Tim Cope - President and CFO Lyle Berman - Chairman and CEO

Paul Thyme - Lakes Entertainment David Schwartz - PWL Colin King - Kirr, Marbach & Company

Thank you, Phillip. Good afternoon.

And welcome to Lakes Entertainment’s first quarter 2014 earnings conference call. On the call with me today is Lyle Berman, Lakes’ Chairman of the Board and Chief Executive Officer.

As we begin our prepared remarks, I would like to remind everyone that this call may contain forward-looking statements, including statements concerning business strategies and their intended results and similar statements concerning anticipated future events. These statements are subject to risks and uncertainties, including those risks described in our filings with the SEC and actual results may differ materially.

Lyle will begin our discussion today with a general overview and update on our casino projects. I will then discuss the first quarter financial results and recent business events.

And then, we'll conduct a question-and-answer session. Now, I will turn the call over to Mr.

Lyle Berman.

Thank you, Tim, and welcome everyone to Lakes' first quarter 2014 earnings call. First, I will discuss the first quarter operating results at our Rocky Gap Casino Resort.

Rocky Gap is a AAA four diamond resort that includes a casino, hotel, event centers, spa, four restaurants and the only Jack Nicklaus Signature golf course in Maryland. The casino currently features 577 slot machines, 15 table games including poker, a casino center bar, and a new hotel lobby bar and food outlet.

Even though we had a challenging start to the year due to difficult weather conditions in January and February, improved results in March helped us meet our first quarter operating results. We have received many positive reviews from the new menus that are recently updated restaurants and our Bonkerz Comedy Club continues to be well received.

We have begun taking reservations for our meeting and event centers space and expect [indiscernible] to achieve to drive greater gaming and non-gaming revenue. We also began our operating Pai Gow poker and baccarat recently.

And we added 19 more swap machines during April which we expect to positively impact results in future periods. In addition, we’ve commenced construction of 150 additional surface parking spaces located in close proximity to the casino.

These new spaces will provide additional convenient parking for our guests as part of our outstanding guest service at this property. Finally we are refurbishing or expanding various existing spaces at the property including expansion of the fitness center, remodeling the gulf shop and renovating hotel rooms.

We believe these changes along with the continued emphasis on providing exceptional guest service will positively impact both top and bottom line operating results at Rocky Gap. As we’ve recently announced, we entered into an agreement to sell our interest in the Dania Casino & Jai Alai for approximately $2.6 million.

We received an initial payment of 1 million on April 21 at which time 40% of our ownership in Dania was transferred to the buyer. The remaining purchase price will be paid in three equal semi-annual installments of approximately $530,000 and 20% of our ownership in Dania will be transferred to the buyer upon each payment.

We continue to maintain a 10% ownership interest in Rock Ohio Ventures, 80% ownership in the Horseshoe Casino Cleveland, the Horseshoe Casino Cincinnati, the Thistledown Racino and Turfway Park. The Horseshoe Casino in Cleveland features approximately 1,900 slot machines, 89 table games, a 30-table poker room and multiple food and beverage outlets and a parking structure.

The Horseshoe Casino in Cincinnati features approximately 2,000 slot machines, 87 table games, a 31-table World Series of poker room, several food and beverage outlets and a parking structure. The Thistledown Racino in North Randall, Ohio, features its existing racetrack, 1,100 video lottery terminals and new dining and nightlife options.

Turfway Park is a premier Thoroughbred horse racing track located in Florence Kentucky. We currently have cash and short-term investments in excess of $80 million.

In addition, the Jamul Indian Village will commence repayment of principal of our note receivable which is currently at $60 million when and if a casino opens and any casino construction and development funds have been repaid. Once the casino opens, we will begin receiving a cash interest payment of 4.25% on our outstanding receivable.

The Jamul Tribe is working with Penn National Gaming to develop a casino on the Tribe’s existing reservation. Penn previously announced that it has launched construction activities at the site and is planning a 2016 opening.

This note was written off our books in prior years. We are continuously evaluating various business strategies to maximize value for our shareholders.

With that, I’ll turn the call back over to Tim to provide an overview of the financial results.

Thank you, Lyle. Net loss for the first quarter of 2014 was $1.8 million compared to net loss of $0.3 million for the first quarter of 2013.

Loss from operations was $1.6 million for the first quarter of 2014 compared to a loss from operations of $1.9 million for the first quarter of 2013. Basic and diluted loss per share was $0.07 for the first quarter of 2014 compared to basic and diluted loss per share of $0.01 for the first quarter of 2013.

First quarter of 2014, net revenues were $12.3 million compared to prior year first quarter net revenues of $3.3 million. First quarter of 2014, net revenues were related to the operation of a Rocky Gap Casino Resort.

Lakes acquired this property on August 2012 and gaming operations began on May 22, 2013. During the first quarter of 2013, net revenue of $0.6 million were related to the operation of Rocky Gap.

Also included in prior year first quarter net revenues were $2.7 million in management fees related to the management of the Red Hawk Casino, near Sacramento, California, owned by the Shingle Springs Band of Miwok Indians. There were no management fees earned during the first quarter of 2014 due to the August 2013 termination of the management agreement for the Red Hawk Casino.

During the first quarter of 2014, property operating expenses for Rocky Gap were $7.3 million, and primarily related to gaming operations, rooms, food and beverage and golf. During the first quarter of 2013, property operating expenses for Rocky Gap were $0.6 million, also primarily related to rooms, food and beverage and golf.

The increase in property operating expenses resulted primarily from the inclusion of gaming-related expenses in the current year quarter. Gaming commenced in May 2013, therefore, there were no such expenses in prior year first quarter.

For the first quarter of 2014, selling, general and administrative expenses were $5.7 million compared to $3.8 million for the first quarter of 2013. Included in these amounts were Lakes' corporate selling, general and administrative expenses of $2 million during each of the first quarters of 2014 and 2013.

Lakes' corporate selling, general and administrative expenses consists primarily of payroll and related expenses and professional fees. Rocky Gap selling, general and administrative expenses were $3.7 million and $1.8 million during the first quarters of 2014 and 2013, respectively.

The increase in Rocky Gap selling, general and administrative expenses was due primarily to increases in marketing and advertising expenses, and payroll and related expenses related to the addition of gaming during May of 2013. During the first quarter of 2013, Lakes recognized preopening expenses of $0.3 million related to the Rocky Gap project.

There were no preopening expenses during the current year period. Depreciation and amortization was $0.9 million for the three months ended March 30, 2014 compared to $0.3 million for the three months ended March 31, 2013.

The increase was due primarily to depreciation on Rocky Gap fixed assets. The Company has existing net operating loss carry forwards of approximately $72 million that are available to offset future taxable income.

In conclusion, we’re pleased that although increment weather negatively impacted operations at Rocky Gap in January and February, the property was able to meet overall first quarter expectations due to a successful March and we continue to meet our top and bottom line goals in April. We believe monetizing the Dania investment that had been previously written off, is a positive result for that asset.

We continue to maintain a 10% ownership interest in Rock Ohio Ventures, 80% ownership in the Horseshoe Casino Cleveland, the Horseshoe Casino Cincinnati, the Thistledown Racino in North Randall, Ohio and Turfway Park, a racetrack located in Florence, Kentucky. We are encouraged by the progress the Jamul Tribe and Penn National Gaming have reported related to the Tribe’s casino development.

Coupled with our cash position, we believe our overall asset base gives us flexibility when considering new opportunities to increase shareholder value. Now, I’ll turn the call over to the operator for questions.

How long do you think shareholders should wait for some kind of an indication as to what business will be in next?

This is Lyle Berman answering. That’s kind of a tough question because investors have many different criteria, so I can’t really speak to that.

What I can speak to is, we are actively and aggressively looking for new business opportunities both within and without the gaming industry. And as soon as we find one that we have signed agreements with, we certainly will disclose it to our shareholder base.

I guess we feel that with the asset base of our balance sheet that while investors are waiting, we think at the end of the day they’ll probably be well rewarded. But it’s hard to put criteria on what each industrial may or may not want.

Yes. You talked about the asset base on the balance sheet, how do we carry and how much is the Rock Ohio investment carried at there?

Tim, you want to answer that?

The Rock Ohio investment period at approximately $21 million, which is equivalent of our cash investment there.

Okay. Along those same lines, Rock Ohio is a private company, it's not a public company, do we get a (K1) [ph] or anything to report a tax basis on it?

We do get K1, yes.

Are the shareholders aware of what that shows?

No it’s not, because as you point out, it is a private company.

Excuse me?

No, that is not public information. As you point out, Rock is a private company.

Right. But Lakes is a public company; shouldn’t we be made available of that information?

Again, we’re sensitive to the fact that we may or may not have non-public information. And so we are really limited in releasing any non-public information that Rock may have.

Do you realize that, we have no idea if the casinos there are doing well, just holding their own, make further investments, I means Caesars is much the same position, but they are up 20%.

Well, in Caesars' case of course you realize that they are management company of those casino, so they are well aware of the information. But of course they are not reporting public either.

I think the best advice I can give in similar to what we do is you can follow the earnings reports from all the casinos publicly as they are filed with the state of Ohio each month.

Well, yes but that does give me gross numbers. I just don’t understand how we can keep a [indiscernible] private, when you’re a public company?

No, I was just going to say we are -- that is our basically our reporting guidelines, we report as our cash investment is recorded on a cash basis on the balance sheet. We do not receive earnings ourselves to report on our income statements.

But the Q1 would show whether you made or lost money, you did have -- if you lost you'd some debt deduction and if you made, you'd an obligation [indiscernible].

This is Lyle Berman answering. I think we’re kind of in a little bit of trap, but let me leave it with that, we will look into it.

Certainly we have a agreements with Rock that we will not disclose non-public information. I certainly can appreciate what you’re saying and if we could legally dispend, if we could legally show it we would be happy to legally show it, I think we'll research that and see.

Well, thank you very. I appreciate your help.

If you would like to follow-up an email to Mr. Cope, we'll answer that to you as soon to get the definitive answer.

Okay. That'll be great.

The only thing I don't want to know any secret information.

I understand and I certainly agree that shareholders of ours should be able to, but again we have agreements not to disclose on public, so let us look into and see what we can do or to see if we can get permission to do it.

I’ve got a question on the Turfway, horse racing in Ohio and Kentucky, it just suddenly appeared on the balance sheet. I don't know how you got that -- how did you get that investment, what percent do you own at the Turfway and what are your plans regarding that ownership?

We own that because we own 10% of Rock Ventures and some time ago, Rock Ventures entered into an agreement with Caesars Palace and they purchased the Turfway Park obviously with the anticipation that Kentucky may legalize gaming. Of that being said, we don’t have any involvement, we’re just a bystander in that we have no involvement in what’s going to happen to it, other than we own 10%.

10% on what percent…

That's going to be 80%, so we own effectively 8%.

8% of the Turfway's loan.

And 8% of the Cincinnati Horseshoe, Cleveland Horseshoe, and the Racino Thistledown.

Okay, my next question is for Tim, basically Tim you have some land in California that is being tremendously improved on a daily basis, do you have to wait until the casino opens before you can start booking some of those improvements?

I think you’re referring to the land near the Jamul Indian Village.

Correct.

Correct and then as you are aware that we reported publically we have or Penn has an option to purchase that land from us for $7 million.

But even if [indiscernible] were to turn you down, you still have a large sum of improvement money spent on that land and why aren’t you booking that as that goes along?

We are making no improvements on our land at this point.

But what about the Penn National, aren’t they making huge improvement to some kind of (lessor) [ph]?

Remember Penn arrangement is to build a casino on Jamul tribal reservation land. Our land is contiguous to the reservation land.

But they still got to get there and they've got to build roads and they’ve got to do some work on the surrounding the Jamul land.

Its Lyle Berman talking, as Tim pointed out, they have an option to buy the land for 10 years so we can do nothing for 10 years. It is certainly our anticipation that once the casino opens, they will probably exercise their option because they want to improve the land.

But at this point, they have not touched the land. They have no rights to touch the land and no improvements are going up on the land.

But how are they getting in or previously…

Okay they don’t -- our land is -- if you think of the road, our land is -- I think, the direction would be pretty much our land is contiguous to the reservation land but due west. They do not need our land for egress or exit from the casino.

Okay so basically they are not improving your land. They are improving the Indian land?

That’s correct and once the casino opens I’m reasonably certain they will want to use our land for other purposes and I’m pretty certain, I speculate but I’m reasonably confident that when the casino opens, they will buy our land, but it’s a fixed price of approximately $7 million. So we don’t gain any value from the improvement on the Indian reservation.

Certainly, our land if they didn’t have the option, would probably be worth more, but part of the incentive for Penn to become involved with the Tribe was giving them that option and certainly we were very interested and encouraging Penn to become partners with the Tribe because of the $60 million that the Tribe will repay us once the casino opens.

Yes, thanks for taking my question. Is a special dividend or tender offer under consideration at the current time?

It certainly is under consideration at all of our board meetings, we look at what’s on the table, what’s available to us, the idea -- certainly we’ve had shareholders that have encouraged us to buy back stock. We’ve also had shareholders who have encouraged us to give a special dividend and all of those are under consideration at each board meeting.

Well I know you’ve said in past calls that the options right now for new Indian casinos are very limited and the regional casino industry is not in the best shape either, so what are the areas that the Company is looking at for further investment?

Well, there still are -- I would agree with your on a global basis both of what you’ve just said are true. Certainly, there are still opportunities in gaming individual opportunities, certain things become for sale, I’m not saying that’s what our -- we are certainly looking at those opportunities, but we’re also looking outside of the gaming industry that for opportunities as well.

But as we’ve said, so far we haven’t found any, but we continue to look. But all those things, new investment, dividend and/or buyback are certainly all on the table at each meeting that we discuss.

What kind of areas outside of gaming would really be within the core competency of the Company?

Well, certainly I personally have been in a number of industries mostly in consumer products but certainly we’ve been in the retail business, we’ve been in the restaurant business. As a company, we’ve developed a large number of things in conjunction with casinos such as golf courses, hotels.

I would say basically in the consumer industry, probably we certainly don’t have core competency in high tech. We certainly a couple of things we’ve kind of ruled out as we don’t look at high tech and we don’t look at medical and we certainly don’t look at business plans.

If we’re looking at something that's going to be, something that has a reasonably growth to it and can use our cash to grow the Company.

Could you guys comment on the corporate SG&A during the quarter? So excluding that 2 million, it looks like the casino would have operated at a little north of 10% EBIT margin and that $8 million a year corporate SG&A level seems a bit high for 130 million company.

So I was wondering if you guys had plans to bring that down to a more appropriate level?

Tim, do you want to comment on that one?

Sure, I can. We have historically brought that down probably by at least half over the last two years.

We continue to look at all areas of the operation to reduce that operating number. I think we’re all in agreement with your comment about that seems like a fairly high number for a company our size.

So we’re continuing to look for ways to improve that. Part of what’s included in there is our ongoing support for Rocky Gap which become less and less overtime, so that’s part of the area we’ll be looking at reducing.

I’m still confused by that Turfway in Kentucky. The reason I’m confused is that the Lakes gaming press release for the last three years aside of Turfway has been owned by Rock gaming and the fact that, that did not suddenly appear on your balance sheet until 2014 kind of says what happened, did you forget to include it or was there some example which keyed it?

Roy, this is Tim. I guess my response to that is, it was included in '13 and we start including it at the time that -- we suddenly became aware of it that Rock Ohio had purchased that property.

They did not ask us for any additional capital outlay to do that. We just were a beneficiary of our 21 million that we had invested with Rock to end up with our basically 8% ownership also of Turfway.

Okay, I’ll again ask probably an unrelated question, but they also have at the top of their press release, so I’m talking about Rock gaming. Greektown in Detroit, is there any potential with Greektown in Detroit could be a sudden ownership?

No, again this is Mr. Berman.

Greektown -- our agreement with Rock Ventures is anything I believe anything in Ohio that they do and the Turfway Park. Anything else they do outside of Ohio and/or Greektown is strictly on their own for example even Greektown Ceasers was involved in that either.

They don’t manage that. Rock Ventures or Dan Gilbert’s company bought that in a separate company and they managed that themselves.

I have seen pictures then I’ve been to the Turfway Park and 8% of that is a fantastic all of a sudden appearing or not appearing on the balance sheet, you’ve got quite an asset there?

Well, if they legalize gaming, I think we have a very good asset. Without legalized gaming, I don’t think it makes much money.

Yet there is talk about Kentucky this fall, what if -- can you amplify that further?

Well, I again, I only know what I read in the newspapers so certainly Kentucky there is a lot of pressure on Kentucky to legalize gaming. But the horserace industry is extremely strong in Kentucky and I believe unless they get the rights to open up casinos and/or even casinos in the tracks, it probably won’t happen.

So that’s good news for us. We would like to see clearly.

We like to see Kentucky -- if they legalize Kentucky Turfway Park would be a very good asset?

That’s what I’ve said, you’ve got, well thank you, you’ve got quite an asset there and I wish you would start telling us about some of these assets you have that you don’t tell us about.

Okay, we will endeavor to do so.

This is Lyle again. I want to thank you all for your interest in our Company.

We look forward to having a conference call in the second quarter. Also during the second quarter, we will be finally having comparable results at Rocky Gap.

So thank you very much. Bye now.