Note 1. Nature of Business

12 Months Ended

Dec. 30, 2012

Business Description and Basis of Presentation [Text Block]

1. Nature of Business

Overview

Lakes Entertainment Inc. and subsidiaries (collectively “the Company” or “Lakes”) has developed, financed and managed casino properties with a historical emphasis on those that are Indian-owned. An overview of the Company’s projects as of December 30, 2012 is as follows:

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Lakes owns and operates the Rocky Gap Lodge & Golf Resort in Allegany County, Maryland (the “Rocky Gap Resort”) which it acquired on August 3, 2012 for $6.8 million. The AAA Four Diamond Award® winning resort includes a hotel, spa, two restaurants and the only Jack Nicklaus signature golf course in Maryland. In connection with the closing of the acquisition of the Rocky Gap Resort, Lakes entered into a 40 year operating ground lease with the Maryland Department of Natural Resources (“Maryland DNR”) for approximately 268 acres in the Rocky Gap State Park on which the Rocky Gap Resort is situated. Lakes is currently operating the existing hotel, golf course and related amenities. The Rocky Gap Resort is currently undergoing renovation and upon completion will feature a gaming facility and an event center. The gaming facility will include approximately 550 video lottery terminals (“VLTs”), 10 table games, a casino bar and a new lobby food and beverage outlet. The event center will be able to accommodate large groups and will feature multiple flexible use meeting rooms, including a formal high-end board room. The total cost of the project is currently expected to be approximately $35.0 million. On December 17, 2012, Lakes closed on a $17.5 million financing facility with Centennial Bank (the “Facility”). The Facility will be used to finance a portion of the renovation and new meeting space construction costs. Lakes is required to invest $17.5 million in the Rocky Gap Resort project, including the original purchase price of the property, prior to drawing on the Facility. As of December 30, 2012, no amounts had been drawn and no amounts were outstanding under the Facility. The gaming facility is expected to open in the second quarter of 2013 and the event center is expected to be available for use in the fourth quarter of 2013.

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Lakes developed, and has a seven-year contract to manage, the Red Hawk Casino that was built on the Rancheria of the Shingle Springs Band of Miwok Indians (the “Shingle Springs Tribe”) in El Dorado County, California, adjacent to U.S. Highway 50, approximately 30 miles east of Sacramento, California. Lakes began managing the Red Hawk Casino when it opened to the public on December 17, 2008. The Red Hawk Casino features approximately 2,250 slot machines and gaming devices, 60 table games, 5 poker tables, six restaurants, four bars, retail space, a parking garage and a child care facility and arcade.

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Lakes has an investment in Rock Ohio Ventures, LLC (“Rock Ohio Ventures”) that owns the Horseshoe Casino Cleveland in Cleveland, Ohio, the Horseshoe Casino Cincinnati in Cincinnati, Ohio, and the Thistledown Racino in North Randall, Ohio. As of December 30, 2012, Lakes has contributed approximately $20.2 million to Rock Ohio Ventures. Lakes currently maintains a 10% interest in Rock Ohio Ventures’ 80% ownership in its casino properties in Ohio. Lakes currently plans to contribute additional capital as needed to maintain its equity position in Rock Ohio Ventures.

The Horseshoe Casino Cleveland opened on May 13, 2012. The casino features approximately 2,100 slot machines, 63 table games, a 30-table poker room and multiple food and beverage outlets. The Horseshoe Casino Cincinnati opened on March 4, 2013 and features approximately 2,000 slot machines, 116 table games (including poker), food and beverage outlets, and a parking structure with approximately 2,500 parking spaces. The Thistledown Racino is expected to add 1,100 VLTs in April 2013 to the currently operating racetrack.

Significant Customers and Concentrations of Credit Risk

Fees earned for services related to the Red Hawk Casino in fiscal 2012 were in excess of ten percent of consolidated revenues in the accompanying consolidated statements of operations. Fees earned for services related to the Four Winds Casino Resort in fiscal 2011 were in excess of ten percent of consolidated revenues in the accompanying consolidated statements of operations.

As of December 30, 2012 and January 1, 2012, the financial instruments that subject the Company to concentrations of credit risk consist principally of its notes receivable due from the Shingle Springs Tribe as further discussed in note 5, Long-Term Assets Related to Indian Casino Projects — Notes and Interest Receivable. Lakes manages the risk related to the Red Hawk Casino and the related notes receivable by overseeing the day-to-day management of operations and evaluating collectability (the need for an allowance for doubtful collection and possible charge-off) of the notes receivable based upon operational performance. In the event the receivables become uncollectible, the maximum losses to be sustained would be the carrying value of the notes receivable, plus the net carrying value of the related unamortized intangible assets.