of the capital we have invested in a property, as well as the anticipated future revenue from the property, and we could remain obligated for debt or other financial obligations related to the property, any of which could have a material adverse effect on our business, financial condition, results of operations and prospects.

We may be subject to litigation which, if adversely determined, could expose us to significant liabilities, damage our reputation and result in substantial losses.

From time to time, we are involved in a variety of lawsuits, claims, investigations and other legal proceedings arising in the ordinary course of business, including proceedings concerning labor and employment matters, personal injury claims, breach of contract claims, commercial disputes, business practices, intellectual property, tax and other matters. See Part I, Item 3 of this Annual Report on Form 10-K under the heading “Legal Proceedings” for additional information. Certain litigation claims may not be covered entirely or at all by our insurance policies, or our insurance carriers may seek to deny coverage. In addition, litigation claims can be expensive to defend and may divert our attention from the operations of our businesses. Further, litigation involving visitors to our properties, even if without merit, can attract adverse media attention.

We evaluate all litigation claims and legal proceedings to assess the likelihood of unfavorable outcomes and to estimate, if possible, the amount of potential losses. Based on these assessments and estimates, we establish reserves and/or disclose the relevant litigation claims or legal proceedings, as appropriate. These assessments and estimates are based on the information available to management at the time and involve a significant amount of management judgment. We caution you that actual outcomes or losses may differ materially from those envisioned by our current assessments and estimates. As a result, litigation can have a significant adverse effect on our businesses and, because we cannot predict the outcome of any action, it is possible that adverse judgments or settlements could have a material adverse effect on our business, financial condition, results of operations and prospects.

We depend on a limited number of key employees who would be difficult to replace.

We depend on a limited number of key personnel to manage and operate our business, including our Chief Executive Officer, our Chief Operating Officer and our Chief Strategy and Financial Officer. We believe our success depends to a significant degree on our ability to attract and retain highly skilled personnel. The competition for these types of personnel is intense and we compete with other potential employers for the services of our employees. As a result, we may not succeed in hiring and retaining the executives and other employees that we need. An inability to hire quality employees or the loss of key employees could have a material adverse effect on our business, financial condition, results of operations and prospects.

Our executive officers and directors own or control a large percentage of our common stock, which permits them to exercise significant control over us.

As of December 31, 2016, our executive officers and directors and entities affiliated with them owned, in the aggregate, approximately 51% of the outstanding shares of our common stock. Additional classesAccordingly, these shareholders will be able to substantially influence all matters requiring approval by our shareholders, including the approval of stock that may be authorized bymergers or other business combination transactions and the composition of our Board of Directors for issuanceDirectors. This concentration of ownership may also delay, defer or even prevent a change in the future couldcontrol of our company and would make itsome transactions more difficult for a third party to acquire us, even if a majorityor impossible without their support.  Circumstances may arise in which the interests of these shareholders could conflict with the interests of our holders of common stock approved of such acquisition.other shareholders. 

The rights that have been and may in the future be granted to our shareholders may allow our Board of Directors and management to deter a potential acquisition of our company.

Our Board of Directors has adopted an amended and restated shareholder rights agreement effective as of January 25, 2015, to help protect our ability to utilize the tax benefits of certain loss carryforwards. The rights under this agreement will expire on January 25, 2016, unless our shareholders approve the agreement, in which case the rights will continue in effect until the third anniversary of the closing of the Merger unless, prior to such time, the Board of Directors has determined that the loss carryforwards are no longer available to be utilized or are immaterial to our business. Under the rights agreement, rights to purchase common stock were issued to holders of common stock as of December 12, 2013, the original date of adoption of the rights agreement. These rights become exercisable under certain circumstances in which someone acquires 5% or more, subject to certain exceptions, of our outstanding common stock. As a result of the agreement, anyone wishing to take over the company may be forced under certain circumstances to negotiate a transaction with our Board of Directors and management or comply with certain bid criteria in order not to trigger the exercise of rights. The need to negotiate with the Board of Directors or management or to comply with certain bid criteria could add complexity to a proposed takeover.

Our shareholders may be required to provide information that is requested by gaming authorities and we have the right, under certain circumstances, to redeem a shareholder’s securities; we may be forced to use our cash or incur debt to fund redemption of our securities.

Our Articles of Incorporation require our shareholders to provide information that is requested by authorities that regulate our current or proposed gaming operations. Our Articles of Incorporation also permit us to redeem the securities held by persons whose status as a security holder, in the opinion of the Lakes’our Board of Directors, jeopardizes our existing gaming licenses or approvals of Lakes or its subsidiaries.approvals. The price paid for these securities is, in general, the average closing price for the 30 trading days prior to giving notice of redemption.

We may be forced to use our cash or incur debt to fund redemption of our securities.

In the event a shareholder’s background or status jeopardizes our current or proposed gaming licensure, we may be required to redeem such shareholder’s securities in order to continue gaming operations or obtain a gaming license. This redemption may divert our cash resources from other productive uses and require us to obtain additional financing which, if in the form of equity financing, would be dilutive to our shareholders. Further, any debt financing may involve additional restrictive covenants and further leveraging of our finitefixed assets. The inability to obtain additional financing to redeem a disqualified shareholder’s securities may result in the loss of a current or potential gaming license.

There is a limited public market for our common stock.

There is a limited public market for our common stock. The priceaverage daily trading volume in our common stock during the year ended December 31, 2016 was approximately 56,000 shares per day. We cannot provide assurances that a more active trading market will develop or be sustained. As a result of low trading volume in our common stock, the purchase or sale of a relatively small number of shares of our common stock may be adversely affected bycould result in significant price fluctuations, dueand it may be difficult for holders to a numbersell their shares without depressing the market price for our common stock.

We expect our stock price to be volatile, and you may lose some or all of factors, many of which are beyond our control.

your investment.

The market price of our common stock has experienced significant fluctuationsbeen, and mayis likely to continue to fluctuate in the future.be, volatile. The market price of our common stock may be significantly affected by many factors, including:

•     technological innovations by us or our competitors;

•     quarterly variationsdevelopments in our relationships with our customers, distributors and suppliers;

Any of these events may cause the market analysts or speculationprice of our common stock to fall. In addition, the stock market in general has experienced significant volatility, which may adversely affect the press or analyst community;market price of our common stock regardless of our operating performance.

•     futureFuture sales of our common stock or securities linkedcould lower our stock price and dilute existing shareholders.

In June 2016, we filed a universal shelf registration statement with the SEC for the future sale of up to our common stock; and

•     general market conditions or market conditions specific to particular industries.

We have issued numerous options to acquire our$150 million in aggregate amount of common stock, preferred stock, debt securities, warrants and haveunits. The securities may be offered from time to time, separately or together, directly by us or through underwriters, dealers or agents at amounts, prices, interest rates and other terms to be determined at the ability totime of the offering.

We may also issue additional options, eachshares of which could havecommon stock to finance future acquisitions through the use of equity. For example, we issued a dilutive effect on our common stock.

Astotal of December 28, 2014, we had options outstanding to acquire 0.8approximately 8.5 million shares of our common stock exercisable at prices ranging from $3.78 to $12.85 per share,in connection with a weighted average exercise pricethe Merger. The holder of approximately $6.09 per share. As8.0 million of December 28, 2014, there were 276,635 remainingsuch shares availablehas the right to grant underrequire us to register with the existing stock option plans.

The market priceSEC resales of our common stock may be reduced by future salessuch shares from time to time. In January 2016, we issued a further 50,252 shares of our common stock in a private placement in connection with the public market.

Salesacquisition of substantial amounts of our common stockgaming devices and other non-gaming assets, including the right to operate within certain locations, from a distributed gaming operator in the public market, including salesstate of common stock that are not currently freely tradable, or even the potential for such sales, could have an adverse effect on the market price for shares of our common stock and could impair the ability of purchasers of our common stock to recoup their investment or make a profit. As of December 28, 2014, these shares consist of approximately 3.9 million shares beneficially owned by our executive officers and directors.

Risks Related to the Merger

As previously announced, on January 25, 2015 we entered into a Merger Agreement with Sartini Gaming, Inc. pursuant to which we will issueMontana. In addition, a substantial number of shares of our common stock is reserved for issuance upon the exercise of stock options and other equity awards pursuant to our employee benefit plans. We cannot predict the shareholderssize of Golden Gaming. The Merger, whether or not consummated, may result in a loss of key personnel and may disrupt our other key business activities, including our relationships with third parties and ongoing pursuit of strategic relationships, which may have an adverse impact on our financial performance. The Merger Agreement in general requires us to operate our business in the ordinary course pending consummation of the Merger, but includes certain contractual restrictions on the conductfuture issuances of our business that may affect our ability to execute our business strategies and attain our financial goals. In addition, with certain exceptions, the Merger Agreement prohibits us from, among other things, declaring any dividends, granting any stock options or restrictedcommon stock or repurchasingthe effect, if any, that future sales and issuances of shares of our common stock in each case prior towill have on the earliermarket price of the consummationour common stock. Sales of the Merger or the terminationsubstantial amounts of the Merger Agreement. Additionally, we have incurred and will continue to incur substantial financial, legal and other professional fees and expensesour common stock (including shares issued in connection with the Merger, mostupon the exercise of which muststock options and warrants or in connection with acquisition financing), or the perception that such sales could occur, may adversely affect prevailing market prices for our common stock. In addition, these sales may be paiddilutive to existing shareholders.

Provisions in our Articles of Incorporation and Bylaws, our Rights Plan or the Credit Agreement may discourage, delay or prevent a change in control or prevent an acquisition of our business at a premium price.

Some of the provisions of our Articles of Incorporation and our Bylaws and Minnesota law could discourage, delay or prevent an acquisition of our business, even if a change in control would be beneficial to the Merger is not completed.

We may fail to complete the Merger if certain required conditions, many of which are outsideinterests of our control, are not satisfied.shareholders and was made at a premium price. These provisions:

Although we have amended our Bylaws to provide that Section 302A.671 (Control Share Acquisitions) of the Minnesota Business Corporation Act does not apply to or govern us, we remain subject to 302A.673 (Business Combinations) of the Minnesota Business Corporation Act, which generally prohibits us from engaging in business combinations with any “interested” shareholder for a period of four years following the shareholder’s share acquisition date, which may discourage, delay or prevent a change in control of our company.

On January 25, 2015, our Board of Directors amended and restated our Rights Agreement to help protect our ability to utilize the tax benefits of certain of our NOLs. The rights under the Rights Agreement continue in effect until July 31, 2018 unless, prior to such time, our Board has determined that the NOLs are no longer available to be utilized or are immaterial to our business. Under the Rights Agreement, rights to purchase common stock were issued to holders of common stock as of December 12, 2013, the original date of adoption of the agreement, and to all shares of Lakes common stock issued subsequent to that date. These rights become exercisable under the Merger Agreement, (ii) the expirationcertain circumstances in which someone acquires 5% or termination of any applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (if applicable), (iii) certain gaming approvals having been obtained from the relevant gaming authorities, (iv) the absence of any order or injunction prohibiting the consummation of the Merger, (v) no material adverse effect or other specified adverse events occurring with respect to Lakes or Golden Gaming, (vi) the refinancing or amendment of certain indebtedness of Golden Gaming, (vii)more, subject to certain exceptions, the accuracyof our outstanding common stock. As a result of the representationsRights Agreement, anyone wishing to take over the company may be forced under certain circumstances to negotiate a transaction with our Board and warrantiesmanagement or comply with certain bid criteria in order not to trigger the exercise of rights. The need to negotiate with our Board or management or to comply with certain bid criteria could add complexity to a proposed takeover. In addition, the Credit Agreement provides for an event of default upon the occurrence of certain specified change of control events.

Not applicable.

Company Headquarters

We lease a 41,000 square foot building in Las Vegas, Nevada, which houses our company headquarters and a portion of which we have sub-leased. The lease for our office headquarters building is with a related party and expires on July 31, 2025. See Note 16, Related Party Transactions, in the accompanying consolidated financial statements for information on our transactions with related parties.

Distributed Gaming

We lease our branded tavern locations under noncancelable operating leases. As of December 31, 2016, the terms of our tavern leases ranged from one to 14 years, with various renewal options from one to 15 years. Four of our tavern locations were leased from related parties as of December 31, 2016. See Note 16, Related Party Transactions, in the accompanying consolidated financial statements for information on our transactions with related parties. 

Casinos

Rocky Gap

We lease the approximately 270 acres in the Rocky Gap State Park on which Rocky Gap is situated from the Maryland DNR pursuant to a 40-year operating ground lease. The lease expires in 2052, with an option to renew for an additional 20 years. We own the 170,000 square foot Rocky Gap building. Our owned and leased real property for Rocky Gap, along with substantially all of the assets of Rocky Gap, are subject to liens securing all of our obligations under our Credit Agreement (subject to receipt of certain approvals).

Nevada Casino Properties

We own the approximately 40 acres of land on which Pahrump Nugget is located (of which approximately 20 acres are undeveloped and reserved for future development) and the approximately 35 acres of land on which our Lakeside Casino & RV Park is located. Our Gold Town Casino is located on four leased parcels of land, comprising approximately nine acres in the aggregate. The leases are with unrelated third parties and (viii) performancehave various expiration dates beginning in 2026 (for the parcel on which our main casino building is located, which we lease from a competitor), and compliancewe sublease approximately two of the acres to an unrelated third party. Our owned and leased real property for our Nevada casino properties, along with substantially all of the assets of our Nevada casinos, are subject to liens securing all of our obligations under our Credit Agreement.

From time to time, we are involved in all material respects with agreementsa variety of lawsuits, claims, investigations and covenants containedother legal proceedings arising in the Merger Agreement.

Despite our best efforts,ordinary course of business, including proceedings concerning labor and employment matters, personal injury claims, breach of contract claims, commercial disputes, business practices, intellectual property, tax and other matters. Although lawsuits, claims, investigations and other legal proceedings are inherently uncertain and their results cannot be predicted with certainty, we may not be able to satisfy or receive in a timely fashionbelieve that the various closing conditions and obtain the necessary approvals, and such failure or delay in completing the Merger may cause uncertainty or other negative consequences that may materially and adversely affect our performance, financial condition, results of operations, price per shareresolution of our common stock and perceived acquisition value.

Failure to complete the Merger could adversely affect our business, financial condition, results of operations, and cash flows.

Failure to complete the Merger could adversely impactcurrently pending matters will not have a material adverse effect on our business, financial condition, results of operations and stock price. If the conditions to completionor liquidity. Regardless of the Merger are not metoutcome, legal proceedings can have an adverse impact on us because of defense costs, diversion of management resources and other factors. In addition, it is possible that an unfavorable resolution of one or if the Merger is not completed for any other reason, we will be subject to several risks, including without limitation, (i) the price of our common stock may decline if the Merger is not completed, to the extent our current stock price reflects a market assumption that the Merger will occur; (ii) we will remain liable for significant transaction costs that would be payable even if the Merger is not completed; (iii) a failed transaction may result in negative publicity and a negative impression of usmore such proceedings could in the investment community; (iv) matters related to the Merger have requiredfuture materially and may require substantial commitments of time and resources by our management that could otherwise have been devoted to other business opportunities that would have been beneficial to us; and (v) any disruptions to our business resulting from the announcement and pendency of the Merger, including any adverse changes in our relationships with our employees, vendors, and customers could continue or accelerate in the event of a failed transaction.

The Merger Agreement and ancillary agreements contain provisions that could discourage or limit our ability to pursue an alternative acquisition proposal to the Merger. The Merger Agreement prohibits us from initiating, soliciting or knowingly encouraging the submission of, or participating in any discussions or negotiations with respect to certain alternative acquisition proposals with third parties, subject to the exceptions in the Merger Agreement. In addition, Lyle Berman and other certain significant shareholders affiliated with Mr. Berman or another of Lakes' directors have entered into a voting and support agreement with Golden Gaming, pursuant to which such shareholders have agreed to vote in favor of the approval of the Merger Agreement and the transactions contemplated thereby, and to vote against any alternative acquisition proposals. These provisions limit our ability to pursue offers from third parties, or may discourage an otherwise interested third party from considering or proposing an alternative acquisition transaction, even one that could result in greater value to our shareholders than the value resulting from the Merger. Although we are permitted in certain circumstances to consider proposals that may lead to a “superior proposal” (as defined in the Merger Agreement), a potential break-up fee may result in a third party offering a lower value to our shareholders or discourage third parties altogether from pursuing an acquisition proposal with respect to us.

For these and other reasons, failure to consummate the Merger could adversely impactaffect our business, financial condition, results of operations or liquidity in a particular period.

On February 2, 2017, a former employee filed a purported class action lawsuit against us in the District Court of Clark County, Nevada, on behalf of similarly situated individuals employed by us in the State of Nevada. The lawsuit alleges we violated certain Nevada labor laws including payment of an hourly wage below the statutory minimum wage without providing a qualified health insurance plan and cash flows.

We will be subjectan associated failure to business uncertainties and contractual restrictions while the Merger is pending.

Uncertainty about the effectpay proper overtime compensation. The complaint seeks, on behalf of the Merger on our business, employees,plaintiff and operations may have an adverse effect on us. These uncertainties may impair our ability to attract, retain and motivate key personnel until the Merger is completed. They could also cause those who do business with us to seek to change existing business relationships or cease doing business with us. Retention of certain employees may be challenging during the pendencymembers of the Merger becauseputative class, an unspecified amount of the uncertainty regarding their employment statusdamages (including punitive damages), injunctive and future. If key employees depart because of these issues, our business could be negatively impacted. In addition, the Merger Agreement restricts us from making certain acquisitions and taking other specified actions until the Merger is completed without the consent of the other party. These restrictions may prevent us from pursuing attractive business opportunities that may arise prior to the completion of the Merger.

Termination of the Merger Agreement could negatively impact us.

In the event the Merger Agreement is terminated, our business may have been adversely impacted by the failure to pursue other beneficial opportunities due to the focus of management on the Merger, and the market price of our common stock might decline to the extent that the current market price reflects a market assumption that the Merger will be completed. If the Merger Agreement is terminated and our Board of Directors seeks another merger, business combination, or strategic opportunity, we may not be successful in locating a party willing to offer equivalent or more attractive consideration than the merger consideration provided in the Merger. If the Merger Agreement is terminated, under certain circumstances, we may be required to pay a termination fee of $5.0 million to Golden Gaming or reimburse Golden Gaming for fees and expenses it incurred in an amount not to exceed $0.5 million.

The Merger Agreement contains provisions that may discourage other companies from trying to acquire us for greater merger consideration and may require us to pay a termination fee.

The Merger Agreement contains provisions that may discourage a third party from submitting a business combination proposal to us that might result in greater value to our stockholders than the Merger. These provisions include a general prohibition on us from soliciting, or, subject to certain exceptions, entering into discussions with any third party regarding any acquisition proposal or offers for competing transactions.

In addition, we may be required to pay to Golden Gaming a termination fee of $5.0 million or reimburse Golden Gaming for fees and expenses that it incurred in an amount not to exceed $0.5 million in certain circumstances involving acquisition proposals for competing transactions.

Shareholder litigation against us or our directors could delay or prevent the Merger and cause us to incur significant costs and expenses.

As described in the section “Legal Proceedings” included in Part I, Item 3 of thisAnnual Report on Form 10-K, we, our merger subsidiary, Golden Gaming, its sole director and shareholder, along with members of our Board of Directors have been named as defendants in various lawsuits related to the Merger Agreement and the proposed Merger with Golden Gaming. As is common for these types of claims, the lawsuits allege that in negotiating the Merger Agreement and related transactions and documentation, the defendants have breached their fiduciary duties to our shareholders and/or have aided and abetted such breaches.Such claims seek, among other things, injunctiveequitable relief, and an order requiring our relevant directorsaward of attorneys’ fees, interest and costs. This case is at an early stage in the proceedings, and we are therefore unable to pay restitution and/or compensatory damages. Onemake a reasonable

estimate of the conditionsprobable loss or range of losses, if any, that might arise from this matter. Therefore, we have not recorded any amount for the claim as of the date of this filing. While legal proceedings are inherently unpredictable and no assurance can be given as to the closingultimate outcome of this matter, based on management’s current understanding of the Merger is that no restraining order, injunction, judgment, order or decree, shall be in effect that prohibits the consummation of the Merger. Consequently, any lawsuit with respect to the Merger may prevent the Merger from becoming effective within the expected time frame, or at all. Althoughrelevant facts and circumstances, we believe that these lawsuits are without merit, the claims could result in delay of the closing of the Merger and the defense of these claims may be expensive, including expenses incurred with respect to the indemnification of our officers and directors with respect to such claims, and may divert other resources and management’s attention, which could adversely affect our business.

We have and will continue to incur substantial transaction-related costs in connection with the Merger.

We have incurred, and expect to continue to incur, a number of non-recurring transaction-related costs associated with completing the Merger, combining the operations of the two companies, seeking required regulatory approvals, and achieving desired synergies. These fees and costs have been, and will continue to be, substantial. Non-recurring transaction costs include, but areproceedings should not limited to, fees paid to legal, financial and accounting advisors, severance and benefit costs, filing fees and printing costs. Additional unanticipated costs may be incurred in the integration of the businesses of Lakes and Golden Gaming. These costs may be higher than expected and could have a material adverse effect on our financial conditions and operating results.

We will issue a large numberposition, results of shares of common stock in connection with the Merger, which will result in substantial dilution to our existing stockholders.

In connection with the Merger, we have agreed to issue shares of our common stock as merger consideration to the stockholders of Golden Gaming. The issuance of shares of common stock in connection with the Merger will result in substantial percentage dilution of our existing shareholders’ ownership interests, and because a substantial portion of the purchase price could be classified as goodwill and other intangible assets, the tangible net book value per share of our common stock may be materially lower after the completion of the Merger. Our issuance of these shares also may have an adverse impact on our net income per share in fiscal periods that include (or follow) the date of the Merger, as we anticipate that the transaction will be dilutive on the basis of net earnings per common share for the foreseeable future following the Merger.

As shares of our common stock issued in the Merger become eligible for resale, the sale of those shares could adversely impact our stock price.

All of the shares of our common stock issued in connection with the Merger will be restricted stock, subject to trading restrictions unless and until such time as they are registered. In connection with the Merger, Lakes is also entering into a registration rights agreement pursuant to which it may be obligated to register the shares of common stock issued in connection with the Merger. At such time as they are registered, a substantial number of shares of our common stock will become eligible for resale. Our stock price may suffer a significant decline as a result of the sudden increase in the number of shares sold in the public marketoperations or market perception that the increased number of shares available for sale will exceed the demand for our common stock.

cash flows.

ITEM 1B.  UNRESOLVED STAFF COMMENTS

Not applicable.

ITEM 2.  PROPERTIES

Corporate Office Facility

Lakes owns its corporate office building located in Minnetonka, Minnesota and occupies approximately 16,000 square feet of the 65,000 square foot building and has leased a portion of the office space to outside tenants. We are currently searching for a tenant or tenants to lease the remaining space. In connection with entering into the Merger Agreement with Golden Gaming during fiscal 2015, Lakes plans to sell its corporate office facility.

Rocky Gap

In August 2012, Lakes acquired Rocky Gap in Allegany County, Maryland, which is situated on approximately 268 acres in the Rocky Gap State Park and is subject to the Lease Agreement with the Maryland DNR.

ITEM 3.  LEGAL PROCEEDINGS

Shareholder Class Action Lawsuits

On February 6, 2015, Lakes, the members of the Lakes’ Board of Directors, LG Acquisition Corporation, Sartini Gaming, Inc., and the Blake L. Sartini and Delise F. Sartini Family Trust were named as defendants in two complaints filed in the District Court of the State of Minnesota, Fourth Judicial District in Hennepin County. The cases are captioned James Orr, Individually and on Behalf of All Others Similarly Situated, as Plaintiff, vs. Lakes Entertainment, Inc., LG Acquisition Corporation, Sartini Gaming, Inc., Lyle A. Berman, Timothy J. Cope, Larry C. Barenbaum, Neil I. Sell, Ray M. Moberg, and the Blake L. Sartini and Delise F. Sartini Family Trust, as Defendants, and Anthony Dacquisito, On Behalf of Himself and All Others Similarly Situated vs. Larry Barenbaum, Lyle Berman, Neil Sell, Ray Moberg, Timothy Cope, LG Acquisition Corporation,Sartini Gaming, Inc., and the Blake L. Sartini and Delise F. Sartini Family Trust, as Defendants. These are purported shareholder class action lawsuits brought by two of Lakes’ shareholders on behalf of themselves and others similarly situated, alleging that in entering into the proposed transaction with Golden Gaming, the Defendants have breached their fiduciary duties of good faith, loyalty and due care, and/or have aided and abetted such breaches. The Plaintiffs seek, among other things, to enjoin the transactions contemplated by the Merger Agreement and attorney’s fees. An unfavorable outcome in these lawsuits could prevent or delay the consummation of the Merger, result in substantial costs to Lakes, or both. It is also possible that other lawsuits may yet be filed and Lakes cannot estimate any possible loss from this or future litigation at this time.

Jerry Argovitz Litigation

On March 12, 2014, Lakes received a demand for arbitration from Jerry Argovitz (“Argovitz”) relating to a Consent and Agreement to Buyout and Release by and between Argovitz and Lakes KAR Shingle Springs, LLC (“LKAR”), Lakes Entertainment, Inc., and Lakes Shingle Springs, Inc. dated January 30, 2003 (“Buyout Agreement”).  The Buyout Agreement provided that LKAR was to make certain payments to Argovitz for so long as LKAR was managing the Red Hawk Casino for the Shingle Springs Tribe.  Lakes made the payments required under the Buyout Agreement while it was managing the Red Hawk Casino, and discontinued the payments after its management contract to manage the Red Hawk Casino was terminated.  Argovitz asserted claims for breach of the Buyout Agreement and the implied covenant of good faith and fair dealing relating to the payments he alleged he was entitled to receive after the management agreement was terminated.  He sought damages of approximately $2.7 million, plus interest, costs, and attorney fees. 

On September 9, 2014, Argovitz was awarded approximately $2.4 million related to the arbitration action brought by Argovitz against Lakes. As a result, Lakes recognized charges related to arbitration award in its consolidated statement of operations of approximately $2.5 million during the fiscal year ended December 28, 2014, which included the $2.4 million award and $0.1 million of legal fees. The action is now closed and no further claims can be made by Argovitz related to this matter.

Quest Media Group, LLC Litigation

On May 17, 2012, Lakes received service of a breach of contract lawsuit filed in the Franklin County Court of Common Pleas, Franklin County, Ohio by Quest Media Group, LLC (“Quest”) with respect to an agreement (the “Agreement”) entered into between Lakes Ohio Development, LLC (a wholly owned subsidiary of Lakes) (“Lakes Ohio Development”) and Quest on March 9, 2010. The Agreement relates to Quest assisting Lakes Ohio Development in partnering with Rock Ohio Ventures, LLC and Penn Ventures, LLC (“Penn Ventures”) with respect to funding theproposed citizen-initiated referendum in November 2009 to amend the Ohio constitution to permit one casino each in Cleveland, Cincinnati, Toledo and Columbus, Ohio. The lawsuit alleged, among other things, that Lakes breached the Agreement by selling Lakes Ohio Development’s interest in the Toledo and Columbus, Ohio casino projects to Penn Ventures, failing to pay the proper fee to Quest as a result of such sale, and incorrectly calculating the costs that are to be offset against Quest’s fee. The lawsuit sought unspecified compensatory damages in excess of $25,000, punitive damages, declaratory and injunctive relief. The lawsuit named as defendants Lakes Entertainment, Inc., Lakes Ohio Development, LLC and Lyle Berman, Chairman and CEO of Lakes. Lakes removed the case to federal court, answered the pleadings and filed a motion to dismiss the claims against all defendants.  Prior to the judge’s ruling on the motion to dismiss, the parties settled all but one of Quest’s claims (including obtaining a dismissal of Lyle Berman from the lawsuit) at no out-of-pocket expense to Lakes.  The judge granted Lakes’ motion to dismiss and dismissed the remaining claims against Lakes. Quest subsequently appealed the dismissal to the Sixth Circuit Court of Appeals. The matter has been fully briefed by both parties and oral arguments were held on March 3, 2015. A decision is expected in mid-2015. Lakes continues to believe that the suit is without merit and will continue to vigorously defend the matter.

Other Litigation

Lakes and its subsidiaries are involved in various other inquiries, administrative proceedings and litigation relating to contracts and other matters arising in the normal course of business. While any proceeding or litigation has an element of uncertainty, management currently believes that the likelihood of an unfavorable outcome is remote, and is not likely to have a material adverse effect upon our consolidated financial statements. No provision for loss has been recorded in connection therewith.

ITEM 4.MINE SAFETY DISCLOSURES

Not applicable.

PART II

ITEM 5.  MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDERMATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Effective September 10, 2014, Lakes implemented a 1-for-2 reverse split of itsOur common stock where each two shares of issued and outstanding common stock were converted into one share of common stock. The reverse split reduced the number of shares of our common stock outstanding from approximately 26.8 million to 13.4 million. The par value of the common stock remains at $0.01 per share and the number of authorized shares of common stock decreased from 200 million to 100 million. Proportional adjustments were also made to our outstanding stock options. All share information presented in this Annual Report on Form 10-K gives effect to the reverse stock split.

Lakes’ common stock currently tradesis traded on the NASDAQ Global Market under the ticker symbol LACO.GDEN (and formerly under the ticker symbol LACO prior to the Merger). The following table sets forth, for the periods indicated, the high and low sales prices per share of Lakes’our common stock for each full quarterly period within the two most recent fiscal years are indicated below, as reported on the NASDAQ Global Market:by NASDAQ:

On March 9, 2015, the last reported sale price for the common stock was $8.70 per share. As of March 9, 2015, Lakes had15, 2017, there were approximately 237236 shareholders of record.record of our common stock.

Lakes has neverPursuant to the terms of the Merger Agreement, the proceeds received from the sale of the Jamul Note, net of related costs, were distributed on July 14, 2016 in a special dividend of cash in the aggregate amount of approximately $23.5 million to shareholders that held shares as of the Record Date for such dividend (other than shareholders that had waived their right to receive such dividend). See Note 9, Shareholders’ Equity, in the accompanying consolidated financial statements for additional information. Other than the special cash dividend for the net proceeds received from the sale of the Jamul Note, we have neither declared nor paid any cash dividends with respect to itsour common stock and the current policy of the Board of Directors is to retain all future earnings, if any, earnings to provide for use in the growthoperation and development of Lakes.our business. The payment of any other 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,our financial condition, results of operations, capital requirements, Lakes’ overall financialour general business condition and any other factors deemed relevant by the Board of Directors. With certain exceptions,In addition, the Mergerterms of our Credit Agreement prohibits us from declaring anyrestrict our ability to declare or pay dividends prior to the earlier of the consummation of the Merger or the termination of the Merger Agreement.

on our common stock.

No repurchases of Lakes’our common stock were made during the fourth quarter of Lakes’ fiscal year ended December 28, 2014.

2016.

Performance Graph

The following graph compares cumulative five-year shareholders’ returns (based on appreciation of the market price of our common stock) on an indexed basis with (i) a broad equity market index and (ii) an appropriate published industry or line-of-business index. The following presentation compares our common stock price during the period from December 31, 2009 to December 31, 2014, to the NASDAQ Composite Index and the Dow Jones US Gambling Index.

We do not believe that we can reasonably identify a peer group that provides a meaningful comparison of shareholder returns. Therefore, we have elected to use the Dow Jones US Gambling Index in compiling our stock performance graph because we believe the Dow Jones US Gambling Index provides a better comparison of shareholder returns for companies in the industry similar to that of ours.

The comparisons in the graph are required by the SEC and are not intended to forecast or be indicative of possible future performance of our common stock.

Cumulative Total Returns