##### Table of Contents









UNITED STATES SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549





Form 10-K





|           |  |                                                                                             
|---------- |  | --------------------------------------------------------------------------------------------
|(Mark One) |  |                                                                                             
|þ          |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934    
|          
|           |  | For the fiscal period ended December 31, 2005                                               
|          
|           |  | or                                                                                          
|          
|o          |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934
|          
|           |  | For the transition period
    from           to                                             

Commission File Number 000-51064





GREAT WOLF RESORTS, INC.


(Exact name of issuer as specified in its charter)


|                                                                   |  |                                         
|------------------------------------------------------------------ |  | ----------------------------------------
|Delaware                                                           |  | 51-0510250                              
|(State or other jurisdiction of
    incorporation or organization) |  | (I.R.S. Employer
    Identification No.)
|                                                                  
|122 West Washington Avenue
     Madison, Wisconsin 53703           |  | 53703(Zip Code)                         
|(Address of principal executive offices)                           |  |                                         

Registrants telephone number, including area code


608 661-4700


Securities registered pursuant to Section 12(b) of the
Act: None


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


|                                        |  |                                     
|--------------------------------------- |  | ------------------------------------
|Title of Each Class                     |  | Name of Exchange on Which Registered
|                                        |  |                                     
|Common Stock, par value $0.01 per share |  | Nasdaq National Market              

o þ


o þ


þ o


S-K 10-K 10-K. o


12b-2


o þ o


12b-2 o þ






DOCUMENTS INCORPORATED BY REFERENCE












---



##### 










Great Wolf Resorts, Inc.


Annual Report on
Form 10-K


For the Year Ended December 31, 2005


INDEX


|                                                         |  |                                                                                                                      |    |      |    | 
|-------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------- | -- | ---- | -- | 
|                                                         |  |                                                                                                                      |    | Page |   
|                                                         |  |                                                                                                                      |    | No.  |   
|                                                         |  |                                                                                                                      |    |      |   
|PART I                                                  
|Item 1.                                                  |  | Business                                                                                                             |    |      | 2  | 
|Item 1A.                                                 |  | Risk Factors                                                                                                         |    |      | 20 | 
|Item 1B.                                                 |  | Unresolved Staff Comments                                                                                            |    |      | 32 | 
|Item 2.                                                  |  | Properties                                                                                                           |    |      | 32 | 
|Item 3.                                                  |  | Legal Proceedings                                                                                                    |    |      | 32 | 
|Item 4.                                                  |  | Submission of Matters to a Vote of Security
    Holders                                                              |    |      | 33 | 
|                                                        
|PART II                                                 
|Item 5.                                                  |  | Market for Registrants Common Equity,
    Related Stockholder Matters and Issuer Purchases of Equity
    Securities |    |      | 33 | 
|Item 6.                                                  |  | Selected Financial Data                                                                                              |    |      | 34 | 
|Item 7.                                                  |  | Managements Discussion and Analysis
    of Financial Condition and Results of Operations                            |    |      | 36 | 
|Item 7A.                                                 |  | Quantitative and Qualitative Disclosures
    About Market Risk                                                       |    |      | 55 | 
|Item 8.                                                  |  | Financial Statements and Supplementary
    Data                                                                      |    |      | 56 | 
|Item 9.                                                  |  | Changes in and Disagreements with
    Accountants on Accounting and Financial Disclosure                             |    |      | 82 | 
|Item 9A.                                                 |  | Controls and Procedures                                                                                              |    |      | 82 | 
|Item 9B.                                                 |  | Other Information                                                                                                    |    |      | 88 | 
|                                                        
|PART III                                                
|Item 10.                                                 |  | Directors and Executive Officers of the
    Registrant                                                               |    |      | 88 | 
|Item 11.                                                 |  | Executive Compensation                                                                                               |    |      | 88 | 
|Item 12.                                                 |  | Security Ownership of Certain Beneficial
    Owners and Management and Related Stockholder Matters                   |    |      | 88 | 
|Item 13.                                                 |  | Certain Relationships and Related
    Transactions                                                                   |    |      | 88 | 
|Item 14.                                                 |  | Principal Accountant Fees and Services                                                                               |    |      | 88 | 
|                                                        
|PART IV                                                 
|Item 15.                                                 |  | Exhibits and Financial Statement
    Schedules                                                                       |    |      | 88 | 
|Signatures                                               |  |                                                                                                                      | 89 |     
|List of Subsidiaries                                    
|Consent of Independent Registered Public Accounting Firm
|Certification of CEO                                    
|Certification of CFO                                    
|Certification of CEO                                    
|Certification of CFO                                    



1



---



##### Table of Contents






PART I







|        |         
|------- | --------
|ITEM 1. | BUSINESS

Overview and
Development


10-K




®


10-K


10-K




CNL Joint Venture




2



---



##### Table of Contents



25-year


Properties  Overview




|                                         |  |            |     |   |         |              |        |  |     |               |  |  |               |  |  |  |        |    
|---------------------------------------- |  | ---------- | --- | - | ------- | ------------ | ------ |  | --- | ------------- |  |  | ------------- |  |  |  | ------ | ---
|                                         |  |            |     |   |         |              |        |  |     | Indoor        | 
|                                         |  | Ownership  |     |   |         |              | Guest  |  |     | Condo         |  |  | Entertainment | 
|                                         |  | Percentage |     |   | Opening |              | Suites |  |     | Units         |  |  | Area(1)       | 
|                                         |  |            |     |   |         |              |        |  |     |               |  |  |               | 
|                                         |  |            |     |   |         |              |        |  |     | (Approx. ft2) | 
|Existing Resorts:                        |  |            |     |   |         |              |        |  |     |               |  |  |               |  |  |  |        |    
|Wisconsin Dells, WI(2)                   |  |            | 30  | % |         | 1997         |        |  | 309 |               |  |  | 77            |  |  |  | 64,000 | (3)
|Sandusky, OH(2)                          |  |            | 30  | % |         | 2001         |        |  | 271 |               |  |  |              |  |  |  | 41,000 |    
|Traverse City, MI                        |  |            | 100 | % |         | 2003         |        |  | 281 |               |  |  |              |  |  |  | 51,000 |    
|Kansas City, KS                          |  |            | 100 | % |         | 2003         |        |  | 281 |               |  |  |              |  |  |  | 49,000 |    
|Sheboygan, WI                            |  |            | 100 | % |         | 2004         |        |  | 183 |               |  |  | 64            |  |  |  | 54,000 |    
|Williamsburg, VA                         |  |            | 100 | % |         | March 2005   |        |  | 301 | (4)           |  |  |              |  |  |  | 66,000 |    
|Pocono Mountains, PA                     |  |            | 100 | % |         | October 2005 |        |  | 401 |               |  |  |              |  |  |  | 91,000 |    
|Resorts Announced or Under Construction: |  |            |     |   |         |              |        |  |     |               |  |  |               |  |  |  |        |    
|Niagara Falls, ONT(5)                    |  |            |    |   |         | Spring 2006  |        |  | 406 |               |  |  |              |  |  |  | 94,000 |    
|Mason, OH(6)                             |  |            | 84  | % |         | Fall 2006    |        |  | 401 |               |  |  |              |  |  |  | 92,000 |    
|Chehalis, WA(7)                          |  |            | 49  | % |         | Late 2007    |        |  | 317 |               |  |  |              |  |  |  | 65,000 |    
|Grapevine, TX(8)                         |  |            | 100 | % |         | Late 2007    |        |  | 400 |               |  |  |              |  |  |  | 80,000 |    






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Our indoor entertainment areas generally include our indoor
    waterpark, game arcade, childrens activity room and
    fitness room, as well as our Aveda concept spa, Wileys
    Woods and party room in the resorts that have such amenities.                                                                                                                                                                                                                                                
|   
|(2) | On October 11, 2005 we formed a joint venture with CNL
    Income Properties, a real estate investment trust focused on
    leisure and lifestyle properties, and contributed this property
    to the joint venture. We own a 30% interest in this joint
    venture.                                                                                                                                                                                                                            
|   
|(3) | We have started a 37,000 square foot waterpark expansion at
    our Wisconsin Dells property. Construction on the expansion
    began in June 2005 and was completed in March 2006.                                                                                                                                                                                                                                                                                                               
|   
|(4) | We plan to add an additional 103 guest suites as well as new
    waterpark attractions at our Williamsburg property. Construction
    for the expansion is expected to start in Spring 2006 with
    expected completion in Spring 2007.                                                                                                                                                                                                                                                          
|   
|(5) | An affiliate of Ripley Entertainment, Inc., our licensee, which
    we refer to as Ripleys, owns this resort. We are assisting
    Ripleys with construction management and other pre-opening
    matters related to the Great Wolf Lodge in Niagara Falls. We
    have granted Ripleys a license to use the Great Wolf Lodge
    name for this resort for ten years after opening. We will manage
    the resort on behalf of Ripleys and will also provide
    central reservation services.
|   
|(6) | We have entered into a joint venture with Paramount Parks, Inc.,
    a unit of CBS Corporation, to build this resort. We will
    operate the resort under our Great Wolf Lodge brand and will
    maintain a majority equity position in the project. Paramount
    will have a minority equity interest in the development.
    Construction on the resort began in July 2005 with expected
    completion in Fall 2006.                                                                        

3



---



##### Table of Contents





|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(7) | We have entered into a joint venture with The Confederated
    Tribes of the Chehalis Reservation to build this resort. We will
    operate the resort under our Great Wolf Lodge brand. The
    Confederated Tribes of the Chehalis Reservation will contribute
    the land needed for the resort, and they will have a majority
    equity interest in the joint venture. Construction on the resort
    is expected to begin in Summer 2006 with expected completion in
    2007.
|   
|(8) | We have announced plans to develop a Great Wolf Lodge resort in
    Grapevine, Texas. The northwoods themed, six-story,
    approximately 400-suite resort will provide a comprehensive
    package of first-class destination lodging amenities and
    activities. Construction on the approximately
    400,000 square-foot building is scheduled to begin in
    Spring 2006 with expected completion in 2007.                                                                   

Northwoods Lodge Theme.


Guest Suites.


Indoor Waterparks.






4



---



##### Table of Contents











Amenities.




| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Themed Restaurants. Our resorts feature one or more
    full-service, themed restaurants and a themed bar and grille
    that serves alcoholic beverages and sandwiches. Our themed
    restaurants include the Gitchigoomie Grill, with a life-sized
    sea plane suspended over the dining area, Lumber Jacks
    Cook Shanty, the Loose Moose Bar & Grill, and the Camp
    Critter Bar & Grille, which features a two-story
    realistic tree with a canopy of leaves and canvas-topped booths
    with hanging lanterns, giving guests the impression that they
    are dining in a northwoods forest campsite. Our Blue Harbor
    Resort features our On the Rocks Bar & Grille and Rusty
    Anchor Buffet.
|
| |  | Ice Cream Shop and Confectionery. Each of our Great Wolf
    Lodge resorts, with the exception of our Sandusky resort, has a
    Bear Claw Café ice cream shop and confectionery that
    provides sandwiches,
    Starbucks®
    coffee, pastries, ice cream, candies, home-made fudge and other
    snacks that families can share together. Our Blue Harbor Resort
    has a Sweetshop Landing confectionery.                                                                                                                                                                                                                                                                                                      
|
| |  | Snack Bar. Each of our waterparks has a snack bar that
    offers a variety of sandwiches, pizzas and similar foods with
    ample seating so that our guests do not have to leave the warmth
    and comfort of the waterparks.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|
| |  | Gift Shop. Each of our resorts has a Buckhorn Exchange or
    Precious Cargo gift shop that provides unique themed gifts,
    including Great Wolf Lodge logo merchandise, souvenirs,
    collectibles and stuffed animals. The gift shop also offers
    resort toys, swimwear and personal necessities.                                                                                                                                                                                                                                                                                                                                                                                                             
|
| |  | Full-Service Spa. Each of our resorts, with the exception
    of our Sandusky resort, has an Aveda concept or Cameo spa that
    provides a relaxing get-a-way with a full complement of
    massages, facials, manicures, pedicures and other spa
    treatments, as well as yoga classes and a wide selection of
    Aveda products.                                                                                                                                                                                                                                                                                                                                                                                
|
| |  | Game Arcade. Our Youkon Jacks or Northern Lights
    game arcades range in size from approximately 3,900 to
    7,000 square feet, have over 70 games of skill and are
    divided into distinct areas with video and skill games that
    appeal to children of different ages. Tickets won from the games
    may be exchanged for a wide selection of merchandise that
    appeals to our younger guests.                                                                                                                                                                                                                                                                                                         

5



---



##### Table of Contents





| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Cub Club. Our Cub Club rooms are professionally staffed
    childrens activity rooms with programmed activities,
    including arts and crafts, games and nature hikes. Cub Club is a
    frequent guest program for our younger guests. Cub Club
    membership is open to all children who have stayed at one of our
    resorts and includes a periodic newsletter, exclusive offers,
    rewards for each stay and a free meal and dessert when members
    visit during their birthday month. We currently have more than
    10,000 Cub Club members. Our Blue Harbor Resort features a Crew
    Club frequent guest program and activities that are similar to
    our Cub Club.
|
| |  | Animated Clocktower. Each of our Great Wolf Lodge resorts
    has a two-story animated clocktower located in the resorts
    main atrium lobby. The clocktower provides daily theatrical
    entertainment through talking and singing trees, animals and
    northwoods figures. Our Blue Harbor Resort features a
    2,000-gallon water fountain featuring a hand-blown glass
    sculpture and a music and light show located in its main atrium
    lobby.                                                                                                                                                                                                                        
|
| |  | Outdoor Water Amenities. Outdoor water amenities
    complement our indoor waterpark facilities and allow our guests
    to take advantage of favorable weather conditions. Our outdoor
    water amenities include activity pools and a large deck or patio
    area and are generally open from May until September. Our
    Wisconsin Dells resort also has outdoor waterslides.                                                                                                                                                                                                                                                                                                     
|
| |  | Fitness Room. Our fitness rooms contain aerobic exercise
    equipment and weight-lifting machines with numerous televisions
    for active viewing.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|
| |  | Meeting Space. Our resorts offer meeting rooms ranging
    from approximately 3,000 to over 7,000 square feet that are
    available for guest meetings, including a 99-seat,
    state-of-the-art,
    symposium-style room at our Traverse City resort.                                                                                                                                                                                                                                                                                                                                                                                                                               
|
| |  | Conference Facility. Our Blue Harbor Resort features an
    approximately 21,000 square-foot attached conference
    facility that provides spaces ranging from approximately
    1,000 square feet to 10,000 square feet for a number
    of different types of conferences and conventions.                                                                                                                                                                                                                                                                                                                                                                                           
|
| |  | Wileys Woods. Wileys Woods is an interactive
    indoor live video game in a four-story, approximately
    16,000 square-foot structure located at our Wisconsin Dells
    resort. Children ages three and older wear electronic wrist
    bands and gain points by navigating slides, bridges, nets and
    mazes and performing a variety of tasks on over 60 machines and
    gadgets. Admission to Wileys Woods is free for all resort
    guests and is open to the public for a fee.                                                                                                                                                                                           

Operating Properties






| |                                               
| | ----------------------------------------------
| | Great Wolf Lodge of Wisconsin Dells, Wisconsin







6



---



##### Table of Contents







| |                                   
| | ----------------------------------
| | Great Wolf Lodge of Sandusky, Ohio

®








| |                                            
| | -------------------------------------------
| | Great Wolf Lodge of Traverse City, Michigan







| |                                        
| | ---------------------------------------
| | Great Wolf Lodge of Kansas City, Kansas



7



---



##### Table of Contents









| |                                           
| | ------------------------------------------
| | Blue Harbor Resort of Sheboygan, Wisconsin

12-acre






| |                                           
| | ------------------------------------------
| | Great Wolf Lodge of Williamsburg, Virginia

83-acre






8



---



##### Table of Contents







| |                                         
| | ----------------------------------------
| | Great Wolf Lodge of the Pocono Mountains

95-acre




Properties Announced or Under Construction




| |                                           
| | ------------------------------------------
| | Great Wolf Lodge of Niagara Falls, Ontario

start-up








9



---



##### Table of Contents







| |                                
| | -------------------------------
| | Great Wolf Lodge of Mason, Ohio

39-acre






| |                                         
| | ----------------------------------------
| | Great Wolf Lodge of Chehalis, Washington

39-acre






| |                                     
| | ------------------------------------
| | Great Wolf Lodge of Grapevine, Texas

51-acre 60-mile




10



---



##### Table of Contents



Business and Growth Strategies






| |   |                                                                                             
| | - | --------------------------------------------------------------------------------------------
| |  | Increase Total Resort Revenue. We intend to increase
    total resort revenue by increasing:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Average Room Rate: We plan to increase our average
    room rate over time by driving demand for our resorts and
    focusing on yield management techniques. We intend to increase
    demand through aggressive sales and marketing and increased
    visibility and by enhancing our brand image. We plan to employ
    our yield management techniques to project demand in order to
    effectively direct our sales and marketing efforts and
    selectively increase room rates. We believe that our focus on
    optimizing the relationship between room rates and occupancies
    will allow us to maximize profitability.                                                                                                                                                                                                                                                                                                             
|
| |  | Average Occupancy: We intend to maintain high occupancy
    levels during peak times and will focus on increasing our
    off-peak occupancies. Our off-peak occupancy levels generally
    occur in May, September and during the middle of the week. Our
    occupancy levels are affected by school calendars, with the
    summer months, spring break period and other school holidays
    achieving the highest occupancy levels. We will continue to seek
    to improve off-peak occupancy levels by holding special events
    and targeting group sales and conferences.                                                                                                                                                                                                                                                                                                                                                                
|
| |  | Other Revenue: We provide our guests with a
    self-contained vacation experience and attempt to capture a
    significant portion of their spending on food and beverage,
    entertainment and merchandise. Each of our resorts generally
    contains at least one themed restaurant, an ice cream shop and
    confectionery, snack shop, an Aveda concept spa, gift shop and
    game arcade. The average non-room revenue, including the revenue
    from these amenities, was approximately $110 per occupied
    room night for the year ended December 31, 2005. By
    providing these additional revenue-generating amenities, we seek
    to maximize the amount of time and money spent
    on-site by our guests.
    We have also entered into a number of co-marketing agreements
    with strategic partners and plan to enter into additional
    co-marketing agreements in the future in order to increase other
    revenue.



| |   |                                                                                                 
| | - | ------------------------------------------------------------------------------------------------
| |  | Leverage Our Economies of Scale. We will take advantage
    of the following economies of scale:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Increased Purchasing Power: We intend to capitalize on
    our increasing purchasing power with respect to operating
    supplies, food and beverage, insurance and employee benefits. As
    the number of resorts we own and operate increases, we expect to
    be able to leverage our increased buying volume and power to
    obtain more advantageous and predictable pricing on commodity
    goods and services. In addition, we intend to continue to manage
    increases and fluctuations in the cost of electricity, water and
    natural gas for our resorts by entering into volume-based
    contracts where we are able to do so.                          
|
| |  | Centralized Services: By centralizing certain of our
    services, we focus on decreasing our per-unit costs, increasing
    our control over those services and be in a position to deliver
    a greater quality of service to our customers. For example, our
    central reservations call center operates every day of the year,
    has approximately 100 full and part-time employees and accepts
    reservations for all of our resorts. The call center also has
    the capacity to efficiently handle high call volumes and should
    require only limited additional incremental costs over the next
    several years as we increase our portfolio of resorts.



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Build Upon Our Existing Brand Awareness and Loyalty. Our
    Great Wolf Lodge brand is symbolized by our distinctive and
    easily identifiable theming, from our captivating northwoods log
    cabin exterior, to our signature treehouse water fort, to our
    mascots and recognizable logos and merchandise. We believe we
    have fostered strong customer and brand loyalty, which is
    evidenced by our high levels of repeat and referral guests. We
    will continue to focus on ensuring that each of our guests
    associates the Great Wolf Lodge brand with a memorable and
    consistent family vacation experience.

11



---



##### Table of Contents







| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Capitalize on First-Mover Advantage. We intend to be the
    first to develop and operate family entertainment resorts
    featuring indoor waterparks in our selected target markets. We
    intend to continue to leverage our development expertise,
    existing platform and model and our access to capital to take
    advantage of the significant barriers to entry associated with
    the development of large family entertainment resorts with
    indoor waterparks like our Great Wolf Lodge resorts. We will
    seek to set the standard for quality, build on visible sites and
    capitalize on the opportunity to be located near other popular
    local attractions that draw our target customers. We believe
    that the combination of our first mover advantage and the
    significant barriers to entry in our target markets provide us
    with a competitive advantage.
|
| |  | Focus on Development and Strategic Growth Opportunities.
    Family entertainment resorts featuring indoor waterparks are a
    relatively new concept and a growing segment of the resort and
    entertainment industries. We intend to focus on this growth
    opportunity by:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Building in Target Markets: We intend to develop and open
    at least two new resorts each year for the next several years. A
    new resort, from market selection to opening, can take over four
    years to develop and build. We believe that our experience will
    enable us to more efficiently develop and build new resorts in
    our target markets.                                                                                                                                                                                                                                                                                                         
|
| |  | Selective Sales of Ownership Interests/Recycling of
    Capital: We will selectively consider opportunities to sell
    partial or whole interests in one or more of our owned and
    operated properties, as we did in our recent CNL joint venture.
    We intend to continue to manage all of our branded Great Wolf
    Lodge resorts, and we will consider transactions that allow us
    to maintain our management/licensing position at a resort while
    realizing value created through our development expertise. In
    those situations, we expect then to recycle capital generated by
    such transactions for investment in future growth opportunities.
|
| |  | Licensing Our Resort Concept Internationally: We plan to
    selectively seek licensing and management opportunities
    internationally. Similar to our arrangement with Ripleys
    in Niagara Falls, Ontario, we intend to enter into license and
    management agreements with reputable companies that have local
    market knowledge in order to increase revenues and expand the
    reach of our Great Wolf Lodge brand.                                                                                                                                                                                                                                        
|
| |  | Forming Strategic Partnerships: We will consider
    strategic partnerships on a selective basis. For example, we
    have entered into joint ventures with Paramount Parks, Inc., CNL
    Income Properties, and The Confederated Tribes of the Chehalis
    Reservation.                                                                                                                                                                                                                                                                                                                                                                                                 
|
| |  | Expanding and Enhancing Existing Resorts: We intend to
    focus on growth opportunities at our existing resorts by adding
    revenue-enhancing features that drive ancillary vacation
    spending to certain of our resorts and meet our target returns,
    including non-water based attractions. We also intend to pursue
    incremental revenue-generating opportunities, such as expanding
    the number of rooms and adding condominium units at certain of
    our resorts. In addition, we will consider adding conference
    centers at existing resorts to capture convention and other
    business travel revenue.                                       



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Continue to Innovate. We intend to leverage our in-house
    expertise, in conjunction with the knowledge and experience of
    our third-party suppliers and designers, to develop and
    implement the latest innovations in family entertainment
    activities and amenities, including waterpark attractions. We
    have received numerous industry awards for our guests
    experiences, our operations, innovative development, sales and
    marketing initiatives and materials, and employee retention.

12



---



##### Table of Contents



Our Competitive Strengths






| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Unforgettable Family Resort Experience. Each of our
    resorts provides a welcome opportunity for families to spend
    quality time together, relax and reconnect. In addition to our
    indoor waterparks, our resorts provide other activities and
    amenities that the entire family can enjoy together. Our family
    amenities and activities include themed restaurants, a game
    arcade, ice cream shop and confectionery, gift shop, snack shop,
    animated clocktower and fireside bedtime stories. We also have
    amenities and activities tailored to each member of the family,
    including our full-service Aveda concept spa, Cub Club for kids
    and fitness room. Our resorts also offer special events,
    including seasonal and holiday activities, wild animal and
    nature educational programs and other special events. We believe
    that our focus on delivering an unforgettable family resort
    experience appeals to our target customers and results in repeat
    visits and referrals. For the year ended December 31, 2005,
    we generated approximately 48% of our rooms revenue from repeat
    visitors and referral guests.
|
| |  | Value, Comfort and Convenience. Guest rooms at each of
    our resorts are spacious and comfortable suites that generally
    range in size from approximately 385 square feet to
    1,970 square feet and include a wet bar, microwave,
    refrigerator and dining and sitting area. Many of the suites
    have specific themes that are geared toward enhancing our
    younger guests experience, including our
    KidCabin®
    and Wolf Den Suites, which have a partitioned room with bunk
    beds designed as log cabins and northwoods forest dens,
    respectively. All of our resorts are within a convenient driving
    distance of our large target customer bases. Because our indoor
    waterparks and our other amenities generally are not impacted by
    weather conditions, we offer our guests a reliable experience.
    On average, a two-night stay at our resorts costs a family of
    four approximately $600, making it a very affordable family
    vacation option.                                                                                                                                                                              
|
| |  | Favorable Market Trends. We believe recent vacation
    trends favor our Great Wolf Lodge concept as the number of
    families choosing to take shorter, more frequent vacations that
    they can drive to have increased in recent years. We believe
    that these trends will continue and that we are well positioned
    to take advantage of them. We believe our resorts are less
    affected by changes in economic cycles, as drive-to destinations
    are less expensive and more convenient than destinations that
    require air travel. In addition, we have identified over 50
    markets in the United States that, according to Third Wave
    Research, each has a population in excess of five million people
    located within a convenient driving distance.                                                                                                                                                                                                                                                                                                                                                                                                
|
| |  | Market Presence and Barriers to Entry. We are the largest
    owner and operator of family entertainment resorts with indoor
    waterparks in the United States based on the number of resorts
    in operation. We believe this market presence gives us a
    significant competitive advantage in attracting guests and
    efficiently developing additional resorts. In addition, we
    believe the significant barriers to entry present in our
    industry segment, including operational complexity, substantial
    capital requirements, availability of suitable sites in
    desirable markets and a difficult, multi-year permitting
    process, discourage other companies in the lodging and
    entertainment industries from developing similar family
    entertainment resorts. A new Great Wolf Lodge resort typically
    takes from one to three years to develop, which includes market
    selection, site selection and permitting, an additional 15 to
    18 months to build and costs approximately $80,000 to
    $100,000.                                                                                                                           
|
| |  | Focus on Safety. We invest heavily in safety measures in
    the design and operation of our resorts. For example, we
    specifically design our waterparks with attention to sightlines
    and safety precautions and use one of the most respected
    training methods in the water safety industry to train each of
    our lifeguards. We design and construct our indoor waterparks
    with state-of-the-art
    air quality and water treatment systems. We also maintain and
    periodically upgrade our facilities to ensure that we provide
    our guests with
    best-in-class safety
    measures and systems.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| |  | Experienced Management Team and Committed and Motivated
    Staff. Our senior management team has significant experience
    in the hospitality, family resort and real estate development
    industries                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

13



---



##### Table of Contents



| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | and has significant expertise in operating complex, themed,
    family entertainment resorts featuring indoor waterparks. In
    addition, we have a team of skilled, loyal and committed
    employees at each of our resorts. We offer our resort employees
    a number of benefits, including a pleasant and rewarding work
    environment, career-oriented training, the ability to obtain
    consistent year-round work, which is uncommon in the resort
    industry, and career growth opportunities. As a result, we
    believe our employees are committed to delivering a superb
    customer experience and personally assuring that our guests
    fully enjoy their family vacation.

Industry Overview








Resort Operations






14



---



##### Table of Contents







| |                         
| | ------------------------
| | Training and Development





| |                    
| | -------------------
| | Sales and Marketing









15



---



##### Table of Contents





| |                            
| | ---------------------------
| | Maintenance and Inspections





Development Criteria






| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Large target customer base. We select development sites
    that generally have a minimum of five million target customers
    within a convenient driving distance. Because we offer an
    affordable vacation experience, we appeal to families in a
    variety of income ranges.                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| |  | Recognized tourist destination. We focus on drive-to
    destinations that attract a large number of tourists, including
    both emerging and traditional family vacation markets. We
    believe we can charge premium rates in these markets due to the
    high quality of our resorts and our family-oriented amenities
    and activities. In addition, the indoor nature of many of our
    amenities and activities allows us to reduce the impact of
    seasonality that negatively affects other attractions in these
    areas. These areas also often have active and effective local
    visitors and convention bureaus that complement our marketing
    and advertising efforts at little or no cost to us.
|
| |  | Highly visible and large sites. We generally develop
    resorts in highly visible locations along major roadways.
    Visibility from highways enhances easy drive-to access, provides
    marketing benefits due to high volumes of traffic and often
    produces synergies from adjacent land uses or complementary
    developments. We generally choose sites that have enough acreage
    to allow for potential expansions and future sales of out-lots.                                                                                                                                                                                                                                                            





16



---



##### Table of Contents



Competition












Governmental Regulation




17



---



##### Table of Contents









time-to




Environmental Matters






18



---



##### Table of Contents









clean-up clean-up




Insurance




19



---



##### Table of Contents







Intellectual Property




Employees




Offices




Code of Business Conduct and Ethics


www.greatwolf.com







|         |             
|-------- | ------------
|ITEM 1A. | RISK FACTORS



20



---



##### Table of Contents



We may not be able to develop new resorts or further develop
existing resorts on a timely or cost efficient basis, which
would adversely affect our growth strategy.






| |   |                                                                                                                                                         
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | development costs may exceed budgeted or contracted amounts;                                                                                            
|
| |  | delays in completion of construction;                                                                                                                   
|
| |  | failure to obtain all necessary zoning, land use, occupancy,
    construction, operating and other required governmental permits
    and authorizations;
|
| |  | changes in real estate, zoning, land use, environmental and tax
    laws;                                                                               
|
| |  | unavailability of financing on favorable terms;                                                                                                         
|
| |  | failure of developed properties to achieve desired revenue or
    profitability levels once opened;                                                     
|
| |  | competition for suitable development sites from competitors that
    may have greater financial resources or risk tolerance than we
    do; and         
|
| |  | the incurrence of substantial costs in the event a development
    project must be abandoned prior to completion.                                       



We compete with other family vacation travel destinations and
resorts.






We may not be able to manage our expected growth, which could
adversely affect our operating results.




21



---



##### Table of Contents





We have identified certain material weaknesses in our
internal controls.




10-K.


10-K


Accidents or injuries in our resorts, particularly in our
waterparks, may subject us to liability, and accidents or
injuries at our resorts or at competing resorts with waterparks
could adversely affect our safety reputation and attendance,
which would harm our business, financial condition and results
of operations.




22



---



##### Table of Contents







We and our predecessor entities have a history of losses and
we may not be able to achieve or sustain profitability.




Our business is dependent upon family vacation patterns,
which may cause fluctuations in our revenues.




We may not be able to attract a significant number of
customers from our key target markets, which would adversely
affect our business, financial condition and results of
operations.




Because we concentrate in a single industry segment, we may
be adversely affected by a downturn in that industry segment.




23



---



##### Table of Contents



Changes in consumer spending habits may affect our growth,
financial condition and results of operations.




Increases in operating costs and other expense items could
reduce our operating margins and adversely affect our growth,
financial condition and results of operations.












We may not be able to obtain additional financing on
favorable terms, if at all.






| |   |                                                 
| | - | ------------------------------------------------
| |  | general market conditions;                      
|
| |  | the markets perception of our growth potential;
|
| |  | our then-current debt levels;                   
|
| |  | our then-current and expected future earnings;  
|
| |  | our cash flow; and                              
|
| |  | the market price per share of our common stock. 

24



---



##### Table of Contents





Uninsured losses or losses in excess of our insurance
coverage could adversely affect our financial condition and our
cash flow, and there are a limited number of insurers that will
underwrite coverage for resorts with indoor waterparks.




We will be required to make certain capital expenditures to
maintain the quality of our resorts, which could adversely
affect our financial condition and results of operations.




We are defendants in certain litigation that may have a
material adverse impact on our operating results and financial
condition.






25



---



##### Table of Contents



We may not be able to adequately protect our intellectual
property, which could harm the value of our brands and adversely
affect our business.










Our operations may be adversely affected by extreme weather
conditions and the impact of disasters.




Compliance with the Americans with Disabilities Act and other
governmental regulations and changes in governmental rules and
regulations may adversely affect our financial condition and
results of operations.






26



---



##### Table of Contents





We face possible liability for environmental cleanup costs
and damages for contamination related to our properties, which
could adversely affect our business, financial condition and
results of operations.










clean-up


27



---



##### Table of Contents



clean-up




Regulation of the marketing and sale of condominiums,
including a prior offer of condominiums at our Blue Harbor
Resort, could adversely affect our business.








28



---



##### Table of Contents



The illiquidity of real estate may make it difficult for us
to dispose of one or more of our resorts.




The covenants in our mortgage loan agreements impose
significant restrictions on us.






| |   |                                                                         
| | - | ------------------------------------------------------------------------
| |  | incurring or guaranteeing additional indebtedness;                      
|
| |  | transferring or selling assets currently held by us;                    
|
| |  | transferring ownership interests in certain of our
    subsidiaries; and
|
| |  | reducing our tangible net worth below specified levels.                 



Certain of our insiders exercise considerable influence over
the company.


10-K,


We may have assumed unknown liabilities in connection with
the formation transactions.




We may issue partnership interests in the future that may be
dilutive to, and may have preferential rights over, our common
stockholders.




29



---



##### Table of Contents





Our stock price has been volatile in the past and may be
volatile in the future.






| |   |                                                                                                                                                
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------
| |  | variations in our quarterly operating results;                                                                                                 
|
| |  | changes in market valuations of companies in the resort
    industry, generally, and the family entertainment resort
    segment, specifically;
|
| |  | fluctuations in stock market prices and volumes;                                                                                               
|
| |  | issuances of common stock or other securities in the future;                                                                                   
|
| |  | the addition or departure of key personnel; and                                                                                                
|
| |  | announcements by us or our competitors of new properties,
    acquisitions or joint ventures.                                                  

10-K,


The sale of a substantial number of shares of our common
stock may cause the market price of our common stock to
decline.


10-K,


Provisions in our certificate of incorporation, bylaws,
employment agreements and Delaware law have anti-takeover
effects that could prevent a change in control that could be
beneficial to our stockholders, which could depress the market
price of our common stock.




30



---



##### Table of Contents







| |   |                                                                                                                                                                                                                                                
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | authorize our board of directors to issue blank
    check preferred stock and determine the powers,
    preferences and privileges of those shares without prior
    stockholder approval;                                                   
|
| |  | prohibit the right of our stockholders to act by written consent;                                                                                                                                                                              
|
| |  | limit the calling of special meetings of stockholders;                                                                                                                                                                                         
|
| |  | impose a requirement that holders of 50% of the outstanding
    shares of common stock are required to amend the provisions
    relating to actions by written consent of stockholders and the
    limitations of calling special meetings; and
|
| |  | provide for payments to certain of our executive officers upon
    termination of employment within certain time periods before or
    after a change of control.                                                                              

Forward-Looking Statements


10-K




Available Information


http://www.greatwolf.com 10-K, 10-Q, 8-K


31



---



##### Table of Contents






ITEM 1B.UNRESOLVED STAFF
COMMENTS









|        |           
|------- | ----------
|ITEM 2. | PROPERTIES





| |   |                                                                                                                                                                                                                                                                                                                                    
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Great Wolf Lodge of Wisconsin Dells is located on 22 acres
    in Wisconsin Dells, Wisconsin, all of which have been developed
    or are under development. This property is owned by a joint
    venture of which Great Wolf Resorts has a 30% minority interest
    and CNL Income Properties, Inc. has a 70% majority interest.
|
| |  | Great Wolf Lodge of Sandusky is located on 15 acres in
    Sandusky, Ohio, all of which have been developed. This property
    is owned by a joint venture of which Great Wolf Resorts has a
    30% minority interest and CNL Income Properties, Inc. has a 70%
    majority interest.                                            
|
| |  | Great Wolf Lodge of Traverse City is located on 48 acres in
    Traverse City, Michigan, of which 22 acres have been
    developed and 26 acres remain undeveloped.                                                                                                                                                                
|
| |  | Great Wolf Lodge of Kansas City is located on 17 acres in
    Kansas City, Kansas, all of which have been developed.                                                                                                                                                                                                               
|
| |  | Blue Harbor Resort of Sheboygan is located on 12 acres in
    Sheboygan, Wisconsin, all of which have been developed.                                                                                                                                                                                                              
|
| |  | Great Wolf Lodge of Williamsburg is located on 83 acres in
    Williamsburg, Virginia, of which 36 acres have been
    developed or are under development and 47 acres remain
    undeveloped.                                                                                                                                     
|
| |  | Great Wolf Lodge of the Pocono Mountains is located on
    95 acres in Pocono Township, near Stroudsburg,
    Pennsylvania, of which 45 acres are developed and
    50 acres remain undeveloped.                                                                                                                                   
|
| |  | Great Wolf Lodge at Paramounts King Island, which is
    currently under construction, will be located on 39 acres
    in Mason, Ohio, all of which are under development. We expect to
    have an 84% ownership in the joint venture that owns this resort.                                                                     
|
| |  | Great Wolf Lodge of Chehalis, which is currently in
    pre-development, will be located on 39 acres in Chehalis,
    Washington.                                                                                                                                                                                                  
|
| |  | Great Wolf Lodge of Grapevine, Texas, which is in the planning
    stage of being constructed, will be located on 51 acres in
    Grapevine, Texas, of which 30 acres are being developed and
    21 acres will remain undeveloped.                                                                                                










|        |                  
|------- | -----------------
|ITEM 3. | LEGAL PROCEEDINGS



32



---



##### Table of Contents












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






PART II







|        |                                                                                                                     
|------- | --------------------------------------------------------------------------------------------------------------------
|ITEM 5. | MARKET FOR REGISTRANTS COMMON EQUITY, RELATED
    STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
    SECURITIES



|             |                                             |             |   |       |     |  |   |       | 
|------------ | ------------------------------------------- | ----------- | - | ----- | --- |  | - | ----- | 
|             |                                             | Stock Price |  
|             |                                             |             |  
|             |                                             | High        |   |       | Low | 
|             |                                             |             |   |       |     | 
|Fiscal 2004: |                                             |             |   |       |     |  |   |      
|             | December 15, 2004 through December 31, 2004 |             | $ | 23.00 |     |  | $ | 18.65 | 
|Fiscal 2005: |                                             |             |   |       |     |  |   |      
|             | First Quarter                               |             | $ | 25.88 |     |  | $ | 20.07 | 
|             | Second Quarter                              |             | $ | 25.25 |     |  | $ | 17.80 | 
|             | Third Quarter                               |             | $ | 22.82 |     |  | $ | 9.20  | 
|             | Fourth Quarter                              |             | $ | 10.82 |     |  | $ | 8.00  | 
|Fiscal 2006: |                                             |             |   |       |     |  |   |      
|             | First Quarter through March 3, 2006         |             | $ | 11.23 |     |  | $ | 9.80  | 



Dividend Policy




33



---



##### Table of Contents










|        |                        
|------- | -----------------------
|ITEM 6. | SELECTED FINANCIAL DATA



Great Wolf Resorts Financial Information






| |   |                                                                                                                                                                                                          
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | our corporate entity that provides resort development and
    management services;                                                                                                                       
|
| |  | our Wisconsin Dells, Sandusky, Traverse City, Kansas City,
    Sheboygan, and Williamsburg operating resorts (we sold 70%
    interests in our Wisconsin Dells and Sandusky resorts in October
    2005);
|
| |  | equity interests in resorts in which we have ownership interests
    but which we do not consolidate; and                                                                                                
|
| |  | our resorts that are under construction which we will
    consolidate.                                                                                                                                   

Great Lakes Predecessor Financial Information






| |   |                                                                                                                                                                                                                                                
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | GLC and its consolidated subsidiaries, including development of,
    ownership interests in, and management contracts with respect
    to, resorts and certain non-resort hotels and multifamily
    housing development and management assets;
|
| |  | the entities that owned our Traverse City, Kansas City and
    Sheboygan operating resorts; and                                                                                                                                                
|
| |  | the entities that owned our Williamsburg and Pocono Mountains
    resorts that were under construction.                                                                                                                                        





34



---



##### Table of Contents



10-K.


|                                                                                         |                                           |                                                  |         |            |                    |   |         |                   |     |   |             |        |  |             |         |        |             |   |         |        |  |   |        |        | 
|---------------------------------------------------------------------------------------- | ----------------------------------------- | ------------------------------------------------ | ------- | ---------- | ------------------ | - | ------- | ----------------- | --- | - | ----------- | ------ |  | ----------- | ------- | ------ | ----------- | - | ------- | ------ |  | - | ------ | ------ | 
|                                                                                         |                                           | 2005                                             |         |            | December 21, 2004- |   |         | January 1, 2004-  |     |   |             |        |  |             |        
|                                                                                         |                                           | Great Wolf                                       |         |            | December 31, 2004  |   |         | December 20, 2004 |     |   | 2003        |        |  | 2002        |         |        | 2001        |  
|                                                                                         |                                           | Resorts                                          |         |            | Great Wolf Resorts |   |         | Predecessor       |     |   | Predecessor |        |  | Predecessor |         |        | Predecessor |  
|                                                                                         |                                           |                                                  |         |            |                    |   |         |                   |     |   |             |        |  |             |         |        |             |  
|                                                                                         |                                           | (Dollars in thousands, except per share amounts) |        
|Statement of Operations:                                                                 |                                           |                                                  |         |            |                    |   |         |                   |     |   |             |        |  |             |         |        |             |   |         |        |  |   |        |       
|Revenues:                                                                                |                                           |                                                  |         |            |                    |   |         |                   |     |   |             |        |  |             |         |        |             |   |         |        |  |   |        |       
|                                                                                         | Rooms                                     |                                                  | $       | 73,207     |                    |   | $       | 3,261             |     |   | $           | 31,438 |  |             | $       | 18,801 |             |   | $       |       |  |   | $      |       | 
|                                                                                         | Food, beverage and other                  |                                                  |         | 36,846     |                    |   |         | 1,289             |     |   |             | 16,110 |  |             |         | 9,439  |             |   |         |       |  |   |        | 312    | 
|                                                                                         | Sales of condominiums                     |                                                  |         | 25,862     |                    |   |         |                  |     |   |             |       |  |             |         |       |             |   |         |       |  |   |        |       | 
|                                                                                         | Management and other fees                 |                                                  |         | 494        |                    |   |         | 79                |     |   |             | 3,157  |  |             |         | 3,109  |             |   |         | 3,329  |  |   |        | 3,022  | 
|                                                                                         | Management and other fees-related parties |                                                  |         | 482        |                    |   |         |                  |     |   |             |       |  |             |         |       |             |   |         |       |  |   |        |       | 
|                                                                                         | Other revenue from managed properties(1)  |                                                  |         | 2,524      |                    |   |         |                  |     |   |             | 14,553 |  |             |         | 14,904 |             |   |         | 14,889 |  |   |        | 13,286 | 
|                                                                                         |                                           |                                                  |         |            |                    |   |         |                   |     |   |             |        |  |             |         |        |             |  
|Total revenues                                                                           |                                           |                                                  | 139,415 |            |                    |   | 4,629   |                   |     |   | 65,258      |        |  |             | 46,253  |        |             |   | 18,218  |        |  |   | 16,620 |       
|                                                                                         |                                           |                                                  |         |            |                    |   |         |                   |     |   |             |        |  |             |         |        |             |  
|Operating expenses by department:                                                        |                                           |                                                  |         |            |                    |   |         |                   |     |   |             |        |  |             |         |        |             |   |         |        |  |   |        |       
|                                                                                         | Rooms                                     |                                                  |         | 10,944     |                    |   |         | 298               |     |   |             | 4,917  |  |             |         | 3,265  |             |   |         |       |  |   |        |       | 
|                                                                                         | Food, beverage and other                  |                                                  |         | 31,407     |                    |   |         | 958               |     |   |             | 13,678 |  |             |         | 8,580  |             |   |         |       |  |   |        |       | 
|Other operating expenses:                                                                |                                           |                                                  |         |            |                    |   |         |                   |     |   |             |        |  |             |         |        |             |   |         |        |  |   |        |       
|                                                                                         | Selling, general and administrative       |                                                  |         | 26,894     |                    |   |         | 7,372             |     |   |             | 18,613 |  |             |         | 11,376 |             |   |         | 4,159  |  |   |        | 3,853  | 
|                                                                                         | Property operating costs                  |                                                  |         | 24,798     |                    |   |         | 295               |     |   |             | 8,810  |  |             |         | 5,283  |             |   |         | 631    |  |   |        |       | 
|                                                                                         | Depreciation and amortization             |                                                  |         | 26,248     |                    |   |         | 1,897             |     |   |             | 12,925 |  |             |         | 7,744  |             |   |         | 212    |  |   |        | 73     | 
|                                                                                         | Costs of sales of condominiums            |                                                  |         | 16,780     |                    |   |         |                  |     |   |             |       |  |             |         |       |             |   |         |       |  |   |        |       | 
|                                                                                         | Loss on sale of property                  |                                                  |         | 26,161     |                    |   |         |                  |     |   |             |       |  |             |         |       |             |   |         |       |  |   |        |       | 
|                                                                                         | Other expenses from managed properties(1) |                                                  |         | 2,524      |                    |   |         |                  |     |   |             | 14,553 |  |             |         | 14,904 |             |   |         | 14,808 |  |   |        | 13,286 | 
|                                                                                         |                                           |                                                  |         |            |                    |   |         |                   |     |   |             |        |  |             |         |        |             |  
|Total operating expenses                                                                 |                                           |                                                  | 165,756 |            |                    |   | 10,820  |                   |     |   | 73,496      |        |  |             | 51,152  |        |             |   | 19,810  |        |  |   | 17,212 |       
|                                                                                         |                                           |                                                  |         |            |                    |   |         |                   |     |   |             |        |  |             |         |        |             |  
|Operating loss                                                                           |                                           |                                                  | (26,341 | )          |                    |   | (6,191  | )                 |     |   | (8,238      | )      |  |             | (4,899  | )      |             |   | (1,592  | )      |  |   | (592   | )     
|Interest income                                                                          |                                           |                                                  | (1,623  | )          |                    |   | (66     | )                 |     |   | (224        | )      |  |             | (55     | )      |             |   | (88     | )      |  |   | (76    | )     
|Interest expense                                                                         |                                           |                                                  | 6,728   |            |                    |   | 280     |                   |     |   | 6,748       |        |  |             | 4,413   |        |             |   | 217     |        |  |   | 366    |       
|(Gain) loss on sale of investments and securities                                        |                                           |                                                  |        |            |                    |   |        |                   |     |   | (1,653      | )      |  |             |        |        |             |   | 13      |        |  |   | (96    | )     
|Interest on mandatorily redeemable shares                                                |                                           |                                                  |        |            |                    |   |        |                   |     |   | 1,761       |        |  |             | (3,136  | )      |             |   | 4,479   |        |  |   | 390    |       
|                                                                                         |                                           |                                                  |         |            |                    |   |         |                   |     |   |             |        |  |             |         |        |             |  
|Loss before income taxes, minority interest, and equity in
    unconsolidated affiliates |                                           |                                                  | (31,446 | )          |                    |   | (6,405  | )                 |     |   | (14,870     | )      |  |             | (6,121  | )      |             |   | (6,213  | )      |  |   | (1,176 | )     
|Income tax benefit                                                                       |                                           |                                                  | (7,199  | )          |                    |   | (2,563  | )                 |     |   |            |        |  |             |        |        |             |   |        |        |  |   |       |       
|Minority interests, net of tax                                                           |                                           |                                                  | (4      | )          |                    |   |        |                   |     |   |            |        |  |             |        |        |             |   |        |        |  |   |       |       
|Equity in unconsolidated affiliates, net of tax                                          |                                           |                                                  | 170     |            |                    |   |        |                   |     |   |            |        |  |             |        |        |             |   |        |        |  |   |       |       
|                                                                                         |                                           |                                                  |         |            |                    |   |         |                   |     |   |             |        |  |             |         |        |             |  
|Loss from continuing operations                                                          |                                           |                                                  | (24,413 | )          |                    |   | (3,842  | )                 |     |   | (14,870     | )      |  |             | (6,121  | )      |             |   | (6,213  | )      |  |   | (1,176 | )     
|Income (loss) from discontinued operations                                               |                                           |                                                  |        |            |                    |   |        |                   |     |   | 1,928       |        |  |             | 1,118   |        |             |   | (542    | )      |  |   | 332    |       
|                                                                                         |                                           |                                                  |         |            |                    |   |         |                   |     |   |             |        |  |             |         |        |             |  
|Loss before cumulative effect of change in accounting principle                          |                                           |                                                  | (24,413 | )          |                    |   | (3,842  | )                 |     |   | (12,942     | )      |  |             | (5,003  | )      |             |   | (6,755  | )      |  |   | (844   | )     
|Cumulative effect of change in accounting principle                                      |                                           |                                                  |        |            |                    |   |        |                   |     |   |            |        |  |             | 460     |        |             |   |        |        |  |   | (333   | )     
|                                                                                         |                                           |                                                  |         |            |                    |   |         |                   |     |   |             |        |  |             |         |        |             |  
|Net loss                                                                                 |                                           | $                                                | (24,413 | )          |                    | $ | (3,842  | )                 |     | $ | (12,942     | )      |  | $           | (4,543  | )      |             | $ | (6,755  | )      |  | $ | (1,177 | )     
|                                                                                         |                                           |                                                  |         |            |                    |   |         |                   |     |   |             |        |  |             |         |        |             |  
|Basic loss per share                                                                     |                                           | $                                                | (0.81   | )          |                    | $ | (0.13   | )                 |     |   |             |        |  |             |         |        |             |   |         |        |  |   |        |       
|Diluted loss per share                                                                   |                                           | $                                                | (0.81   | )          |                    | $ | (0.13   | )                 |     |   |             |        |  |             |         |        |             |   |         |        |  |   |        |       
|Weighted average common shares outstanding                                              |                                           |                                                  |         |            |                    |   |         |                   |     |   |             |        |  |             |         |        |             |   |         |        |  |   |        |       
|                                                                                         | Basic                                     |                                                  |         | 30,134,146 |                    |   |         | 30,132,896        | (2) |   |             |        |  |             |         |        |             |   |         |        |  |   |        |        | 
|                                                                                         | Diluted                                   |                                                  |         | 30,134,146 |                    |   |         | 30,132,896        | (2) |   |             |        |  |             |         |        |             |   |         |        |  |   |        |        | 
|Cash Flows:                                                                              |                                           |                                                  |         |            |                    |   |         |                   |     |   |             |        |  |             |         |        |             |   |         |        |  |   |        |       
|Cash flows from:                                                                         |                                           |                                                  |         |            |                    |   |         |                   |     |   |             |        |  |             |         |        |             |   |         |        |  |   |        |       
|Operating activities                                                                     |                                           | $                                                | 17,788  |            |                    | $ | 762     |                   |     | $ | 3,637       |        |  | $           | 8,126   |        |             | $ | 376     |        |  |   |        |       
|Investing activities                                                                     |                                           |                                                  | (65,496 | )          |                    |   | (97,583 | )                 |     |   | (64,472     | )      |  |             | (64,280 | )      |             |   | (46,276 | )      |  |   |        |       
|Financing activities                                                                     |                                           |                                                  | 23,081  |            |                    |   | 172,151 |                   |     |   | 61,424      |        |  |             | 54,854  |        |             |   | 49,797  |        |  |   |        |       
|Balance Sheet Data (end of period):                                                      |                                           |                                                  |         |            |                    |   |         |                   |     |   |             |        |  |             |         |        |             |   |         |        |  |   |        |       
|Total assets                                                                             |                                           | $                                                | 605,526 |            |                    | $ | 622,025 |                   |     |   |             |        |  | $           | 173,494 |        |             | $ | 106,751 |        |  | $ | 54,191 |       
|Total long-term debt                                                                     |                                           |                                                  | 168,328 |            |                    |   | 142,665 |                   |     |   |             |        |  |             | 93,733  |        |             |   | 37,710  |        |  |   | 9,466  |       
|Long-term debt secured by assets of spun-off entities                                    |                                           |                                                  |        |            |                    |   |        |                   |     |   |             |        |  |             | 12,108  |        |             |   | 5,054   |        |  |   | 5,177  |       
|Long-term debt secured by assets held for sale                                           |                                           |                                                  |        |            |                    |   |        |                   |     |   |             |        |  |             | 14,220  |        |             |   | 31,564  |        |  |   | 34,193 |       
|Non-GAAP financial                                                                       |                                           |                                                  |         |            |                    |   |         |                   |     |   |             |        |  |             |         |        |             |   |         |        |  |   |        |       
|Measures:                                                                                |                                           |                                                  |         |            |                    |   |         |                   |     |   |             |        |  |             |         |        |             |   |         |        |  |   |        |       
|EBITDA                                                                                   |                                           | $                                                | (369    | )(3)       |                    | $ | (4,294  | )(3)              |     | $ | 6,507       | (3)    |  | $           | 7,559   | (3)    |             | $ | 334     |        |  | $ | 6,287  |       

35



---



##### Table of Contents








|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Reflects reimbursement of payroll, benefits and costs related to
    the operations of properties managed by us in 2005 and the
    Predecessor in 2001-2004.                                                                                                                                                                                                                                                                                                                                      
|   
|(2) | We currently have 30,277,308 shares of our common stock
    outstanding. Included in that total are 129,412 shares held
    in a trust that holds the assets to pay obligations under our
    deferred compensation plan. Under applicable accounting rules,
    the shares of common stock held in that trust are treated as
    treasury stock for purposes of our earnings per share
    computations and are therefore excluded from the basic and
    diluted earnings per share calculations.
|   
|(3) | See reconciliation to net loss in Managements
    Discussion and Analysis of Financial Condition and Results of
    Operation  Non-GAAP Financial Measures.                                                                                                                                                                                                                                                                                                                                    






|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|ITEM 7. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
    CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with
the financial statements and notes thereto appearing elsewhere
in this report. Where appropriate, the following discussion
includes analysis of the effects of our IPO, the formation
transactions and related refinancing transactions and certain
other transactions. We make statements in this section that are
forward-looking statements within the meaning of the federal
securities laws. For a complete discussion of forward-looking
statements, see the section in Item 1A of this Annual
Report on
Form 10-K report
entitled Forward-Looking Statements. Certain risk
factors may cause our actual results, performance or
achievements to differ materially from those expressed or
implied by the following discussion. For a discussion of such
risk factors, see the sections in Item 1A of this Annual
Report on
Form 10-K report
entitled Risk Factors and Forward-Looking
Statements. All dollar amounts in this discussion, except
for per share data and operating statistics, are in
thousands.


Overview




Formation.






| |   |                                                                                                                                                                                                                                                                                                                                                                                                                     
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The Predecessor contributed its hotel management and multifamily
    housing management and development assets, which were unrelated
    to the resort business, to two subsidiaries of the Predecessor
    and then distributed the interests in those subsidiaries to the
    former shareholders of The Great Lakes Companies, Inc. (GLC)
    (one of the Predecessors entities).                               
|
| |  | We acquired GLC and seven resort-owning entities. Pursuant to
    these acquisitions, investors of GLC and the resort-owning
    entities received cash, unregistered shares of our common stock
    or a combination of cash and unregistered shares of our common
    stock. We issued 13,901,947 shares of our common stock and
    paid approximately $97,600 in cash in connection with these
    acquisitions.
|
| |  | We issued an aggregate of 130,949 shares of unregistered
    common stock to holders of tenant in common interests in two of
    our resorts.                                                                                                                                                                                                                                                                       



36



---



##### Table of Contents





Business.






|                                         |  |            |     |   |         |              |        |  |     |               |  |  |               |  |  |  |        |    
|---------------------------------------- |  | ---------- | --- | - | ------- | ------------ | ------ |  | --- | ------------- |  |  | ------------- |  |  |  | ------ | ---
|                                         |  |            |     |   |         |              |        |  |     | Indoor        | 
|                                         |  | Ownership  |     |   |         |              | Guest  |  |     | Condo         |  |  | Entertainment | 
|                                         |  | Percentage |     |   | Opening |              | Suites |  |     | Units         |  |  | Area(1)       | 
|                                         |  |            |     |   |         |              |        |  |     |               |  |  |               | 
|                                         |  |            |     |   |         |              |        |  |     | (Approx. ft2) | 
|Existing Resorts:                        |  |            |     |   |         |              |        |  |     |               |  |  |               |  |  |  |        |    
|Wisconsin Dells, WI(2)                   |  |            | 30  | % |         | 1997         |        |  | 309 |               |  |  | 77            |  |  |  | 64,000 | (3)
|Sandusky, OH(2)                          |  |            | 30  | % |         | 2001         |        |  | 271 |               |  |  |              |  |  |  | 41,000 |    
|Traverse City, MI                        |  |            | 100 | % |         | 2003         |        |  | 281 |               |  |  |              |  |  |  | 51,000 |    
|Kansas City, KS                          |  |            | 100 | % |         | 2003         |        |  | 281 |               |  |  |              |  |  |  | 49,000 |    
|Sheboygan, WI                            |  |            | 100 | % |         | 2004         |        |  | 183 |               |  |  | 64            |  |  |  | 54,000 |    
|Williamsburg, VA                         |  |            | 100 | % |         | March 2005   |        |  | 301 | (4)           |  |  |              |  |  |  | 66,000 |    
|Pocono Mountains, PA                     |  |            | 100 | % |         | October 2005 |        |  | 401 |               |  |  |              |  |  |  | 91,000 |    
|Resorts Announced or Under Construction: |  |            |     |   |         |              |        |  |     |               |  |  |               |  |  |  |        |    
|Niagara Falls, ONT(5)                    |  |            |    |   |         | Spring 2006  |        |  | 406 |               |  |  |              |  |  |  | 94,000 |    
|Mason, OH(6)                             |  |            | 84  | % |         | Fall 2006    |        |  | 401 |               |  |  |              |  |  |  | 92,000 |    
|Chehalis, WA(7)                          |  |            | 49  | % |         | Late 2007    |        |  | 317 |               |  |  |              |  |  |  | 65,000 |    
|Grapevine, TX(8)                         |  |            | 100 | % |         | Late 2007    |        |  | 400 |               |  |  |              |  |  |  | 80,000 |    






|    |                                                                                                                                                                                                                                                   
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Our indoor entertainment areas generally include our indoor
    waterpark, game arcade, childrens activity room and
    fitness room, as well as our Aveda concept spa, Wileys
    Woods and party room in the resorts that have such amenities.

37



---



##### Table of Contents





|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | On October 11, 2005 we formed a joint venture with CNL
    Income Properties, a real estate investment trust focused on
    leisure and lifestyle properties, and contributed this property
    to the joint venture. We own a 30% interest in this joint
    venture.                                                                                                                                                                                                                            
|   
|(3) | We have started a 37,000 square foot waterpark expansion at
    our Wisconsin Dells property. Construction on the expansion
    began in June 2005 and was completed in March 2006.                                                                                                                                                                                                                                                                                                               
|   
|(4) | We plan to add an additional 103 guest suites as well as new
    waterpark attractions at our Williamsburg property. Construction
    for the expansion is expected to start in Spring 2006 with
    expected completion in Spring 2007.                                                                                                                                                                                                                                                          
|   
|(5) | An affiliate of Ripley Entertainment, Inc., our licensee, which
    we refer to as Ripleys, owns this resort. We are assisting
    Ripleys with construction management and other pre-opening
    matters related to the Great Wolf Lodge in Niagara Falls. We
    have granted Ripleys a license to use the Great Wolf Lodge
    name for this resort for ten years after opening. We will manage
    the resort on behalf of Ripleys and will also provide
    central reservation services.
|   
|(6) | We have entered into a joint venture with Paramount Parks, Inc.,
    a unit of CBS Corporation, to build this resort. We will
    operate the resort under our Great Wolf Lodge brand and will
    maintain a majority equity position in the project. Paramount
    will have a minority equity interest in the development.
    Construction on the resort began in July 2005 with expected
    completion in Fall 2006.                                                                        
|   
|(7) | We have entered into a joint venture with The Confederated
    Tribes of the Chehalis Reservation to build this resort. We will
    operate the resort under our Great Wolf Lodge brand. The
    Confederated Tribes of the Chehalis Reservation will contribute
    the land needed for the resort, and they will have a majority
    equity interest in the joint venture. Construction on the resort
    is expected to begin in Summer 2006 with expected completion in
    2007.             
|   
|(8) | We have announced plans to develop a Great Wolf Lodge resort in
    Grapevine, Texas. The northwoods themed, six-story,
    approximately 400-suite resort will provide a comprehensive
    package of first-class destination lodging amenities and
    activities. Construction on the approximately
    400,000 square-foot building is scheduled to begin in
    Spring 2006 with expected completion in 2007.                                                                                

Industry Trends.








38



---



##### Table of Contents



Outlook.












| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | A slower-than-expected summer vacation season in the Midwest. In
    particular, our Sandusky and Traverse City resorts are highly
    impacted by consumer spending in the Ohio and Michigan regions.
    We believe that adverse general economic circumstances in those
    regions (such as bankruptcies of several major companies and/or
    large announced layoffs by major employers) have negatively
    impacted overall discretionary consumer spending in those
    regions, and may continue to do so in the future.                                                                                                                                                                                                                             
|
| |  | Competitive pressures at some of our resorts, most notably our
    Sandusky property. The Sandusky market has been impacted by an
    increase in the number of competitive rooms of indoor waterpark
    resorts. Through the second quarter of 2004, our 271-room resort
    was the only indoor waterpark resort in that market, but at
    December 31, 2005, indoor waterpark resorts have more than
    800 rooms in this market. Although our long-term view of the
    Sandusky market is positive based on our experience with
    competition in the Wisconsin Dells market, we believe the
    absorption of the new supply of indoor waterpark rooms in the
    Sandusky market will occur over time with a gradual increase in
    overall demand.
|
| |  | A slower-than-expected occupancy
    ramp-up at our
    Sheboygan, Wisconsin property. This resort opened in June 2004,
    but the overall development of Sheboygan as a tourist
    destination continues to lag behind our initial expectations.
    This has impacted the consumer demand for our indoor waterpark
    resort in that market, and we expect the
    ramp-up period for this
    resort to extend through 2006.                                                                                                                                                                                                                                                                                                                             

39



---



##### Table of Contents





| |   |                                                                                                                                                                                                                                                                                                               
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | A shortening of the booking window for customers making
    reservations at our resorts. This change from prior years
    decreases our ability to project demand trends and patterns at
    our resorts, thereby lessening our capacity to selectively
    increase room rates during periods of peak demand.





| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | We have implemented revised, targeted marketing programs at each
    of our resorts for 2006 to address the softness in demand we
    witnessed at our locations in 2005.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|
| |  | We have reviewed all of our resorts operating budgets for
    2006 and have taken steps to reduce or eliminate certain
    operating costs in order to more closely align our cost
    structure with our budgeted revenue expectations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|
| |  | We have increased our corporate operations staffing in order to
    better understand and respond to current demand, customer
    booking and operating trends.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| |  | We have implemented internal monitoring and reporting processes
    that provide enhanced information on demand, in order to
    maximize our ability to best price room rates in an environment
    with shorter customer booking windows.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|
| |  | We entered into a joint venture in October 2005 with CNL Income
    Properties to diversify our geographic ownership concentration
    and income streams. The joint venture acquired our Wisconsin
    Dells and Sandusky resorts. Under the joint venture, CNL
    purchased a 70 percent equity interest in the joint
    venture, with us retaining the remaining 30 percent. We
    received approximately $80,000 in proceeds from CNL for their
    purchase of the 70 percent joint venture interest. On
    March 2, 2006, the joint venture entered into a loan
    agreement and borrowed $63,000. The loan is secured by the joint
    ventures interests in its owned Great Wolf Lodge resorts
    in Wisconsin Dells, Wisconsin and Sandusky, Ohio. Pursuant to
    the joint venture agreement, we received 30% of the net loan
    proceeds, or approximately $18,600. We will continue to operate
    the properties and license the Great Wolf Lodge brand to the
    joint venture under
    25-year agreements.





| |   |                                                                                                                                                                                                   
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Monetizing a majority interest in our two most mature assets and
    providing approximately $98 million in capital we can
    recycle and use for future development of resorts.                 
|
| |  | Reducing our exposure to the potential volatility of ongoing
    operating results in two markets by decreasing our ownership
    interests in the two resorts from 100 percent to
    30 percent.
|
| |  | Creating more predictable, long-term income streams through the
    new management and licensing contracts on these two resorts.                                                                  

Revenue and Key Performance Indicators.




| |   |                                                                                                                                                                        
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Monitoring our historical trends for occupancy and estimating
    our high occupancy nights;                                                                           
|
| |  | Offering the highest discounts to previous guests in off-peak
    periods to build customer loyalty and enhance our ability to
    charge higher rates in peak periods;
|
| |  | Structuring rates to allow us to offer our previous guests the
    best rate while simultaneously working with a promotional
    partner or offering internet specials;

40



---



##### Table of Contents





| |   |                                                                                                                   
| | - | ------------------------------------------------------------------------------------------------------------------
| |  | Monitoring sales of room types daily to evaluate the
    effectiveness of offered discounts; and                  
|
| |  | Offering specials on standard suites and yielding better rates
    on larger suites when standard suites sell out.

on-site






| |   |                                                                               
| | - | ------------------------------------------------------------------------------
| |  | occupancy;                                                                    
|
| |  | average daily room rate, or ADR;                                              
|
| |  | revenue per available room, or RevPAR;                                        
|
| |  | total revenue per available room, or Total RevPAR;                            
|
| |  | total revenue per occupied room, or Total RevPOR; and                         
|
| |  | earnings before interest, taxes, depreciation and amortization,
    or EBITDA.





| |   |                                                                                       
| | - | --------------------------------------------------------------------------------------
| |  | Occupancy is calculated by dividing total occupied rooms by
    total available rooms.
|
| |  | ADR is calculated by dividing total rooms revenue by total
    occupied rooms.        
|
| |  | RevPAR is the product of occupancy and ADR.                                           





| |   |                                                                            
| | - | ---------------------------------------------------------------------------
| |  | Total RevPAR is calculated by dividing total revenue by rooms
    available
|
| |  | Total Rev POR is calculated by dividing total revenue by
    occupied rooms







41



---



##### Table of Contents



Critical Accounting Policies and Estimates




Investments in Property and Equipment.




|                                                      |  |  |              | 
|----------------------------------------------------- |  |  | ------------ | 
|Buildings and improvements                            |  |  | 20-40  years | 
|Fixtures and equipment, including waterpark equipment |  |  | 5-15 years   | 





Carrying Values of Goodwill, Intangible Assets and Investment
in Affiliates.






| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | To test goodwill for impairment, we compare the fair value of
    the individual resort to which the goodwill is assigned to the
    carrying value of that resort. If the analysis indicates that
    the fair value is less than the carrying value of the individual
    resort, we compare the implied fair value of the resorts
    goodwill with the carrying amount of that goodwill. The implied
    fair value of the goodwill is determined by allocating the fair
    value of the individual resort to all the assets and liabilities
    of that resort as if it had been acquired in a business
    combination. The excess of the fair value of the individual
    resort over the amounts assigned to its assets and liabilities
    is the implied fair value of the goodwill. If the implied fair
    value of the goodwill is less than its carrying value, an
    impairment loss is recognized. Any impairment losses are
    recorded as operating expenses, which reduce net income. Our
    assessment of the fair value is dependent on the operating
    results of the resorts. Future adverse changes in the
    hospitality and lodging industry, market conditions or poor
    operating results of the underlying real estate assets could
    result in future losses or the inability to recover the carrying
    value of goodwill.

42



---



##### Table of Contents





| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | To test indefinite-lived intangible assets for impairment, we
    compare the fair value of the intangible asset with its carrying
    amount. If the fair value of the intangible asset is less than
    its carrying value, an impairment loss is recognized. Any
    impairment losses are recorded as operating expenses, which
    reduce net income. Future adverse changes in the hospitality and
    lodging industry, market conditions or poor operating results of
    the underlying real estate assets could result in future losses
    or the inability to recover the carrying value of these
    intangibles.
|
| |  | To test investment in affiliates for impairment, we compare the
    fair value of the investment in affiliates with its carrying
    amount. If the fair value of the investment in affiliate is less
    than its carrying value, an impairment loss is recognized. Any
    impairment losses are recorded as operating expenses, which
    reduce net income. Future adverse changes in the hospitality and
    lodging industry, market conditions or poor operating results of
    the underlying investments could result in future losses or the
    inability to recover the carrying value of this asset.             

New Accounting Pronouncements






Non-GAAP Financial Measures










| |   |                                                                                                                                                                                                                                                                                                                          
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | a significant portion of our assets consists of property and
    equipment that are depreciated over their remaining useful lives
    in accordance with GAAP. Because depreciation and amortization
    are non-cash items, we believe that presentation of EBITDA is a
    useful measure of our operating performance;
|
| |  | it is widely used in the hospitality and entertainment
    industries to measure operating performance without regard to
    items such as depreciation and amortization; and                                                                                                                                            

43



---



##### Table of Contents





| |   |                                                                                                                                                                                                                                                                                 
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | we believe it helps investors meaningfully evaluate and compare
    the results of our operations from period to period by removing
    the impact of items directly resulting from our asset base,
    primarily depreciation and amortization, from our operating
    results.





| |   |                                                                                                                                                                                                                                                                                            
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | as a measurement of operating performance because it assists us
    in comparing our operating performance on a consistent basis as
    it removes the impact of items directly resulting from our asset
    base, primarily depreciation and amortization, from our
    operating results;
|
| |  | for planning purposes, including the preparation of our annual
    operating budget;                                                                                                                                                                                                       
|
| |  | as a valuation measure for evaluating our operating performance
    and our capacity to incur and service debt, fund capital
    expenditures and expand our business; and                                                                                                                 
|
| |  | as one measure in determining the value of other acquisitions
    and dispositions.                                                                                                                                                                                                        





|             |                               |                    |         |              |              |   |            |              |   |   |              |        |  |   |        |       | 
|------------ | ----------------------------- | ------------------ | ------- | ------------ | ------------ | - | ---------- | ------------ | - | - | ------------ | ------ |  | - | ------ | ----- | 
|             |                               | Great Wolf Resorts |         |              | Predecessor  |  
|             |                               |                    |         |              |              |  
|             |                               |                    |         | Period       |              |   | Period     |              |   |  
|             |                               |                    |         | December 21, |              |   | January 1, |              |   |  
|             |                               | Year Ended         |         |              | 2004 through |   |            | 2004 through |   |   | Year Ended   |       
|             |                               | December 31,       |         |              | December 31, |   |            | December 20, |   |   | December 31, |       
|             |                               | 2005               |         |              | 2004         |   |            | 2004         |   |   | 2003         |       
|             |                               |                    |         |              |              |   |            |              |   |   |              |       
|Net loss     |                               | $                  | (24,413 | )            |              | $ | (3,842     | )            |   | $ | (12,942      | )      |  | $ | (4,543 | )    
|Adjustments: |                               |                    |         |              |              |   |            |              |   |   |              |        |  |   |        |      
|             | Interest expense, net         |                    |         | 5,105        |              |   |            | 214          |   |   |              | 6,524  |  |   |        | 4,358 | 
|             | Income tax expense (benefit)  |                    |         | (7,309       | )            |   |            | (2,563       | ) |   |              |       |  |   |        |      | 
|             | Depreciation and amortization |                    |         | 26,248       |              |   |            | 1,897        |   |   |              | 12,925 |  |   |        | 7,744 | 
|             |                               |                    |         |              |              |   |            |              |   |   |              |       
|EBITDA       |                               | $                  | (369    | )            |              | $ | (4,294     | )            |   | $ | 6,507        |        |  | $ | 7,559  |      
|             |                               |                    |         |              |              |   |            |              |   |   |              |       

Results of Operations




| |        
| | -------
| | General





| |                                         
| | ----------------------------------------
| | Great Wolf Resorts Financial Information





| |   |                                                                                                                                                                                                          
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | our corporate entity that provides resort development and
    management services;                                                                                                                       
|
| |  | our Wisconsin Dells, Sandusky, Traverse City, Kansas City,
    Sheboygan, and Williamsburg operating resorts (we sold 70%
    interests in our Wisconsin Dells and Sandusky resorts in October
    2005);

44



---



##### Table of Contents





| |   |                                                                                                          
| | - | ---------------------------------------------------------------------------------------------------------
| |  | equity interests in resorts in which we have ownership interests
    but which we do not consolidate; and
|
| |  | our resorts that are under construction which we will
    consolidate.                                   

Revenues.




| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | lodging revenue, which includes rooms, food and beverage, and
    other department revenues from our resorts;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|
| |  | revenue from sales of condominiums;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| |  | management fee and other revenue from resorts, which includes
    fees received under our management agreements; and                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|
| |  | other revenue from managed properties. We employ the staff at
    our managed properties. Under our management agreements, the
    resort owners reimburse us for payroll, benefits and certain
    other costs related to the operations of the managed properties.
    Emerging Issues Task Force, or EITF, Issue No. 01-14,
    Income Statement Characteristics of Reimbursements for
    Out-of-pocket
    Expenses
    (EITF 01-14),
    establishes standards for accounting for reimbursable expenses
    in our statements of operations. Under this pronouncement, the
    reimbursement of payroll, benefits and costs is recorded as
    revenue on our statements of operations, with a corresponding
    expense recorded as other expenses from managed
    properties.

Operating Expenses.






| |   |                                                                                                                                                                                                                                                                                                                                                                                                                
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | selling, general and administrative expenses, which are
    associated with the operations and management of resorts and
    which consist primarily of expenses such as corporate payroll
    and related benefits, operations management, sales and
    marketing, finance, legal, information technology support, human
    resources and other support services, as well as general
    corporate expenses;
|
| |  | property operation and maintenance expenses, such as utility
    costs and property taxes;                                                                                                                                                                                                                                                                                                                     
|
| |  | depreciation and amortization;                                                                                                                                                                                                                                                                                                                                                                                 
|
| |  | cost of sales of condominiums; and                                                                                                                                                                                                                                                                                                                                                                             
|
| |  | other expenses from managed properties, which are recorded as an
    expense in accordance with
    EITF 01-14.                                                                                                                                                                                                                                                                                                



| |                                              
| | ---------------------------------------------
| | Great Lakes Predecessor Financial Information





| |   |                                                                                                                                                                                                                                                
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | GLC and its consolidated subsidiaries, including development of,
    ownership interests in, and management contracts with respect
    to, resorts and certain non-resort hotels and multifamily
    housing development and management assets;
|
| |  | the entities that owned our Traverse City, Kansas City and
    Sheboygan operating resorts; and                                                                                                                                                
|
| |  | the entities that owned our Williamsburg and Pocono Mountains
    resorts that were under construction.                                                                                                                                        





45



---



##### Table of Contents



Revenues.




| |   |                                                                                                                                                         
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | lodging revenue, which consists of rooms, food and beverage and
    other department revenues from its consolidated and combined
    hotels and resorts;
|
| |  | management fee revenue from both resort activity and non-resort
    activity, which includes fees received under its management
    agreements;         
|
| |  | other revenue, which consists of accounting fees, development
    fees, central reservation fees, construction management fees and
    other fees; and  
|
| |  | other revenue from managed properties, which are recorded as
    revenue in accordance with
    EITF 01-14.                                             

Operating Expenses.






| |   |                                                                                                                                                                                                                                                                                                                                                                                                             
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | selling, general and administrative expenses, which were
    associated with the management of hotels and resorts and which
    consist primarily of expenses such as corporate payroll and
    related benefits, operations management, sales and marketing,
    finance, legal, information technology support, human resources
    and other support services, as well as general corporate
    expenses;
|
| |  | property operation and maintenance expenses;                                                                                                                                                                                                                                                                                                                                                                
|
| |  | depreciation and amortization; and                                                                                                                                                                                                                                                                                                                                                                          
|
| |  | other expenses from managed properties, which are recorded as an
    expense in accordance with
    EITF 01-14.                                                                                                                                                                                                                                                                                             



| |                                                                                                                                           
| | ------------------------------------------------------------------------------------------------------------------------------------------
| | Year Ended December 31, 2005 for Great Wolf Resorts
    compared with Year Ended December 31, 2004 for Great Wolf
    Resorts/ Predecessor



|             |  |                   |        |                          |                   |   |                     |                   |  |   |        |   |  |   |       |   |  |  |      |   
|------------ |  | ----------------- | ------ | ------------------------ | ----------------- | - | ------------------- | ----------------- |  | - | ------ | - |  | - | ----- | - |  |  | ---- | --
|             |  |                   |        | Same Store Comparison(b) |                  
|             |  |                   |        |                          |                  
|             |  | All Properties(a) |        |                          |                   |   |                    
|             |  |                   |        |                          |                   |   | Increase (Decrease) |                  
|             |  | Year Ended        |        |                          | Year Ended        |   |                     | Year Ended        |  |   |        |  
|             |  | December 31, 2005 |        |                          | December 31, 2005 |   |                     | December 31, 2004 |  |   | $      |   |  | % |      
|             |  |                   |        |                          |                   |   |                     |                   |  |   |        |   |  |   |      
|Occupancy    |  |                   | 60.6   | %                        |                   |   | 62.1                | %                 |  |   | 65.9   | % |  |   | N/A   |   |  |  | (5.8 | )%
|ADR          |  | $                 | 213.78 |                          |                   | $ | 208.77              |                   |  | $ | 209.99 |   |  | $ | (1.22 | ) |  |  | (0.6 | )%
|RevPAR       |  | $                 | 129.57 |                          |                   | $ | 129.71              |                   |  | $ | 138.39 |   |  | $ | (8.68 | ) |  |  | (6.3 | )%
|Total RevPOR |  | $                 | 322.41 |                          |                   | $ | 302.41              |                   |  | $ | 299.89 |   |  | $ | 2.52  |   |  |  | 0.8  | % 
|Total RevPAR |  | $                 | 195.40 |                          |                   | $ | 187.89              |                   |  | $ | 197.64 |   |  | $ | (9.75 | ) |  |  | (4.9 | )%






|    |  |                                                                                                                                                                                         
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) |  | Includes results for properties that were open for any portion
    of the period.                                                                                                       
|   
|(b) |  | Same store comparison includes properties that were open for the
    full periods in 2004 and 2005 (that is, our Wisconsin Dells,
    Sandusky, Traverse City, and Kansas City resorts).



46



---



##### Table of Contents





|                                    |  |                    |         |   |                     |   |         |            |  |   |         |  
|----------------------------------- |  | ------------------ | ------- | - | ------------------- | - | ------- | ---------- |  | - | ------- | -
|                                    |  | Great Wolf Resorts |         |   | Great Wolf Resorts/ |   |         | Increase   | 
|                                    |  | 2005               |         |   | Predecessor 2004    |   |         | (Decrease) | 
|                                    |  |                    |         |   |                     |   |         |            | 
|Revenues                            |  | $                  | 139,415 |   |                     | $ | 69,887  |            |  | $ | 69,528  |  
|Departmental operating expenses     |  |                    | 42,351  |   |                     |   | 19,851  |            |  |   | 22,500  |  
|Selling, general and administrative |  |                    | 26,894  |   |                     |   | 25,985  |            |  |   | 909     |  
|Property operating costs            |  |                    | 24,798  |   |                     |   | 9,105   |            |  |   | 15,693  |  
|Depreciation and amortization       |  |                    | 26,248  |   |                     |   | 14,822  |            |  |   | 11,426  |  
|Cost of sales of condominiums       |  |                    | 16,780  |   |                     |   |        |            |  |   | 16,780  |  
|Loss on sale of property            |  |                    | 26,161  |   |                     |   |        |            |  |   | 26,161  |  
|Net operating loss                  |  |                    | (26,341 | ) |                     |   | (14,429 | )          |  |   | (11,912 | )
|Net interest expense                |  |                    | 5,105   |   |                     |   | 6,738   |            |  |   | (1,633  | )
|Income tax benefit                  |  |                    | (7,199  | ) |                     |   | (2,563  | )          |  |   | (4,636  | )
|Income from discontinued operations |  |                    |        |   |                     |   | 1,928   |            |  |   | (1,928  | )
|Net loss                            |  |                    | (24,413 | ) |                     |   | (16,784 | )          |  |   | (7,629  | )

Revenues.




| |   |                                                                                                                                                                                                                                                                                                                                   
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Total revenues for the resorts in Wisconsin Dells, Sandusky,
    Sheboygan, Williamsburg and Pocono Mountains were $68,504 and
    $10,285 for the years ended December 31, 2005 and
    December 31, 2004, respectively.                                                                                                         
|
| |  | Revenue from sales of condominiums at our Wisconsin Dells resort
    was $25,862 for the year ended December 31, 2005. We had no
    similar sales during the year ended December 31, 2004.                                                                                                                                       
|
| |  | The net increase in resort and condominium revenue for the year
    ended December 31, 2005, versus the year ended
    December 31, 2004, was offset by $12,029 decrease in other
    revenue related to managed properties recorded in the year ended
    December 31, 2005, as compared to the year ended
    December 31, 2004.

Operating expenses.




| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Total departmental expenses for the resorts in Wisconsin Dells,
    Sandusky, Sheboygan, Williamsburg and Pocono Mountains were
    $28,210 and $4,827 for the years ended December 31, 2005
    and December 31, 2004, respectively.                                                                                                                                                                                                                                                                                                                                                                                                      
|
| |  | Total selling, general and administrative expenses for the
    resorts in Wisconsin Dells, Sandusky, Sheboygan, Williamsburg
    and Pocono Mountains were $16,527 and $4,927 for the years ended
    December 31, 2005 and December 31, 2004, respectively.
    Selling, general and administrative expenses in the year ended
    December 31, 2004 included $6,413 of IPO related charges
    and a $1,147 write off of development related expenses. We did
    not incur similar charges during the year ended
    December 31, 2005. Also, selling, general and
    administrative expenses in the year ending December 31,
    2004,

47



---



##### Table of Contents



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | included a non-cash employee compensation expense of $691. We
    recorded non-cash employee compensation income of $1,554 in the
    year ended December 31, 2005.                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| |  | Total property operating costs for the resorts in Wisconsin
    Dells, Sandusky, Sheboygan, Williamsburg and Pocono Mountains
    were $17,447 and $3,260 for the years ended December 31,
    2005 and December 31, 2004, respectively. Property
    operating costs include pre-opening costs related to our Pocono
    Mountains and Williamsburg resorts of $7,791 for the year ended
    December 31, 2005, as compared to pre-opening costs related
    to our Sheboygan resort of $1,729 for the year ended
    December 31, 2004.                                                                                                        
|
| |  | Total depreciation and amortization for the resorts in Wisconsin
    Dells, Sandusky, Sheboygan, Williamsburg and Pocono Mountains
    was $17,697 and $3,750 for the years ended December 31,
    2005 and December 31, 2004, respectively. The net increase
    in depreciation and amortization also includes the effect of a
    change made in the first quarter of 2005 to the estimate of
    useful lives used to depreciate our property and equipment,
    which resulted in a decrease in depreciation for our resorts in
    Traverse City and Kansas City in the year ended
    December 31, 2005, as compared to December 31, 2004.
|
| |  | Cost of sales of condominiums of $16,780 relates to the
    condominiums sold at our Wisconsin Dells resort in 2005. A
    similar type charge was not incurred during 2004.                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| |  | A loss of $26,161 recorded related to the 70% interests sold in
    our Wisconsin Dells and Sandusky resorts.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

Net operating loss.


Net loss.




| |   |                                                                                                                                                                                 
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | An increase in operating loss.                                                                                                                                                  
|
| |  | A gain on sale of investments of $1,653 was recorded for the
    year ended December 31, 2004. No comparable gain was
    recorded for the year ended December 31, 2005.        
|
| |  | Income from discontinued operations of $1,928 was recorded for
    the year ended December 31, 2004. No comparable amount was
    recorded for the year ended December 31, 2005.



48



---



##### Table of Contents





| |                                                                                                                                            
| | -------------------------------------------------------------------------------------------------------------------------------------------
| | Year ended December 31, 2004 for Great Wolf Resorts/
    Predecessor compared with the year ended December 31, 2003
    for the Predecessor



|                                                  |  |                         |         |   |             |   |        |            |  |   |         |  
|------------------------------------------------- |  | ----------------------- | ------- | - | ----------- | - | ------ | ---------- |  | - | ------- | -
|                                                  |  | Year Ended December 31, |        
|                                                  |  |                         |        
|                                                  |  | Great Wolf              |         |   |            
|                                                  |  | Resorts/Predecessor     |         |   | Predecessor |   |        | Increase   | 
|                                                  |  | 2004                    |         |   | 2003        |   |        | (Decrease) | 
|                                                  |  |                         |         |   |             |   |        |            | 
|Revenues                                          |  | $                       | 69,887  |   |             | $ | 46,253 |            |  | $ | 23,634  |  
|Departmental operating expenses                   |  |                         | 19,851  |   |             |   | 11,845 |            |  |   | 8,006   |  
|Selling, general and administrative               |  |                         | 25,985  |   |             |   | 11,376 |            |  |   | 14,609  |  
|Property operating costs                          |  |                         | 9,105   |   |             |   | 5,283  |            |  |   | 3,822   |  
|Depreciation and amortization                     |  |                         | 14,822  |   |             |   | 7,744  |            |  |   | 7,078   |  
|Net operating loss                                |  |                         | (14,429 | ) |             |   | (4,899 | )          |  |   | (9,530  | )
|Net interest expense                              |  |                         | 6,738   |   |             |   | 4,358  |            |  |   | 2,380   |  
|Gain on sale of investments                       |  |                         | (1,653  | ) |             |   |       |            |  |   | (1,653  | )
|Interest expense on mandatorily redeemable shares |  |                         | 1,761   |   |             |   | (3,136 | )          |  |   | 4,897   |  
|Income tax benefit                                |  |                         | (2,563  | ) |             |   |       |            |  |   | (2,563  | )
|Income from discontinued operations               |  |                         | 1,928   |   |             |   | 1,118  |            |  |   | 810     |  
|Net loss                                          |  |                         | (16,784 | ) |             |   | (4,543 | )          |  |   | (12,241 | )



Revenues.




| |   |                                                                                                                                                                                                                             
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The commencement of operations at the Great Wolf Lodge in
    Traverse City, Michigan, which opened in March 2003. This resort
    had revenues of $22,885 for 2004 compared to $18,232 for 2003,
    an increase of $4,653;
|
| |  | The commencement of operations at the Great Wolf Lodge in Kansas
    City, Kansas, which opened in May 2003. This resort had revenues
    of $18,929 for 2004 compared to $9,971 for 2003, an increase of
    $8,958; and   
|
| |  | The commencement of operations at the Blue Harbor Resort in
    Sheboygan, Wisconsin, which opened in June 2004. This resort had
    revenues of $8,350 for 2004.                                                           

Operating expenses.




| |   |                                                                                                                                                                                                                                                     
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Total departmental expenses increased $8,006 to $19,851 for 2004
    compared to $11,845 for 2003, primarily due to the opening of
    the Traverse City, Kansas City and Sheboygan resorts in March
    2003, May 2003 and June 2004, respectively.

49



---



##### Table of Contents





| |   |                                                                                                                                                                                                                                                                                                                                                                                                        
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Selling, general and administrative expenses increased $14,609
    to $25,985 for 2004 compared to $11,376 for 2003, primarily due
    to the effect of the Traverse City and Kansas City resorts
    opening in 2003 and the Sheboygan resort opening in 2004, the
    effect of additional labor costs at GLC due to increases in
    staffing, and $6,413 of IPO- related expenses incurred in 2004.
|
| |  | Property operating costs increased $3,822 to $9,105 for 2004
    compared to $5,283 for 2003, primarily due to the effect of the
    Traverse City and Kansas City resorts opening in 2003 and the
    Sheboygan resort opening in 2004.                                                                                                                                                               
|
| |  | Depreciation and amortization expense increased $7,078 to
    $14,822 for 2004 compared to $7,744 for 2003. This increase
    resulted from:                                                                                                                                                                                                                                                           



| |   |                                                                                                                                                                                                                                           
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The purchases or placement into service of property and
    equipment during 2003, primarily at the Traverse City and Kansas
    City resorts that opened in 2003, and the related increase in
    depreciation taken on those assets; and
|
| |  | The purchases or placement into service of property and
    equipment in 2004, primarily at the Sheboygan resort that opened
    in 2004, and the related increase in depreciation taken on those
    assets.                             

Net operating loss.


Net loss.




| |   |                                                                                                                                                                                                                                                                                                                                                       
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Net interest expense increased $2,380 to $6,738 for 2004 from
    $4,358 for 2003. This increase was due primarily to increased
    debt levels as a result of finishing construction of the
    Traverse City and Kansas City resorts during 2003 and the
    Sheboygan resort in 2004.                                                              
|
| |  | Interest on mandatorily redeemable ownership interests increased
    $4,897 to $1,761 for 2004 from $(3,136) for 2003. This increase
    was due to an increase in the redemption value of certain
    mandatorily redeemable equity interests in 2004. The Predecessor
    treated the following as mandatorily redeemable financial
    instruments:



| |   |                                                                                                                                                                                                                                                                                                                                                                                         
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Class A and Class B shares of GLC that were obligated
    to be redeemed in cash if a shareholder died or incurred certain
    triggering events. The redemption price was calculated based on
    a formula with GLCs net operating income and a multiple
    based on the type of triggering event. The shares contained
    restrictions on transfers and sales by the shareholders.
|
| |  | Class B Units of Great Wolf Lodge of Kansas City, LLC that
    were required to be redeemed in cash no later than the fifth
    anniversary date of the operating commencement date of the
    Kansas City resort. The redemption price was based on the
    greater of fair value or an internal rate of return.                                                                       



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                       
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | A cumulative effect of change in accounting principle of $460
    related to the adoption of Statement of Financial Accounting
    Standards No. 150 Accounting for Certain Financial
    Instruments with Characteristics of Both Debt and Equity
    (SFAS 150) was recorded in 2003. This gain resulted from
    recording at fair market value the value of certain mandatorily
    redeemable equity interests.





| |   |                                                                                                                                                                                                                                
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | A net gain on sale of real estate of $1,653 in 2004 due to the
    sales of land owned in Ontario, Canada and Beckley, West
    Virginia.                                                                                      
|
| |  | An income tax benefit of $2,563 recorded in 2004 related to the
    net loss incurred since the IPO date. The Predecessor was not a
    taxable entity and therefore had no income tax provision
    recorded prior to the IPO.
|
| |  | Income from discontinued operations increased $810 to $1,928 in
    2004 from $1,118 in 2003, due to lower minority interest expense
    in 2004.                                                                              

50



---



##### Table of Contents



Liquidity and Capital Resources




|               |                                          |   |         |        | 
|-------------- | ---------------------------------------- | - | ------- | ------ | 
|Mortgage Debt: |                                          |   |         |       
|               | Traverse City/ Kansas City mortgage loan |   | $       | 73,979 | 
|               | Sheboygan mortgage loan                  |   |         | 28,939 | 
|               | Junior subordinated debentures           |   |         | 51,550 | 
|               | Other debt                               |   |         | 1,552  | 
|Other Debt:    |                                          |   |         |       
|               | City of Sheboygan bonds                  |   |         | 8,288  | 
|               | City of Sheboygan loan                   |   |         | 4,020  | 
|               |                                          |   |        
|               |                                          | $ | 168,328 |       
|               |                                          |   |        

Traverse City/ Kansas City Mortgage Loan 25-year


Sheboygan Mortgage Loan 20-year


Junior Subordinated Debentures


30-year






51



---



##### Table of Contents





Mason Construction Loan 3-year 25-year


City of Sheboygan Bonds


City of Sheboygan Loan




| |                                  
| | ---------------------------------
| | Short-Term Liquidity Requirements





| |   |                                                                                                                        
| | - | -----------------------------------------------------------------------------------------------------------------------
| |  | recurring maintenance, repairs and other operating expenses
    necessary to properly maintain and operate our resorts;
|
| |  | property taxes and insurance expenses;                                                                                 
|
| |  | interest expense and scheduled principal payments on outstanding
    indebtedness;                                     
|
| |  | general and administrative expenses; and                                                                               
|
| |  | income taxes.                                                                                                          



52



---



##### Table of Contents





| |                                 
| | --------------------------------
| | Long-Term Liquidity Requirements





| |   |                                                                                                                                  
| | - | ---------------------------------------------------------------------------------------------------------------------------------
| |  | scheduled debt maturities;                                                                                                       
|
| |  | renovations, expansion and other non-recurring capital
    expenditures that need to be made periodically to our
    resorts; and
|
| |  | costs associated with the development of new resorts.                                                                            







| |                        
| | -----------------------
| | Contractual Obligations



|                            |       |               |         |           |        |   |        |           |           |   |           |        |  |         |       |       |  |   |         |         | 
|--------------------------- | ----- | ------------- | ------- | --------- | ------ | - | ------ | --------- | --------- | - | --------- | ------ |  | ------- | ----- | ----- |  | - | ------- | ------- | 
|                            |       | Payment Terms |        
|                            |       |               |        
|                            |       |               |         | Less Than |        |   |        |           | More Than |  
|                            |       | Total         |         |           | 1 Year |   |        | 1-3 Years |           |   | 3-5 Years |        |  | 5 Years |      
|                            |       |               |         |           |        |   |        |           |           |   |           |        |  |         |      
|Debt Obligations(1)         |       | $             | 168,328 |           |        | $ | 1,928  |           |           | $ | 31,311    |        |  | $       | 3,418 |       |  | $ | 131,671 |        
|Operating Lease Obligations |       |               | 1,591   |           |        |   | 440    |           |           |   | 808       |        |  |         | 343   |       |  |   |        |        
|Construction Contracts      |       |               | 49,464  |           |        |   | 49,464 |           |           |   |          |        |  |         |      |       |  |   |        |        
|                            |       |               |         |           |        |   |        |           |           |   |           |        |  |         |      
|                            | Total |               | $       | 219,383   |        |   | $      | 51,832    |           |   | $         | 32,119 |  |         | $     | 3,761 |  |   | $       | 131,671 | 
|                            |       |               |         |           |        |   |        |           |           |   |           |        |  |         |      






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                          
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes $8,288 of fixed rate debt recognized as a liability
    related to certain bonds issued by the City of Sheboygan and
    $4,020 of fixed rate debt recognized as a liability related to a
    loan from the City of Sheboygan. These liabilities will be
    satisfied by certain future minimum guaranteed amounts of real
    and personal property tax payments and room tax payments to be
    made by our Sheboygan resort.





| |                
| | ---------------
| | Working Capital



53



---



##### Table of Contents



Cash Flows




| |                                                                                                                                           
| | ------------------------------------------------------------------------------------------------------------------------------------------
| | Comparison of Year Ended December 31, 2005 for the
    Company to Year Ended December 31, 2004 for the
    Predecessor/ Great Wolf Resorts

|                                          |  |                         |         |            |             |   |          |            |  |   |          |  
|----------------------------------------- |  | ----------------------- | ------- | ---------- | ----------- | - | -------- | ---------- |  | - | -------- | -
|                                          |  |                         |         | Great Wolf |             |   |         
|                                          |  | Great Wolf              |         |            | Resorts/    |   |          |           
|                                          |  | Resorts                 |         |            | Predecessor |   |          |           
|                                          |  |                         |         |            |             |   |          |           
|                                          |  | Year Ended December 31, |         |            |            
|                                          |  |                         |         |            | Increase    |  
|                                          |  | 2005                    |         |            | 2004        |   |          | (Decrease) | 
|                                          |  |                         |         |            |             |   |          |            | 
|Net cash provided by operating activities |  | $                       | 17,788  |            |             | $ | 4,399    |            |  | $ | 13,389   |  
|Net cash used in investing activities     |  |                         | (65,496 | )          |             |   | (162,055 | )          |  |   | 96,559   |  
|Net cash provided by financing activities |  |                         | 23,081  |            |             |   | 233,575  |            |  |   | (210,494 | )

Operating Activities.


Investing Activities.


Financing Activities.




| |                                                                                                                                               
| | ----------------------------------------------------------------------------------------------------------------------------------------------
| | Comparison of Year Ended December 31, 2004 for the
    Predecessor/ Great Wolf Resorts to Year Ended December 31,
    2003 for the Predecessor

|                                          |  |                         |          |   |             |   |         |                     |  |   |         |  
|----------------------------------------- |  | ----------------------- | -------- | - | ----------- | - | ------- | ------------------- |  | - | ------- | -
|                                          |  | Great Wolf              |          |   |             |   |        
|                                          |  | Resorts/                |          |   |             |   |        
|                                          |  | Predecessor             |          |   | Predecessor |   |         |                    
|                                          |  |                         |          |   |             |   |         |                    
|                                          |  | Year Ended December 31, |          |   |            
|                                          |  |                         |          |   |            
|                                          |  | 2004                    |          |   | 2003        |   |         | Increase/(Decrease) | 
|                                          |  |                         |          |   |             |   |         |                     | 
|Net cash provided by operating activities |  | $                       | 4,399    |   |             | $ | 8,126   |                     |  | $ | (3,727  | )
|Net cash used in investing activities     |  |                         | (162,055 | ) |             |   | (64,280 | )                   |  |   | (97,775 | )
|Net cash provided by financing activities |  |                         | 233,575  |   |             |   | 54,854  |                     |  |   | 178,721 |  

Operating Activities.


Investing Activities.


Financing Activities.


Inflation




54



---



##### Table of Contents





Off-Balance Sheet Arrangements









|         |                                                               
|-------- | --------------------------------------------------------------
|ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
    RISK







| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | $73,979 of fixed rate debt secured by two of our resorts. This
    debt bears interest at 6.96%;                                                                                                                                                                                                                                                                                                                                                                                     
|
| |  | $28,939 of variable rate debt secured by one of our resorts.
    This debt bears interest at a floating rate of prime plus
    200 basis points. The total rate was 9.125% at
    December 31, 2005;                                                                                                                                                                                                                                                                                 
|
| |  | $51,550 of debentures that bear interest at a fixed rate of
    7.80% through March 2015 and then at a floating rate of LIBOR
    plus 310 basis points thereafter. The securities mature in
    March 2035;                                                                                                                                                                                                                                                                         
|
| |  | $8,288 of fixed rate debt (effective interest rate of 10.67%)
    recognized as a liability related to certain bonds issued by the
    City of Sheboygan and $4,020 of noninterest bearing debt
    recognized as a liability related to a loan from the City of
    Sheboygan. These liabilities will be satisfied by certain future
    minimum guaranteed amounts of real and personal property tax
    payments and room tax payments to be made by the Sheboygan
    resort; and
|
| |  | $1,552 of other fixed rate debt.                                                                                                                                                                                                                                                                                                                                                                                                                                                     







55



---



##### Table of Contents








|        |                                            
|------- | -------------------------------------------
|ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

10-K:


|                                                                                                                                                                                                                                                                                                                                                                     |  |          |    | 
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------- | -- | 
|                                                                                                                                                                                                                                                                                                                                                                     |  | Page No. |   
|                                                                                                                                                                                                                                                                                                                                                                     |  |          |   
|Consolidated and Combined Financial Statements of Great Wolf
    Resorts and Subsidiaries and Great Lakes Predecessor:                                                                                                                                                                                                                                               |  |          |    | 
|Reports of Independent Registered Public
    Accounting Firm                                                                                                                                                                                                                                                                                                         |  |          | 57 | 
|Consolidated Balance Sheets for Great Wolf
    Resorts, Inc. and subsidiaries as of December 31, 2005 and
    2004                                                                                                                                                                                                                                                   |  |          | 58 | 
|Consolidated and Combined Statements of
    Operations for Great Wolf Resorts, Inc. and subsidiaries for the
    year ended December 31, 2005 and the period from
    December 21, 2004 through December 31, 2004 and for
    Great Lakes Predecessor for the period from January 1, 2004
    through December 20, 2004 and for the year ended
    December 31, 2003 |  |          | 59 | 
|Consolidated and Combined Statements of
    Equity for Great Wolf Resorts, Inc. and subsidiaries for the
    year ended December 31, 2005 and the period from
    December 21, 2004 through December 31, 2004 and for
    Great Lakes Predecessor for the period from January 1, 2004
    through December 20, 2004 and for the year ended
    December 31, 2003     |  |          | 60 | 
|Consolidated and Combined Statements of
    Cash Flows for Great Wolf Resorts, Inc. and subsidiaries for the
    year ended December 31, 2005 and the period from
    December 21, 2004 through December 31, 2004 and for
    Great Lakes Predecessor for the period from January 1, 2004
    through December 20, 2004 and for the year ended
    December 31, 2003 |  |          | 61 | 
|Notes to Consolidated and Combined
    Financial Statements                                                                                                                                                                                                                                                                                                          |  |          | 62 | 

56



---



##### Table of Contents






REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM














Internal Control 
Integrated Framework




| |                      
| | ---------------------
| | DELOITTE & TOUCHE LLP





57



---



##### Table of Contents



GREAT WOLF RESORTS, INC. AND SUBSIDIARIES





CONSOLIDATED BALANCE SHEETS


|                                                             |                                                                                                                                                                           |                                                                    |         |         |         |  |         |         |         | 
|------------------------------------------------------------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------ | ------- | ------- | ------- |  | ------- | ------- | ------- | 
|                                                             |                                                                                                                                                                           | December 31,                                                       |        
|                                                             |                                                                                                                                                                           |                                                                    |        
|                                                             |                                                                                                                                                                           | 2005                                                               |         |         | 2004    | 
|                                                             |                                                                                                                                                                           |                                                                    |         |         |         | 
|                                                             |                                                                                                                                                                           | (Dollars in thousands,                                             |        
|                                                             |                                                                                                                                                                           | except per share                                                   |        
|                                                             |                                                                                                                                                                           | amounts)                                                           |        
|ASSETS                                                      
|Current assets:                                              |                                                                                                                                                                           |                                                                    |         |         |         |  |         |        
|                                                             | Cash and cash equivalents                                                                                                                                                 |                                                                    | $       | 54,782  |         |  | $       | 79,409  |        
|                                                             | Accounts receivable, net of allowance for doubtful accounts of
    $95 and $183                                                                                           |                                                                    |         | 2,506   |         |  |         | 881     |        
|                                                             | Accounts receivable  affiliates                                                                                                                                          |                                                                    |         | 12,825  |         |  |         |        |        
|                                                             | Inventory                                                                                                                                                                 |                                                                    |         | 2,254   |         |  |         | 1,848   |        
|                                                             | Condominiums under development                                                                                                                                            |                                                                    |         |        |         |  |         | 2,412   |        
|                                                             | Other current assets                                                                                                                                                      |                                                                    |         | 1,996   |         |  |         | 3,928   |        
|                                                             |                                                                                                                                                                           |                                                                    |         |         |         | 
|                                                             |                                                                                                                                                                           | Total current assets                                               |         |         | 74,363  |  |         |         | 88,478  | 
|Property and equipment, net                                  |                                                                                                                                                                           |                                                                    | 385,391 |         |         |  | 347,374 |        
|Investment in affiliates                                     |                                                                                                                                                                           |                                                                    | 43,207  |         |         |  |        |        
|Other assets                                                 |                                                                                                                                                                           |                                                                    | 11,741  |         |         |  | 11,863  |        
|Other intangible assets                                      |                                                                                                                                                                           |                                                                    | 23,829  |         |         |  | 19,114  |        
|Goodwill                                                     |                                                                                                                                                                           |                                                                    | 66,995  |         |         |  | 155,196 |        
|                                                             |                                                                                                                                                                           |                                                                    |         |         |         | 
|                                                             |                                                                                                                                                                           | Total assets                                                       |         | $       | 605,526 |  |         | $       | 622,025 | 
|                                                             |                                                                                                                                                                           |                                                                    |         |         |         | 
|                                                            
|LIABILITIES, MINORITY INTERESTS AND STOCKHOLDERS
    EQUITY
|Current liabilities:                                         |                                                                                                                                                                           |                                                                    |         |         |         |  |         |        
|                                                             | Current portion of long-term debt                                                                                                                                         |                                                                    | $       | 1,928   |         |  | $       | 27,794  |        
|                                                             | Accounts payable                                                                                                                                                          |                                                                    |         | 18,183  |         |  |         | 31,506  |        
|                                                             | Accrued expenses                                                                                                                                                          |                                                                    |         | 9,311   |         |  |         | 10,075  |        
|                                                             | Accrued expenses  affiliates                                                                                                                                             |                                                                    |         | 3,576   |         |  |         |        |        
|                                                             | Advance deposits                                                                                                                                                          |                                                                    |         | 5,680   |         |  |         | 3,129   |        
|                                                             | Gift certificates payable                                                                                                                                                 |                                                                    |         | 2,126   |         |  |         | 2,138   |        
|                                                             | Other current liabilities                                                                                                                                                 |                                                                    |         | 126     |         |  |         |        |        
|                                                             |                                                                                                                                                                           |                                                                    |         |         |         | 
|                                                             |                                                                                                                                                                           | Total current liabilities                                          |         |         | 40,930  |  |         |         | 74,642  | 
|Mortgage debt                                                |                                                                                                                                                                           |                                                                    | 154,092 |         |         |  | 102,813 |        
|Other long-term debt                                         |                                                                                                                                                                           |                                                                    | 12,308  |         |         |  | 12,058  |        
|Other long-term liabilities                                  |                                                                                                                                                                           |                                                                    | 391     |         |         |  | 391     |        
|Deferred tax liability                                       |                                                                                                                                                                           |                                                                    | 25,800  |         |         |  | 40,909  |        
|Deferred compensation liability                              |                                                                                                                                                                           |                                                                    | 1,501   |         |         |  | 2,891   |        
|                                                             |                                                                                                                                                                           |                                                                    |         |         |         | 
|                                                             |                                                                                                                                                                           | Total liabilities                                                  |         |         | 235,022 |  |         |         | 233,704 | 
|Minority interests                                           |                                                                                                                                                                           |                                                                    | 6,593   |         |         |  |        |        
|Commitments and contingencies                                |                                                                                                                                                                           |                                                                    |         |         |         |  |         |        
|Stockholders Equity:                                        |                                                                                                                                                                           |                                                                    |         |         |         |  |         |        
|                                                             | Common stock, $0.01 par value, 250,000,000 shares
    authorized, 30,277,308 and 30,262,308 shares issued and
    outstanding at December 31, 2005 and 2004, respectively |                                                                    |         | 303     |         |  |         | 303     |        
|                                                             | Additional paid in capital                                                                                                                                                |                                                                    |         | 394,212 |         |  |         | 394,060 |        
|                                                             | Preferred stock, $0.01 par value, 10,000,000 shares
    authorized, no shares issued or outstanding at December 31,
    2005 and 2004                                     |                                                                    |         |        |         |  |         |        |        
|                                                             | Accumulated deficit                                                                                                                                                       |                                                                    |         | (28,255 | )       |  |         | (3,842  | )      
|                                                             | Deferred compensation                                                                                                                                                     |                                                                    |         | (2,349  | )       |  |         | (2,200  | )      
|                                                             |                                                                                                                                                                           |                                                                    |         |         |         | 
|                                                             |                                                                                                                                                                           | Total stockholders equity                                         |         |         | 363,911 |  |         |         | 388,321 | 
|                                                             |                                                                                                                                                                           |                                                                    |         |         |         | 
|                                                             |                                                                                                                                                                           | Total liabilities, minority interests and stockholders
    equity |         | $       | 605,526 |  |         | $       | 622,025 | 
|                                                             |                                                                                                                                                                           |                                                                    |         |         |         | 



58



---



##### Table of Contents



GREAT WOLF RESORTS, INC. AND SUBSIDIARIES AND


GREAT LAKES PREDECESSOR





CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS


|                                                                                          |                                             |                                               |         |              |              |             |        |            |              |  |   |              |        |   |   |        |        |   | 
|----------------------------------------------------------------------------------------- | ------------------------------------------- | --------------------------------------------- | ------- | ------------ | ------------ | ----------- | ------ | ---------- | ------------ |  | - | ------------ | ------ | - | - | ------ | ------ | - | 
|                                                                                          |                                             | Great Wolf Resorts                            |         |              |              | Predecessor |        |            | Predecessor  | 
|                                                                                          |                                             |                                               |         |              |              |             |        |            |              | 
|                                                                                          |                                             |                                               |         | Period       |              |             |        | Period     |              |  |  
|                                                                                          |                                             |                                               |         | December 21, |              |             |        | January 1, |              |  |  
|                                                                                          |                                             |                                               |         | 2004         |              |             |        | 2004       |              |  |  
|                                                                                          |                                             | Year Ended                                    |         |              | through      |             |        |            | through      |  |   | Year Ended   |       
|                                                                                          |                                             | December 31,                                  |         |              | December 31, |             |        |            | December 20, |  |   | December 31, |       
|                                                                                          |                                             | 2005                                          |         |              | 2004         |             |        |            | 2004         |  |   | 2003         |       
|                                                                                          |                                             |                                               |         |              |              |             |        |            |              |  |   |              |       
|                                                                                          |                                             | (Dollars in thousands, except per share data) |        
|Revenues:                                                                                 |                                             |                                               |         |              |              |             |        |            |              |  |   |              |        |   |   |        |       
|                                                                                          | Rooms                                       |                                               | $       | 73,207       |              |             | $      | 3,261      |              |  |   | $            | 31,438 |   |   | $      | 18,801 |  
|                                                                                          | Food and beverage                           |                                               |         | 18,897       |              |             |        | 776        |              |  |   |              | 8,255  |   |   |        | 4,833  |  
|                                                                                          | Other hotel operations                      |                                               |         | 17,949       |              |             |        | 513        |              |  |   |              | 7,855  |   |   |        | 4,606  |  
|                                                                                          | Sales of condominiums                       |                                               |         | 25,862       |              |             |        |           |              |  |   |              |       |   |   |        |       |  
|                                                                                          | Management and other fees                   |                                               |         | 494          |              |             |        |           |              |  |   |              |       |   |   |        |       |  
|                                                                                          | Management and other fees  related parties |                                               |         | 482          |              |             |        | 79         |              |  |   |              | 3,157  |   |   |        | 3,109  |  
|                                                                                          |                                             |                                               |         |              |              |             |        |            |              |  |   |              |       
|                                                                                          |                                             |                                               | 136,891 |              |              |             | 4,629  |            |              |  |   | 50,705       |        |   |   | 31,349 |       
|                                                                                          | Other revenue from managed properties       |                                               |         | 2,524        |              |             |        |           |              |  |   |              | 14,553 |   |   |        | 14,904 |  
|                                                                                          |                                             |                                               |         |              |              |             |        |            |              |  |   |              |       
|Total revenues                                                                            |                                             |                                               | 139,415 |              |              |             | 4,629  |            |              |  |   | 65,258       |        |   |   | 46,253 |       
|                                                                                          |                                             |                                               |         |              |              |             |        |            |              |  |   |              |       
|Operating expenses by department:                                                         |                                             |                                               |         |              |              |             |        |            |              |  |   |              |        |   |   |        |       
|                                                                                          | Rooms                                       |                                               |         | 10,944       |              |             |        | 298        |              |  |   |              | 4,917  |   |   |        | 3,265  |  
|                                                                                          | Food and beverage                           |                                               |         | 16,532       |              |             |        | 598        |              |  |   |              | 7,370  |   |   |        | 4,528  |  
|                                                                                          | Other                                       |                                               |         | 14,875       |              |             |        | 360        |              |  |   |              | 6,308  |   |   |        | 4,052  |  
|Other operating expenses:                                                                 |                                             |                                               |         |              |              |             |        |            |              |  |   |              |        |   |   |        |       
|                                                                                          | Selling, general and administrative         |                                               |         | 26,894       |              |             |        | 7,372      |              |  |   |              | 18,613 |   |   |        | 11,376 |  
|                                                                                          | Property operating costs                    |                                               |         | 24,798       |              |             |        | 295        |              |  |   |              | 8,810  |   |   |        | 5,283  |  
|                                                                                          | Depreciation and amortization               |                                               |         | 26,248       |              |             |        | 1,897      |              |  |   |              | 12,925 |   |   |        | 7,744  |  
|                                                                                          | Cost of sales of condominiums               |                                               |         | 16,780       |              |             |        |           |              |  |   |              |       |   |   |        |       |  
|                                                                                          |                                             | Loss on sale of property                      |         |              | 26,161       |             |        |            |             |  |   |              |        |  |   |        |        |  | 
|                                                                                          |                                             |                                               |         |              |              |             |        |            |              |  |   |              |       
|                                                                                          |                                             |                                               | 163,232 |              |              |             | 10,820 |            |              |  |   | 58,943       |        |   |   | 36,248 |       
|                                                                                          | Other expenses from managed properties      |                                               |         | 2,524        |              |             |        |           |              |  |   |              | 14,553 |   |   |        | 14,904 |  
|                                                                                          |                                             |                                               |         |              |              |             |        |            |              |  |   |              |       
|Total operating expenses                                                                  |                                             |                                               | 165,756 |              |              |             | 10,820 |            |              |  |   | 73,496       |        |   |   | 51,152 |       
|                                                                                          |                                             |                                               |         |              |              |             |        |            |              |  |   |              |       
|Net operating loss                                                                        |                                             |                                               | (26,341 | )            |              |             | (6,191 | )          |              |  |   | (8,238       | )      |   |   | (4,899 | )     
|Interest income                                                                           |                                             |                                               | (1,623  | )            |              |             | (66    | )          |              |  |   | (224         | )      |   |   | (55    | )     
|Interest expense                                                                          |                                             |                                               | 6,728   |              |              |             | 280    |            |              |  |   | 6,748        |        |   |   | 4,413  |       
|Gain on sale of investments                                                               |                                             |                                               |        |              |              |             |       |            |              |  |   | (1,653       | )      |   |   |       |       
|Interest on mandatorily redeemable shares                                                 |                                             |                                               |        |              |              |             |       |            |              |  |   | 1,761        |        |   |   | (3,136 | )     
|                                                                                          |                                             |                                               |         |              |              |             |        |            |              |  |   |              |       
|Loss before income taxes, minority interests, and equity in
    unconsolidated affiliates |                                             |                                               | (31,446 | )            |              |             | (6,405 | )          |              |  |   | (14,870      | )      |   |   | (6,121 | )     
|Income tax benefit                                                                        |                                             |                                               | (7,199  | )            |              |             | (2,563 | )          |              |  |   |             |        |   |   |       |       
|Minority interests, net of tax                                                            |                                             |                                               | (4      | )            |              |             |       |            |              |  |   |             |        |   |   |       |       
|Equity in unconsolidated affiliates, net of tax                                           |                                             |                                               | 170     |              |              |             |       |            |              |  |   |             |        |   |   |       |       
|                                                                                          |                                             |                                               |         |              |              |             |        |            |              |  |   |              |       
|Loss from continuing operations                                                           |                                             |                                               | (24,413 | )            |              |             | (3,842 | )          |              |  |   | (14,870      | )      |   |   | (6,121 | )     
|Income from discontinued operations                                                       |                                             |                                               |        |              |              |             |       |            |              |  |   | 1,928        |        |   |   | 1,118  |       
|                                                                                          |                                             |                                               |         |              |              |             |        |            |              |  |   |              |       
|Loss before cumulative effect of change in accounting principle                           |                                             |                                               | (24,413 | )            |              |             | (3,842 | )          |              |  |   | (12,942      | )      |   |   | (5,003 | )     
|Cumulative effect of change in accounting principle                                       |                                             |                                               |        |              |              |             |       |            |              |  |   |             |        |   |   | 460    |       
|                                                                                          |                                             |                                               |         |              |              |             |        |            |              |  |   |              |       
|Net loss                                                                                  |                                             | $                                             | (24,413 | )            |              | $           | (3,842 | )          |              |  | $ | (12,942      | )      |   | $ | (4,543 | )     
|                                                                                          |                                             |                                               |         |              |              |             |        |            |              |  |   |              |       
|Basic loss per share                                                                      |                                             | $                                             | (0.81   | )            |              | $           | (0.13  | )          |              |  |   |              |        |   |   |        |       
|                                                                                          |                                             |                                               |         |              |              |             |        |            |              |  |   |              |       
|Diluted loss per share                                                                    |                                             | $                                             | (0.81   | )            |              | $           | (0.13  | )          |              |  |   |              |        |   |   |        |       
|                                                                                          |                                             |                                               |         |              |              |             |        |            |              |  |   |              |       
|Weighted average common shares outstanding:                                               |                                             |                                               |         |              |              |             |        |            |              |  |   |              |        |   |   |        |       
|                                                                                          | Basic                                       |                                               |         | 30,134,146   |              |             |        | 30,132,896 |              |  |   |              |        |   |   |        |        |  
|                                                                                          |                                             |                                               |         |              |              |             |        |            |              |  |   |              |       
|                                                                                          | Diluted                                     |                                               |         | 30,134,146   |              |             |        | 30,132,896 |              |  |   |              |        |   |   |        |        |  
|                                                                                          |                                             |                                               |         |              |              |             |        |            |              |  |   |              |       



59



---



##### Table of Contents



GREAT WOLF RESORTS, INC. AND SUBSIDIARIES AND


GREAT LAKES PREDECESSOR





CONSOLIDATED AND COMBINED STATEMENTS OF EQUITY


|                                                                                                                                                |  |                                               |            |  |        |            |     |         |  |   |             |          |           |              |         |   |          |   |        |          |  |   |         |   |  |   |      |   |  |   |         |  
|----------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------------------------- | ---------- |  | ------ | ---------- | --- | ------- |  | - | ----------- | -------- | --------- | ------------ | ------- | - | -------- | - | ------ | -------- |  | - | ------- | - |  | - | ---- | - |  | - | ------- | -
|                                                                                                                                                |  |                                               |            |  |        |            |     |         |  |   |             | Members |           |              |         |   |         
|                                                                                                                                                |  |                                               |            |  |        | Additional |     |         |  |   |             |          | Equity of |              |         |   |          |  
|                                                                                                                                                |  | Common                                        |            |  | Common |            |     | Paid in |  |   | Accumulated |          |           | Deferred     |         |   | Combined |   |        | Treasury |  |   | Total   |  
|                                                                                                                                                |  | Shares                                        |            |  | Stock  |            |     | Capital |  |   | Deficit     |          |           | Compensation |         |   | Entities |   |        | Stock    |  |   | Equity  |  
|                                                                                                                                                |  |                                               |            |  |        |            |     |         |  |   |             |          |           |              |         |   |          |   |        |          |  |   |         |  
|                                                                                                                                                |  | (Dollars in thousands, except per share data) |           
|Predecessor:                                                                                                                                    |  |                                               |            |  |        |            |     |         |  |   |             |          |           |              |         |   |          |   |        |          |  |   |         |   |  |   |      |   |  |   |         |  
|Balance, January 1, 2003                                                                                                                        |  |                                               |            |  |        | $          | 2   |         |  | $ |            |          |           | $            | (4,183  | ) |          | $ |       |          |  | $ | 16,362  |   |  | $ | (824 | ) |  | $ | 11,357  |  
|Contributions                                                                                                                                   |  |                                               |            |  |        |            |    |         |  |   |            |          |           |              |        |   |          |   |       |          |  |   | 29,318  |   |  |   |     |   |  |   | 29,318  |  
|Distributions                                                                                                                                   |  |                                               |            |  |        |            |    |         |  |   |            |          |           |              | (318    | ) |          |   |       |          |  |   | (3,538  | ) |  |   |     |   |  |   | (3,856  | )
|Net income (loss)                                                                                                                               |  |                                               |            |  |        |            |    |         |  |   |            |          |           |              | 3,705   |   |          |   |       |          |  |   | (8,248  | ) |  |   |     |   |  |   | (4,543  | )
|Accretion of mandatorily redeemable equity interests                                                                                            |  |                                               |            |  |        |            | (2  | )       |  |   |            |          |           |              | (460    | ) |          |   |       |          |  |   | (2,631  | ) |  |   |     |   |  |   | (3,093  | )
|                                                                                                                                                |  |                                               |            |  |        |            |     |         |  |   |             |          |           |              |         |   |          |   |        |          |  |   |         |  
|Balance, December 31, 2003                                                                                                                      |  |                                               |            |  |        |            |    |         |  |   |            |          |           |              | (1,256  | ) |          |   |       |          |  |   | 31,263  |   |  |   | (824 | ) |  |   | 29,183  |  
|Contributions                                                                                                                                   |  |                                               |            |  |        |            |    |         |  |   |            |          |           |              | 643     |   |          |   |       |          |  |   | 25,145  |   |  |   |     |   |  |   | 25,788  |  
|Distributions                                                                                                                                   |  |                                               |            |  |        |            |    |         |  |   |            |          |           |              | (3,170  | ) |          |   |       |          |  |   | (7,534  | ) |  |   |     |   |  |   | (10,704 | )
|Net income (loss)                                                                                                                               |  |                                               |            |  |        |            |    |         |  |   |            |          |           |              | 1,582   |   |          |   |       |          |  |   | (14,524 | ) |  |   |     |   |  |   | (12,942 | )
|                                                                                                                                                |  |                                               |            |  |        |            |     |         |  |   |             |          |           |              |         |   |          |   |        |          |  |   |         |  
|Balance, December 20, 2004                                                                                                                      |  |                                               |            |  |        | $          |    |         |  | $ |            |          |           | $            | (2,201  | ) |          | $ |       |          |  | $ | 34,350  |   |  | $ | (824 | ) |  | $ | 31,325  |  
|                                                                                                                                                |  |                                               |            |  |        |            |     |         |  |   |             |          |           |              |         |   |          |   |        |          |  |   |         |  
|Great Wolf Resorts, Inc.:                                                                                                                       |  |                                               |            |  |        |            |     |         |  |   |             |          |           |              |         |   |          |   |        |          |  |   |         |   |  |   |      |   |  |   |         |  
|Reclassification, net of effect of spin-off, of
    Predecessors equity, mandatorily redeemable ownership
    interests and minority interests |  |                                               |           |  |        | $          | 50  |         |  | $ | 45,727      |          |           | $            |        |   |          | $ |       |          |  | $ |        |   |  | $ |     |   |  | $ | 45,777  |  
|Net proceeds from sale of common stock                                                                                                          |  |                                               | 16,100,000 |  |        |            | 161 |         |  |   | 248,506     |          |           |              |        |   |          |   |       |          |  |   |        |   |  |   |     |   |  |   | 248,667 |  
|Issuance of common stock  acquisition of resorts                                                                                               |  |                                               | 14,032,896 |  |        |            | 91  |         |  |   | 97,628      |          |           |              |        |   |          |   |       |          |  |   |        |   |  |   |     |   |  |   | 97,719  |  
|Issuance of common stock  deferred compensation plan                                                                                           |  |                                               | 129,412    |  |        |            | 1   |         |  |   | 2,199       |          |           |              |        |   |          |   | (2,200 | )        |  |   |        |   |  |   |     |   |  |   |        |  
|Net loss                                                                                                                                        |  |                                               |           |  |        |            |    |         |  |   |            |          |           |              | (3,842  | ) |          |   |       |          |  |   |        |   |  |   |     |   |  |   | (3,842  | )
|                                                                                                                                                |  |                                               |            |  |        |            |     |         |  |   |             |          |           |              |         |   |          |   |        |          |  |   |         |  
|Balance, December 31, 2004                                                                                                                      |  |                                               | 30,262,308 |  |        |            | 303 |         |  |   | 394,060     |          |           |              | (3,842  | ) |          |   | (2,200 | )        |  |   |        |   |  |   |     |   |  |   | 388,321 |  
|Issuance of non-vested equity shares                                                                                                            |  |                                               | 15,000     |  |        |            |    |         |  |   | 152         |          |           |              |        |   |          |   | (152   | )        |  |   |        |   |  |   |     |   |  |   |        |  
|Amortization of non-vested equity shares                                                                                                        |  |                                               |           |  |        |            |    |         |  |   |            |          |           |              |        |   |          |   | 3      |          |  |   |        |   |  |   |     |   |  |   | 3       |  
|Net loss                                                                                                                                        |  |                                               |           |  |        |            |    |         |  |   |            |          |           |              | (24,413 | ) |          |   |       |          |  |   |        |   |  |   |     |   |  |   | (24,413 | )
|                                                                                                                                                |  |                                               |            |  |        |            |     |         |  |   |             |          |           |              |         |   |          |   |        |          |  |   |         |  
|Balance, December 31, 2005                                                                                                                      |  |                                               | 30,277,308 |  |        | $          | 303 |         |  | $ | 394,212     |          |           | $            | (28,255 | ) |          | $ | (2,349 | )        |  | $ |        |   |  | $ |     |   |  | $ | 363,911 |  
|                                                                                                                                                |  |                                               |            |  |        |            |     |         |  |   |             |          |           |              |         |   |          |   |        |          |  |   |         |  



60



---



##### Table of Contents



GREAT WOLF RESORTS, INC. AND SUBSIDIARIES AND


GREAT LAKES PREDECESSOR





CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS


|                                                     |                                                                                     |                                         |                                                     |                                                          |              |             |         |            |              |        |       |              |          |        |       |         |         |         |        |       |  
|---------------------------------------------------- | ----------------------------------------------------------------------------------- | --------------------------------------- | --------------------------------------------------- | -------------------------------------------------------- | ------------ | ----------- | ------- | ---------- | ------------ | ------ | ----- | ------------ | -------- | ------ | ----- | ------- | ------- | ------- | ------ | ----- | -
|                                                     |                                                                                     | Great Wolf Resorts                      |                                                     |                                                          |              | Predecessor |        
|                                                     |                                                                                     |                                         |                                                     |                                                          |              |             |        
|                                                     |                                                                                     |                                         |                                                     | Period                                                   |              |             |         | Period     |              |        |      
|                                                     |                                                                                     |                                         |                                                     | December 21,                                             |              |             |         | January 1, |              |        |      
|                                                     |                                                                                     |                                         |                                                     | 2004                                                     |              |             |         | 2004       |              |        |      
|                                                     |                                                                                     | Year Ended                              |                                                     |                                                          | through      |             |         |            | through      |        |       | Year Ended   |         
|                                                     |                                                                                     | December 31,                            |                                                     |                                                          | December 31, |             |         |            | December 20, |        |       | December 31, |         
|                                                     |                                                                                     | 2005                                    |                                                     |                                                          | 2004         |             |         |            | 2004         |        |       | 2003         |         
|                                                     |                                                                                     |                                         |                                                     |                                                          |              |             |         |            |              |        |       |              |         
|                                                     |                                                                                     | (Dollars in thousands)                  |                                                    
|Operating activities:                                |                                                                                     |                                         |                                                     |                                                          |              |             |         |            |              |        |       |              |          |        |       |         |        
|                                                     | Net loss                                                                            |                                         | $                                                   | (24,413                                                  | )            |             | $       | (3,842     | )            |        |       | $            | (12,942  | )      |       | $       | (4,543  | )      
|                                                     | Adjustments to reconcile net loss to net cash provided by
    operating activities: |                                         |                                                     |                                                          |              |             |         |            |              |        |       |              |          |        |       |         |         |        
|                                                     |                                                                                     | Depreciation and amortization           |                                                     |                                                          | 26,248       |             |         |            | 1,897        |        |       |              |          | 13,107 |       |         |         | 10,440  |       
|                                                     |                                                                                     | Non-cash employee compensation expenses |                                                     |                                                          | (1,554       | )           |         |            | 2,891        |        |       |              |          |       |       |         |         |        |       
|                                                     |                                                                                     | (Gain) loss on sale of assets           |                                                     |                                                          | 26,161       |             |         |            |             |        |       |              |          | (5,327 | )     |         |         | (10,967 | )     
|                                                     |                                                                                     | Gain on sale of investments and other   |                                                     |                                                          |             |             |         |            |             |        |       |              |          | (1,653 | )     |         |         |        |       
|                                                     |                                                                                     | Equity in unconsolidated affiliates     |                                                     |                                                          | 282          |             |         |            |             |        |       |              |          |       |       |         |         |        |       
|                                                     |                                                                                     |                                         | Minority interests                                  |                                                          |              | (7          | )       |            |              |        |       |              |          |        | 2,729 |         |         |         | 10,247 |      
|                                                     |                                                                                     |                                         | Cumulative effect of change in accounting principle |                                                          |              |             |         |            |              |       |       |              |          |        |      |         |         |         | (460   | )    
|                                                     |                                                                                     |                                         | Deferred tax benefit                                |                                                          |              | (7,504      | )       |            |              | (2,563 | )     |              |          |        |      |         |         |         |        |      
|                                                     |                                                                                     |                                         | Changes in operating assets and liabilities:        |                                                          |              |             |         |            |              |        |       |              |          |        |       |         |         |         |        |      
|                                                     |                                                                                     |                                         |                                                     | Accounts receivable and other assets                     |              |             | 1,349   |            |              |        | 1,564 |              |          |        |       | (9,236  | )       |         |        | (883  | )
|                                                     |                                                                                     |                                         |                                                     | Accounts payable, accrued expenses and other liabilities |              |             | (2,774  | )          |              |        | 815   |              |          |        |       | 16,959  |         |         |        | 4,292 |  
|                                                     |                                                                                     |                                         |                                                     |                                                          |              |             |         |            |              |        |       |              |         
|Net cash provided by operating activities            |                                                                                     |                                         | 17,788                                              |                                                          |              |             | 762     |            |              |        |       | 3,637        |          |        |       | 8,126   |        
|                                                     |                                                                                     |                                         |                                                     |                                                          |              |             |         |            |              |        |       |              |         
|Investing activities:                                |                                                                                     |                                         |                                                     |                                                          |              |             |         |            |              |        |       |              |          |        |       |         |        
|                                                     | Capital expenditures for property and equipment                                     |                                         |                                                     | (124,905                                                 | )            |             |         | (115       | )            |        |       |              | (108,804 | )      |       |         | (77,060 | )      
|                                                     | Investment in affiliates                                                            |                                         |                                                     | (1,519                                                   | )            |             |         |           |              |        |       |              |         |        |       |         |        |        
|                                                     | Proceeds from sale of assets                                                        |                                         |                                                     | 59,948                                                   |              |             |         |           |              |        |       |              | 32,174   |        |       |         | 26,451  |        
|                                                     | Purchases of owners interest, net of cash acquired                                 |                                         |                                                     |                                                         |              |             |         | (95,460    | )            |        |       |              |         |        |       |         |        |        
|                                                     | Increase in restricted cash                                                         |                                         |                                                     | (1,305                                                   | )            |             |         | (2,008     | )            |        |       |              |         |        |       |         |        |        
|                                                     | (Increase) decrease in escrow                                                       |                                         |                                                     | 2,285                                                    |              |             |         |           |              |        |       |              | (1,564   | )      |       |         |         |        
|                                                     | (Increase) decrease in equity escrow                                                |                                         |                                                     |                                                         |              |             |         |           |              |        |       |              | 13,722   |        |       |         | (13,671 | )      
|                                                     |                                                                                     |                                         |                                                     |                                                          |              |             |         |            |              |        |       |              |         
|Net cash used in investing activities                |                                                                                     |                                         | (65,496                                             | )                                                        |              |             | (97,583 | )          |              |        |       | (64,472      | )        |        |       | (64,280 | )      
|                                                     |                                                                                     |                                         |                                                     |                                                          |              |             |         |            |              |        |       |              |         
|Financing activities:                                |                                                                                     |                                         |                                                     |                                                          |              |             |         |            |              |        |       |              |          |        |       |         |        
|                                                     | Proceeds from equity offering                                                       |                                         |                                                     |                                                         |              |             |         | 273,700    |              |        |       |              |         |        |       |         |        |        
|                                                     | Payment of offering costs                                                           |                                         |                                                     |                                                         |              |             |         | (21,979    | )            |        |       |              | (726     | )      |       |         |        |        
|                                                     | Principal payments on long-term debt                                                |                                         |                                                     | (50,049                                                  | )            |             |         | (152,417   | )            |        |       |              | (16,805  | )      |       |         | (17,765 | )      
|                                                     | Proceeds from issuance of long-term debt                                            |                                         |                                                     | 75,712                                                   |              |             |         | 75,000     |              |        |       |              | 68,330   |        |       |         | 63,496  |        
|                                                     | Payment of loan costs                                                               |                                         |                                                     | (2,582                                                   | )            |             |         | (2,153     | )            |        |       |              | (2,569   | )      |       |         | (2,351  | )      
|                                                     | Member contributions                                                                |                                         |                                                     |                                                         |              |             |         |           |              |        |       |              | 25,788   |        |       |         | 29,318  |        
|                                                     | Member distributions                                                                |                                         |                                                     |                                                         |              |             |         |           |              |        |       |              | (11,370  | )      |       |         | (3,856  | )      
|                                                     | Changes in mandatorily redeemable ownership interests                               |                                         |                                                     |                                                         |              |             |         |           |              |        |       |              | 1,761    |        |       |         | (3,136  | )      
|                                                     | Net distributions to minority investors                                             |                                         |                                                     |                                                         |              |             |         |           |              |        |       |              | (2,985   | )      |       |         | (10,852 | )      
|                                                     |                                                                                     |                                         |                                                     |                                                          |              |             |         |            |              |        |       |              |         
|Net cash provided by financing activities            |                                                                                     |                                         | 23,081                                              |                                                          |              |             | 172,151 |            |              |        |       | 61,424       |          |        |       | 54,854  |        
|                                                     |                                                                                     |                                         |                                                     |                                                          |              |             |         |            |              |        |       |              |         
|Net increase (decrease) in cash and cash equivalents |                                                                                     |                                         | (24,627                                             | )                                                        |              |             | 75,330  |            |              |        |       | 589          |          |        |       | (1,300  | )      
|Cash and cash equivalents, beginning of period       |                                                                                     |                                         | 79,409                                              |                                                          |              |             | 4,079   |            |              |        |       | 3,490        |          |        |       | 4,790   |        
|                                                     |                                                                                     |                                         |                                                     |                                                          |              |             |         |            |              |        |       |              |         
|Cash and cash equivalents, end of period             |                                                                                     | $                                       | 54,782                                              |                                                          |              | $           | 79,409  |            |              |        | $     | 4,079        |          |        | $     | 3,490   |        
|                                                     |                                                                                     |                                         |                                                     |                                                          |              |             |         |            |              |        |       |              |         
|Supplemental Cash Flow Information                   |                                                                                     |                                         |                                                     |                                                          |              |             |         |            |              |        |       |              |          |        |       |         |        
|                                                     | Cash paid for interest, net of capitalized interest                                 |                                         | $                                                   | 3,605                                                    |              |             | $       | 698        |              |        |       | $            | 6,317    |        |       | $       | 4,786   |        
|                                                     | Cash paid for income taxes                                                          |                                         | $                                                   | 1,128                                                    |              |             | $       |           |              |        |       | $            |         |        |       | $       |        |        
|                                                     | Non-cash items:                                                                     |                                         |                                                     |                                                          |              |             |         |            |              |        |       |              |          |        |       |         |         |        
|                                                     |                                                                                     |                                         | Land contributed for minority interest              |                                                          | $            | 6,600       |         |            | $            |       |       |              |          | $      |      |         |         | $       |       |      
|                                                     |                                                                                     |                                         | Construction in process accruals                    |                                                          | $            | 8,648       |         |            | $            | 18,578 |       |              |          | $      |      |         |         | $       |       |      
|                                                     |                                                                                     |                                         | Escrow funds receivable                             |                                                          | $            | 12,825      |         |            | $            |       |       |              |          | $      |      |         |         | $       |       |      



61



---



##### Table of Contents



GREAT WOLF RESORTS, INC. AND SUBSIDIARIES AND


GREAT LAKES PREDECESSOR





NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS


(Dollars in thousands, except per share amounts)




|   |             
|-- | ------------
|1. | ORGANIZATION





| |          
| | ---------
| | Formation









| |   |                                                                                                                                                                                                                                                                                                                                                                                                                    
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The Predecessor contributed its hotel management and multifamily
    housing management and development assets, which were unrelated
    to the resort business, to two subsidiaries of the Predecessor
    and then distributed the interests in those subsidiaries to the
    former shareholders of The Great Lakes Companies, Inc. (GLC)
    (one of the Predecessors entities).                              
|
| |  | We acquired GLC and seven resort-owning entities. Pursuant to
    these acquisitions, investors of GLC and the resort-owning
    entities received cash, unregistered shares of our common stock
    or a combination of cash and unregistered shares of our common
    stock. We issued 13,901,947 share of our common stock and
    paid approximately $97,600 in cash in connection with these
    acquisitions.
|
| |  | We issued an aggregate of 130,949 shares of unregistered
    common stock to holders of tenant in common interests in two of
    our resorts.                                                                                                                                                                                                                                                                      







| |                 
| | ----------------
| | Business Summary



62



---



##### Table of Contents



GREAT WOLF RESORTS, INC. AND SUBSIDIARIES AND


GREAT LAKES PREDECESSOR


NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS  (Continued)








|                                         |  |            |     |   |         |              |              |  |       |               |  |               |         |  |  |  |        |    
|---------------------------------------- |  | ---------- | --- | - | ------- | ------------ | ------------ |  | ----- | ------------- |  | ------------- | ------- |  |  |  | ------ | ---
|                                         |  |            |     |   |         |              |              |  |       | Indoor        | 
|                                         |  | Ownership  |     |   |         |              |              |  | Condo |               |  | Entertainment |        
|                                         |  | Percentage |     |   | Opening |              | Guest Suites |  |       | Units         |  |               | Area(1) | 
|                                         |  |            |     |   |         |              |              |  |       |               |  |               |         | 
|                                         |  |            |     |   |         |              |              |  |       | (Approx. ft2) | 
|Existing Resorts:                        |  |            |     |   |         |              |              |  |       |               |  |               |         |  |  |  |        |    
|Wisconsin Dells, WI(2)                   |  |            | 30  | % |         | 1997         |              |  | 309   |               |  |               | 77      |  |  |  | 64,000 | (3)
|Sandusky, OH(2)                          |  |            | 30  | % |         | 2001         |              |  | 271   |               |  |               |        |  |  |  | 41,000 |    
|Traverse City, MI                        |  |            | 100 | % |         | 2003         |              |  | 281   |               |  |               |        |  |  |  | 51,000 |    
|Kansas City, KS                          |  |            | 100 | % |         | 2003         |              |  | 281   |               |  |               |        |  |  |  | 49,000 |    
|Sheboygan, WI                            |  |            | 100 | % |         | 2004         |              |  | 183   |               |  |               | 64      |  |  |  | 54,000 |    
|Williamsburg, VA                         |  |            | 100 | % |         | March 2005   |              |  | 301   | (4)           |  |               |        |  |  |  | 66,000 |    
|Pocono Mountains, PA                     |  |            | 100 | % |         | October 2005 |              |  | 401   |               |  |               |        |  |  |  | 91,000 |    
|Resorts Announced or Under Construction: |  |            |     |   |         |              |              |  |       |               |  |               |         |  |  |  |        |    
|Niagara Falls, ONT(5)                    |  |            |    |   |         | Spring 2006  |              |  | 406   |               |  |               |        |  |  |  | 94,000 |    
|Mason, OH(6)                             |  |            | 84  | % |         | Fall 2006    |              |  | 401   |               |  |               |        |  |  |  | 92,000 |    
|Chehalis, WA(7)                          |  |            | 49  | % |         | Late 2007    |              |  | 317   |               |  |               |        |  |  |  | 65,000 |    
|Grapevine, TX(8)                         |  |            | 100 | % |         | Late 2007    |              |  | 400   |               |  |               |        |  |  |  | 80,000 |    






|    |                                                                                                                                                                                                                                                                       
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Our indoor entertainment areas generally include our indoor
    waterpark, game arcade, childrens activity room and
    fitness room, as well as our Aveda concept spa, Wileys
    Woods and party room in the resorts that have such amenities.                    
|   
|(2) | On October 11, 2005 we formed a joint venture with CNL
    Income Properties, a real estate investment trust focused on
    leisure and lifestyle properties, and contributed this property
    to the joint venture. We own a 30% interest in this joint
    venture.
|   
|(3) | We have started a 37,000 square foot waterpark expansion at
    our Wisconsin Dells property. Construction on the expansion
    began in June 2005 and was completed in March 2006.                                                                                   
|   
|(4) | We plan to add an additional 103 guest suites as well as new
    waterpark attractions at our Williamsburg property. Construction
    for the expansion is expected to start in Spring 2006 with
    expected completion in Spring 2007.                              
|   
|(5) | An affiliate of Ripley Entertainment, Inc., our licensee, which
    we refer to as Ripleys, owns this resort. We are assisting
    Ripleys with construction management and other pre-opening
    matters related to the                                            

63



---



##### Table of Contents



GREAT WOLF RESORTS, INC. AND SUBSIDIARIES AND


GREAT LAKES PREDECESSOR


NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS  (Continued)




|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    | Great Wolf Lodge in Niagara Falls. We have granted Ripleys
    a license to use the Great Wolf Lodge name for this resort for
    ten years after opening. We will manage the resort on behalf of
    Ripleys and will also provide central reservation services.                                                                                                                                                                                                                  
|   
|(6) | We have entered into a joint venture with Paramount Parks, Inc.,
    a unit of CBS Corporation, to build this resort. We will
    operate the resort under our Great Wolf Lodge brand and will
    maintain a majority equity position in the project. Paramount
    will have a minority equity interest in the development.
    Construction on the resort began in July 2005 with expected
    completion in Fall 2006.                                                           
|   
|(7) | We have entered into a joint venture with The Confederated
    Tribes of the Chehalis Reservation to build this resort. We will
    operate the resort under our Great Wolf Lodge brand. The
    Confederated Tribes of the Chehalis Reservation will contribute
    the land needed for the resort, and they will have a majority
    equity interest in the joint venture. Construction on the resort
    is expected to begin in Summer 2006 with expected completion in
    2007.
|   
|(8) | We have announced plans to develop a Great Wolf Lodge resort in
    Grapevine, Texas. The northwoods themed, six-story,
    approximately 400-suite resort will provide a comprehensive
    package of first-class destination lodging amenities and
    activities. Construction on the approximately
    400,000 square-foot building is scheduled to begin in
    Spring 2006 with expected completion in 2007.                                                                   



|   |                                           
|-- | ------------------------------------------
|2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation and Combination


Cash and Cash Equivalents


Allowance for Doubtful Accounts


Inventory


Property and Equipment


|                                                      |  |  |                | 
|----------------------------------------------------- |  |  | -------------- | 
|Buildings and improvements                            |  |  | 20  40  years | 
|Fixtures and equipment, including waterpark equipment |  |  | 5  15  years  | 



64



---



##### Table of Contents



GREAT WOLF RESORTS, INC. AND SUBSIDIARIES AND


GREAT LAKES PREDECESSOR


NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS  (Continued)




Loan Fees


Partially-Owned Entities




Investment in Affiliates




Minority Interests


Other Intangible Assets


65



---



##### Table of Contents



GREAT WOLF RESORTS, INC. AND SUBSIDIARIES AND


GREAT LAKES PREDECESSOR


NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS  (Continued)


Goodwill




Impairment of Long-Lived Assets


Revenue Recognition


contract-to


Sales of Real Estate
Assets


Other Revenue and Other Expenses From Managed
Properties 01-14 Out-of


Income Taxes


66



---



##### Table of Contents



GREAT WOLF RESORTS, INC. AND SUBSIDIARIES AND


GREAT LAKES PREDECESSOR


NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS  (Continued)






Advertising


IPO Costs paid-in


Stock Based Compensation


|                                                                     |                                        |                                     |         |         |       |   |        |        |       |  
|-------------------------------------------------------------------- | -------------------------------------- | ----------------------------------- | ------- | ------- | ----- | - | ------ | ------ | ----- | -
|                                                                     |                                        | 2005                                |         |         | 2004  |  
|                                                                     |                                        |                                     |         |         |       |  
|Net loss, as reported                                                |                                        | $                                   | (24,413 | )       |       | $ | (3,842 | )     
|Compensation expense, SFAS No. 123 fair value method,
    net of tax |                                        |                                     | (1,364  | )       |       |   | (48    | )     
|                                                                     |                                        |                                     |         |         |       |  
|                                                                     | Pro forma net loss                     |                                     | $       | (25,777 | )     |   | $      | (3,890 | )    
|                                                                     |                                        |                                     |         |         |       |  
|                                                                     | Pro forma net loss per share  Basic   |                                     | $       | (0.86   | )     |   | $      | (0.13  | )    
|                                                                     | Pro forma net loss per share  Diluted |                                     | $       | (0.86   | )     |   | $      | (0.13  | )    
|                                                                     |                                        | Actual net loss per share  Basic   |         | $       | (0.81 | ) |        | $      | (0.13 | )
|                                                                     |                                        | Actual net loss per share  Diluted |         | $       | (0.81 | ) |        | $      | (0.13 | )

67



---



##### Table of Contents



GREAT WOLF RESORTS, INC. AND SUBSIDIARIES AND


GREAT LAKES PREDECESSOR


NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS  (Continued)




|                                          |  |      |            |  |      |  |            | 
|----------------------------------------- |  | ---- | ---------- |  | ---- |  | ---------- | 
|                                          |  | 2005 |            |  | 2004 | 
|                                          |  |      |            |  |      | 
|Dividend yield                            |  |      |           |  |      |  |           | 
|Weighted-average, risk free interest rate |  |      | 3.65%      |  |      |  | 3.65%      | 
|Weighted-average, expected life of option |  |      | 6.0  years |  |      |  | 5.0  years | 
|Expected stock price volatility           |  |      | 40%        |  |      |  | 23%        | 

Segments




|                                                                                                      |  |            |         |   |             |   |       |             |  |   |        |            |           |            |         |   |  |   |         |  
|----------------------------------------------------------------------------------------------------- |  | ---------- | ------- | - | ----------- | - | ----- | ----------- |  | - | ------ | ---------- | --------- | ---------- | ------- | - |  | - | ------- | -
|                                                                                                      |  | Resort     |         |   | Resort      |   |       |             |  |   |        | Totals per |          
|                                                                                                      |  | Ownership/ |         |   | Third-Party |   |       | Condominium |  |   |        |            | Financial |           
|                                                                                                      |  | Operation  |         |   | Management  |   |       | Sales       |  |   | Other  |            |           | Statements |        
|                                                                                                      |  |            |         |   |             |   |       |             |  |   |        |            |           |            |        
|Year ended December 31, 2005                                                                          |  |            |         |   |             |   |       |             |  |   |        |            |           |            |         |   |  |   |         |  
|Revenues                                                                                              |  | $          | 110,053 |   |             | $ | 3,500 |             |  | $ | 25,862 |            |           | $          |        |   |  | $ | 139,415 |  
|                                                                                                      |  |            |         |   |             |   |       |             |  |   |        |            |           |            |        
|EBITDA, excluding certain items                                                                       |  |            | (9,353  | ) |             |   | 976   |             |  |   | 9,082  |            |           |            | (798    | ) |  | $ | (93     | )
|Depreciation and amortization                                                                         |  |            | (24,576 | ) |             |   |      |             |  |   |       |            |           |            | (1,672  | ) |  |   | (26,248 | )
|Interest expense, net                                                                                 |  |            |        |   |             |   |      |             |  |   |       |            |           |            |        |   |  |   | (5,105  | )
|                                                                                                      |  |            |         |   |             |   |       |             |  |   |        |            |           |            |        
|Loss before income taxes, minority interests, and equity in
    earnings of unconsolidated affiliates |  |            |        |   |             |   |      |             |  |   |       |            |           |            |        |   |  | $ | (31,446 | )
|                                                                                                      |  |            |         |   |             |   |       |             |  |   |        |            |           |            |        
|Additions to long-lived assets                                                                        |  |            | 124,905 |   |             |   |      |             |  |   |       |            |           |            |        |   |  | $ | 124,905 |  
|                                                                                                      |  |            |         |   |             |   |       |             |  |   |        |            |           |            |        
|Total assets                                                                                          |  |            | 474,305 |   |             |   |      |             |  |   |       |            |           |            | 131,221 |   |  | $ | 605,526 |  
|                                                                                                      |  |            |         |   |             |   |       |             |  |   |        |            |           |            |        





Use of Estimates


68



---



##### Table of Contents



GREAT WOLF RESORTS, INC. AND SUBSIDIARIES AND


GREAT LAKES PREDECESSOR


NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS  (Continued)




Reclassifications


New Accounting Pronouncements






|   |                         
|-- | ------------------------
|3. | INVESTMENT IN AFFILIATES

25-year






|                    |  |   |         |  
|------------------- |  | - | ------- | -
|Balance sheet data: |  |   |         |  
|Total assets        |  | $ | 120,884 |  
|Total liabilities   |  |   | 9,284   |  
|Operating data:     |  |   |         |  
|Revenue             |  |   | 6,550   |  
|Operating Expenses  |  |   | (6,600  | )
|Net income (loss)   |  |   | (1,029  | )

69



---



##### Table of Contents



GREAT WOLF RESORTS, INC. AND SUBSIDIARIES AND


GREAT LAKES PREDECESSOR


NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS  (Continued)






| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | We will receive an earn-out of up to $3,000 for each of the two
    resorts at the end of 2008, based on the 2007/2008 performances
    of the resorts. The earn-out is a possible source of future
    earnings for us, which represents a gain contingency. At the
    formation of the joint venture it is not certain that we will
    realize this future revenue. Accordingly, in accordance with
    SFAS 5, Accounting for Contingencies, we have
    not recorded the gain contingency.                                                                                                                                           
|
| |  | We agreed to complete construction of a waterpark expansion at
    our Wisconsin Dells resort and complete some roof repairs at our
    Sandusky resort. A portion of the proceeds from the joint
    venture transaction was escrowed to meet these obligations. At
    December 31, 2005, we have a receivable from the joint
    venture of $12,825 as of December 31, 2005 related to the
    escrowed funds; this amount is recorded as accounts
    receivable-affiliates. We also have a liability of $3,576 for
    the construction and repairs as of December 31, 2005; this
    amount is recorded as accrued expenses-affiliates.



|   |                                               
|-- | ----------------------------------------------
|4. | PURCHASE ACCOUNTING IN CONNECTION WITH THE IPO







| |   |                                                                                                                                                                                                                                                                                    
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Recorded property and equipment, other assets, debt and other
    liabilities at their preliminarily estimated fair values;                                                                                                                                                        
|
| |  | Recorded a deferred tax liability resulting from the difference
    between the preliminarily estimated fair values and the tax
    bases of assets acquired from the five resort-owning entities.
    We recorded this liability at our anticipated effective tax rate
    of 40%;
|
| |  | Eliminated mandatorily redeemable interests of the Predecessor
    due to the conversion of those ownership interests to our common
    stock in conjunction with the Formation Transactions; and                                                                                  
|
| |  | Recorded as goodwill the excess of consideration in the purchase
    transaction over the estimated fair value of net tangible and
    intangible assets acquired from the five resort-owning entities.                                                                            

|                                                |  |   |          |  
|----------------------------------------------- |  | - | -------- | -
|Value of Great Wolf Resorts common stock issued |  | $ | 80,840   |  
|Cash paid                                       |  |   | 73,042   |  
|                                                |  |   |         
|Total cost of acquisition                       |  |   | 153,882  |  
|Fair value of debt assumed                      |  |   | 181,415  |  
|Fair value of property and equipment acquired   |  |   | (189,427 | )
|Fair value of intangible assets                 |  |   | (10,296  | )
|Deferred tax liability recorded                 |  |   | 11,297   |  
|Fair value of other assets and liabilities      |  |   | 8,325    |  
|                                                |  |   |         
|Goodwill                                        |  | $ | 155,196  |  
|                                                |  |   |         



70



---



##### Table of Contents



GREAT WOLF RESORTS, INC. AND SUBSIDIARIES AND


GREAT LAKES PREDECESSOR


NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS  (Continued)










| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Recorded all identifiable tangible and intangible assets at
    their estimated fair values as of December 20, 2004;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|
| |  | Allocated the excess consideration paid over the estimated fair
    value of the net assets acquired to all identifiable tangible
    and intangible assets pro rata based on their estimated fair
    values;                                                                                                                                                                                                                                                                                                                                                                                                                   
|
| |  | Recorded a deferred tax liability resulting from the difference
    between the total estimated fair values (including the excess
    amount described in the previous item) and the tax bases of the
    assets acquired from the two resort-owning entities. We recorded
    this liability at our anticipated effective tax rate of 40%. In
    the fourth quarter, we recorded adjustments to finalize the
    deferred tax liabilities, resulting in a decrease in deferred
    tax liabilities of $6,086, a decrease in property and equipment
    acquired of $10,801, and an increase in intangible assets of
    $4,715.



|   |                       
|-- | ----------------------
|5. | PROPERTY AND EQUIPMENT



|                                  |                               |              |         |         |      |   |         |        |  
|--------------------------------- | ----------------------------- | ------------ | ------- | ------- | ---- | - | ------- | ------ | -
|                                  |                               | December 31, |        
|                                  |                               |              |        
|                                  |                               | 2005         |         |         | 2004 |  
|                                  |                               |              |         |         |      |  
|Land and improvements             |                               | $            | 38,735  |         |      | $ | 12,064  |       
|Building and improvements         |                               |              | 150,184 |         |      |   | 89,294  |       
|Furniture, fixtures and equipment |                               |              | 167,691 |         |      |   | 83,063  |       
|Construction in process           |                               |              | 46,448  |         |      |   | 164,160 |       
|                                  |                               |              |         |         |      |  
|                                  |                               |              | 403,058 |         |      |   | 348,581 |       
|                                  | Less accumulated depreciation |              |         | (17,667 | )    |   |         | (1,207 | )
|                                  |                               |              |         |         |      |  
|Property and equipment, net       |                               | $            | 385,391 |         |      | $ | 347,374 |       
|                                  |                               |              |         |         |      |  



71



---



##### Table of Contents



GREAT WOLF RESORTS, INC. AND SUBSIDIARIES AND


GREAT LAKES PREDECESSOR


NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS  (Continued)




|   |               
|-- | --------------
|6. | LONG-TERM DEBT



|                                       |                                          |              |         |        |      |   |         |        | 
|-------------------------------------- | ---------------------------------------- | ------------ | ------- | ------ | ---- | - | ------- | ------ | 
|                                       |                                          | December 31, |        
|                                       |                                          |              |        
|                                       |                                          | 2005         |         |        | 2004 |  
|                                       |                                          |              |         |        |      |  
|Mortgage Debt:                         |                                          |              |         |        |      |   |         |       
|                                       | Senior credit facility                   |              | $       |       |      |   | $       |       | 
|                                       | Traverse City/ Kansas City mortgage loan |              |         | 73,979 |      |   |         | 75,000 | 
|                                       | Sheboygan mortgage loan                  |              |         | 28,939 |      |   |         | 29,475 | 
|                                       | Williamsburg construction loan           |              |         |       |      |   |         | 19,011 | 
|                                       | Pocono Mountains construction loan       |              |         |       |      |   |         | 5,598  | 
|                                       | Junior subordinated debentures           |              |         | 51,550 |      |   |         |       | 
|                                       | Mason construction loan                  |              |         |       |      |   |         |       | 
|                                       | Other mortgage debt                      |              |         | 1,552  |      |   |         | 1,523  | 
|Other Debt:                            |                                          |              |         |        |      |   |         |       
|                                       | City of Sheboygan bonds                  |              |         | 8,288  |      |   |         | 8,063  | 
|                                       | City of Sheboygan loan                   |              |         | 4,020  |      |   |         | 3,995  | 
|                                       |                                          |              |         |        |      |  
|                                       |                                          |              | 168,328 |        |      |   | 142,665 |       
|Less current portion of long-term debt |                                          |              | (1,928  | )      |      |   | (27,794 | )     
|                                       |                                          |              |         |        |      |  
|                                       |                                          | $            | 166,400 |        |      | $ | 114,871 |       
|                                       |                                          |              |         |        |      |  

Senior Credit Facility


Traverse City/ Kansas City Mortgage Loan 25-year


Sheboygan Mortgage Loan 20-year


Williamsburg Construction Loan


72



---



##### Table of Contents



GREAT WOLF RESORTS, INC. AND SUBSIDIARIES AND


GREAT LAKES PREDECESSOR


NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS  (Continued)


Pocono Mountains Construction Loan


Junior Subordinated Debentures


30-year






Mason Construction Loan 3-year 25-year


City of Sheboygan Bonds


73



---



##### Table of Contents



GREAT WOLF RESORTS, INC. AND SUBSIDIARIES AND


GREAT LAKES PREDECESSOR


NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS  (Continued)




City of Sheboygan Loan


Future Maturities


|           |  |   |         | 
|---------- |  | - | ------- | 
|2006       |  | $ | 1,928   | 
|2007       |  |   | 2,082   | 
|2008       |  |   | 29,229  | 
|2009       |  |   | 1,651   | 
|2010       |  |   | 1,767   | 
|Thereafter |  |   | 131,671 | 
|           |  |   |        
|Total      |  | $ | 168,328 | 
|           |  |   |        



|   |                                    
|-- | -----------------------------------
|7. | FAIR VALUE OF FINANCIAL INSTRUMENTS







|   |             
|-- | ------------
|8. | INCOME TAXES



|                                                                    |                 |         |     |     |          |   |        |        |   |   |        |        |  
|------------------------------------------------------------------- | --------------- | ------- | --- | --- | -------- | - | ------ | ------ | - | - | ------ | ------ | -
|                                                                    |                 | Current |     |     | Deferred |   |        | Total  |  
|                                                                    |                 |         |     |     |          |   |        |        |  
|Year ended December 31, 2005                                        |                 |         |     |     |          |   |        |        |   |   |        |       
|                                                                    | U.S. Federal    |         | $   | 55  |          |   | $      | (6,566 | ) |   | $      | (6,511 | )
|                                                                    | State and local |         |     | 140 |          |   |        | (938   | ) |   |        | (798   | )
|                                                                    |                 |         |     |     |          |   |        |        |  
|                                                                    |                 | $       | 195 |     |          | $ | (7,504 | )      |   | $ | (7,309 | )     
|                                                                    |                 |         |     |     |          |   |        |        |  
|Period from December 21, 2004 to December 31, 2004
    U.S. Federal |                 | $       |    |     |          | $ | (2,243 | )      |   | $ | (2,243 | )     
|                                                                    | State and local |         |     |    |          |   |        | (320   | ) |   |        | (320   | )
|                                                                    |                 |         |     |     |          |   |        |        |  
|                                                                    |                 | $       |    |     |          | $ | (2,563 | )      |   | $ | (2,563 | )     
|                                                                    |                 |         |     |     |          |   |        |        |  

74



---



##### Table of Contents



GREAT WOLF RESORTS, INC. AND SUBSIDIARIES AND


GREAT LAKES PREDECESSOR


NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS  (Continued)




|                                                |  |      |       |    |      |  |       |   
|----------------------------------------------- |  | ---- | ----- | -- | ---- |  | ----- | --
|                                                |  | 2005 |       |    | 2004 | 
|                                                |  |      |       |    |      | 
|Federal statutory income tax benefit            |  |      | (35.0 | )% |      |  | (35.0 | )%
|State income taxes, net of Federal income taxes |  |      | (4.6  | )% |      |  | (5.0  | )%
|Goodwill                                        |  |      | 15.9  | %  |      |  |      |   
|Other                                           |  |      | 0.7   | %  |      |  |      |   
|                                                |  |      |       |    |      | 
|                                                |  |      | (23.0 | )% |      |  | (40.0 | )%
|                                                |  |      |       |    |      | 



|                                   |                                  |                            |   |         |         |   |   |         |         |  
|---------------------------------- | -------------------------------- | -------------------------- | - | ------- | ------- | - | - | ------- | ------- | -
|                                   |                                  | 2005                       |   |         | 2004    |  
|                                   |                                  |                            |   |         |         |  
|Deferred tax assets (liabilities): |                                  |                            |   |         |         |   |   |        
|                                   | Property and equipment           |                            | $ | (39,931 | )       |   | $ | (41,290 | )      
|                                   | Intangibles                      |                            |   | 3,879   |         |   |   |        |        
|                                   | Investment in affiliates         |                            |   | (1,320  | )       |   |   |        |        
|                                   | Loan fees                        |                            |   | 318     |         |   |   |        |        
|                                   | Salaries and wages               |                            |   | 707     |         |   |   | 1,258   |        
|                                   | Prepaid expenses                 |                            |   | (764    | )       |   |   | (492    | )      
|                                   | Other                            |                            |   | (171    | )       |   |   | (70     | )      
|                                   | Net operating loss carryforwards |                            |   | 11,482  |         |   |   | 2,248   |        
|                                   |                                  |                            |   |         |         |  
|                                   |                                  | Net deferred tax liability |   | $       | (25,800 | ) |   | $       | (38,346 | )
|                                   |                                  |                            |   |         |         |  









|   |                           
|-- | --------------------------
|9. | RELATED-PARTY TRANSACTIONS





| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | We and the Predecessor regularly used an aircraft owned by an
    entity owned by several of our stockholders. Payments of $43,
    $235, and $149 were made in the years ended December 31,
    2005, 2004, and 2003, respectively, for the lease of the
    aircraft for company business. The entity that owns the aircraft
    also had one employee for whom Predecessor provided payroll and
    benefit services, the costs of which were reimbursed by the
    entity. This relationship ended in 2005.

75



---



##### Table of Contents



GREAT WOLF RESORTS, INC. AND SUBSIDIARIES AND


GREAT LAKES PREDECESSOR


NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS  (Continued)




| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | A member of our senior management owned a 25% interest in the
    entity that leases space at the Great Wolf Lodge in Wisconsin
    Dells and operates the spa located within that resort. That
    entity made payments of $38, $44, and $35 to the resort for the
    years ended December 31, 2005, 2004, and 2003,
    respectively. The member of our senior management no longer has
    an ownership in this entity at December 31, 2005.
|
| |  | We provide administrative services for a non-resort hotel entity
    and a multifamily housing entity owned by certain current and
    former members of our senior management. Amounts charged to
    these entities in 2005 were $645; no amounts were charged in
    2004. This relationship ended in 2005.                                                                                                                                  
|
| |  | We provide administrative services for a development project
    owned by certain current and former members of our senior
    management. Amounts charged to this entity in 2005 were $18; no
    amounts were charged in 2004.                                                                                                                                                                                                                



|    |                              
|--- | -----------------------------
|10. | COMMITMENTS AND CONTINGENCIES

Legal Matters




Letters of Credit




76



---



##### Table of Contents



GREAT WOLF RESORTS, INC. AND SUBSIDIARIES AND


GREAT LAKES PREDECESSOR


NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS  (Continued)




Guarantees




1 2 5-year




Commitments


|      |  |   |       | 
|----- |  | - | ----- | 
|2006  |  | $ | 440   | 
|2007  |  |   | 402   | 
|2008  |  |   | 406   | 
|2009  |  |   | 343   | 
|2010  |  |   |      | 
|      |  |   |      
|Total |  | $ | 1,591 | 
|      |  |   |      







|    |                
|--- | ---------------
|11. | RETIREMENT PLAN



77



---



##### Table of Contents



GREAT WOLF RESORTS, INC. AND SUBSIDIARIES AND


GREAT LAKES PREDECESSOR


NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS  (Continued)




|    |       
|--- | ------
|12. | EQUITY

General


Members Equity of Combined
Entities


Treasury Stock


Mandatorily Redeemable
Ownership Interests




| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Class A and Class B shares of GLC. GLC was
    obligated to redeem in cash the A Shares and B Shares of a
    shareholder who died or incurred certain triggering events (as
    defined in the Term Sheet of Buy and Sell Provisions for Shares
    in The Great Lakes Companies, Inc.). The redemption price was
    calculated by a formula using GLCs net operating income
    and a multiple based on the type of triggering event, as
    described in the Term Sheet. Both the A Shares and the B shares
    contained restrictions on transfers and sales by the
    stockholders.
|
| |  | Class B Units of Great Wolf Lodge of Kansas City,
    LLC. In accordance with provisions in the Kansas City LLC
    Agreement, the LLC was required to redeem in cash the
    Class B Units no later than the fifth anniversary date of
    the operating commencement date of the Kansas City resort. The
    redemption price was based on the greater of fair value or an
    internal rate of return.                                                                                                                                                                                  





78



---



##### Table of Contents



GREAT WOLF RESORTS, INC. AND SUBSIDIARIES AND


GREAT LAKES PREDECESSOR


NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS  (Continued)


Deferred Compensation






Earnings per Share




|                                                                   |  |              |            |              |              |   |            |  
|------------------------------------------------------------------ |  | ------------ | ---------- | ------------ | ------------ | - | ---------- | -
|                                                                   |  |              |            | Period       |             
|                                                                   |  |              |            | December 21, |             
|                                                                   |  | Year Ended   |            |              | 2004 through |  
|                                                                   |  | December 31, |            |              | December 31, |  
|                                                                   |  | 2005         |            |              | 2004         |  
|                                                                   |  |              |            |              |              |  
|Net loss attributable to common shares                             |  | $            | (24,413    | )            |              | $ | (3,842     | )
|Weighted average common shares outstanding  basic and
    diluted |  |              | 30,134,146 |              |              |   | 30,132,896 |  
|Net loss per share  basic and diluted                             |  | $            | (0.81      | )            |              | $ | (0.13      | )



|    |                         
|--- | ------------------------
|13. | STOCK BASED COMPENSATION



79



---



##### Table of Contents



GREAT WOLF RESORTS, INC. AND SUBSIDIARIES AND


GREAT LAKES PREDECESSOR


NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS  (Continued)




|                                                                                                        |                                             |        |           |          |       |   |       |        |          |  |           |           |  |   |       |       | 
|------------------------------------------------------------------------------------------------------- | ------------------------------------------- | ------ | --------- | -------- | ----- | - | ----- | ------ | -------- |  | --------- | --------- |  | - | ----- | ----- | 
|                                                                                                        |                                             | 2005   |           |          | 2004  |  
|                                                                                                        |                                             |        |           |          |       |  
|                                                                                                        |                                             |        |           | Weighted |       |   |       |        | Weighted | 
|                                                                                                        |                                             |        |           | Average  |       |   |       |        | Average  | 
|                                                                                                        |                                             |        |           | Exercise |       |   |       |        | Exercise | 
|                                                                                                        |                                             | Shares |           |          | Price |   |       | Shares |          |  | Price     |          
|                                                                                                        |                                             |        |           |          |       |   |       |        |          |  |           |          
|Stock options:                                                                                          |                                             |        |           |          |       |   |       |        |          |  |           |           |  |   |       |      
|Options outstanding at beginning of year                                                                |                                             |        | 1,656,300 |          |       | $ | 17.00 |        |          |  |          |           |  |   |      |      
|                                                                                                        | Granted                                     |        |           | 118,000  |       |   | $     | 21.25  |          |  |           | 1,656,300 |  |   | $     | 17.00 | 
|                                                                                                        | Exercised                                   |        |           |         |       |   |       |       |          |  |           |          |  |   |       |      | 
|                                                                                                        | Canceled or expired                         |        |           | (368,466 | )     |   | $     | 17.42  |          |  |           |          |  |   |       |      | 
|Options outstanding at end of year                                                                      |                                             |        | 1,405,834 |          |       | $ | 17.25 |        |          |  | 1,656,300 |           |  | $ | 17.00 |      
|Options exercisable at end of year                                                                      |                                             |        | 442,351   |          |       | $ | 17.00 |        |          |  |          |           |  |   |       |      
|Non-vested equity shares of common stock:                                                               |                                             |        |           |          |       |   |       |        |          |  |           |           |  |   |       |      
|                                                                                                        | Awarded and restricted at beginning of year |        |           |         |       |   |       |       |          |  |           |          |  |   |       |      | 
|                                                                                                        | Awarded during the year                     |        |           | 15,000   |       |   |       |       |          |  |           |          |  |   |       |      | 
|                                                                                                        | Vested                                      |        |           |         |       |   |       |       |          |  |           |          |  |   |       |      | 
|                                                                                                        | Canceled                                    |        |           |         |       |   |       |       |          |  |           |          |  |   |       |      | 
|Awarded and restricted at end of year                                                                   |                                             |        | 15,000    |          |       |   |      |        |          |  |          |           |  |   |      |      
|Options, stock appreciation rights or shares of our common stock
    available for grant at end of year |                                             |        | 1,959,686 |          |       |   |       |        |          |  | 1,744,020 |           |  |   |       |      



|                         |  |             |           |          |             |  |          |          |  |   |             |          |  |          |         |  |  |   |       | 
|------------------------ |  | ----------- | --------- | -------- | ----------- |  | -------- | -------- |  | - | ----------- | -------- |  | -------- | ------- |  |  | - | ----- | 
|                         |  |             |           | Weighted |             |  | Weighted |          |  |   |             | Weighted | 
|                         |  | Shares      |           |          | Average     |  |          | Average  |  |   | Shares      |          |  | Average  |        
|                         |  | Outstanding |           |          | Contractual |  |          | Exercise |  |   | Exercisable |          |  | Exercise |        
|Range of Exercise Prices |  | at 12/31/05 |           |          | Life        |  |          | Price    |  |   | at 12/31/05 |          |  | Price    |        
|                         |  |             |           |          |             |  |          |          |  |   |             |          |  |          |        
|$10.47  $12.40          |  |             | 2,500     |          |             |  | 9.69     |          |  | $ | 10.86       |          |  |          |        |  |  | $ |      | 
|$17.00  $17.00          |  |             | 1,325,334 |          |             |  | 8.97     |          |  | $ | 17.00       |          |  |          | 442,351 |  |  | $ | 17.00 | 
|$21.00  $24.51          |  |             | 78,000    |          |             |  | 9.35     |          |  | $ | 21.65       |          |  |          |        |  |  | $ |      | 
|                         |  |             |           |          |             |  |          |          |  |   |             |          |  |          |        
|                         |  |             | 1,405,834 |          |             |  |          |          |  |   |             |          |  |          | 442,351 |  |  |   |       | 
|                         |  |             |           |          |             |  |          |          |  |   |             |          |  |          |        



|    |                        
|--- | -----------------------
|14. | DISCONTINUED OPERATIONS





80



---



##### Table of Contents



GREAT WOLF RESORTS, INC. AND SUBSIDIARIES AND


GREAT LAKES PREDECESSOR


NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS  (Continued)




|                                    |  |              |        |   |              |   |         |  
|----------------------------------- |  | ------------ | ------ | - | ------------ | - | ------- | -
|                                    |  | Period       |        |   |             
|                                    |  | January 1,   |        |   |             
|                                    |  | 2004 through |        |   | Year Ended   |  
|                                    |  | December 20, |        |   | December 31, |  
|                                    |  | 2004         |        |   | 2003         |  
|                                    |  |              |        |   |              |  
|Revenues                            |  | $            | 4,859  |   |              | $ | 10,896  |  
|Expenses                            |  |              | (5,529 | ) |              |   | (10,498 | )
|Gain on sale                        |  |              | 5,327  |   |              |   | 10,967  |  
|Minority interests                  |  |              | (2,729 | ) |              |   | (10,247 | )
|                                    |  |              |        |   |              |  
|Income from discontinued operations |  | $            | 1,928  |   |              | $ | 1,118   |  
|                                    |  |              |        |   |              |  





|    |                                     
|--- | ------------------------------------
|15. | QUARTERLY FINANCIAL DATA (UNAUDITED)



|                                     |  |             |        |            |         |   |              |         |  |   |              |   |  |              |        |   |  |   |        |  
|------------------------------------ |  | ----------- | ------ | ---------- | ------- | - | ------------ | ------- |  | - | ------------ | - |  | ------------ | ------ | - |  | - | ------ | -
|                                     |  |             |        | Great Wolf |        
|                                     |  | Predecessor |        |            | Resorts |  
|                                     |  |             |        |            |         |  
|                                     |  |             |        | Period     |         |   | Period       |        
|                                     |  |             |        | October 1, |         |   | December 21, |        
|                                     |  |             |        | 2004       |         |   | 2004         |        
|                                     |  |             |        | through    |         |   | through      |        
|                                     |  | First       |        |            | Second  |   |              | Third   |  |   | December 20, |   |  | December 31, |       
|2004:                                |  | Quarter     |        |            | Quarter |   |              | Quarter |  |   | 2004         |   |  | 2004         |       
|                                     |  |             |        |            |         |   |              |         |  |   |              |   |  |              |       
|Total Revenues                       |  | $           | 14,752 |            |         | $ | 15,344       |         |  | $ | 22,158       |   |  | $            | 13,004 |   |  | $ | 4,629  |  
|Operating income (loss)              |  |             | (84    | )          |         |   | (1,754       | )       |  |   | (1,038       | ) |  |              | (5,362 | ) |  |   | (6,191 | )
|Net income (loss)                    |  |             | (1,918 | )          |         |   | (2,812       | )       |  |   | (231         | ) |  |              | (7,981 | ) |  |   | (3,842 | )
|Basic and diluted earnings per share |  |             |        |            |         |   |              |         |  |   |              |   |  |              |        |   |  | $ | (0.13  | )

|                           |  |                    |        |   |         |   |        |         |  |   |         |  |  |   |         |  
|-------------------------- |  | ------------------ | ------ | - | ------- | - | ------ | ------- |  | - | ------- |  |  | - | ------- | -
|                           |  | Great Wolf Resorts |       
|                           |  |                    |       
|                           |  | First              |        |   | Second  |   |        | Third   |  |   | Fourth  | 
|2005:                      |  | Quarter            |        |   | Quarter |   |        | Quarter |  |   | Quarter | 
|                           |  |                    |        |   |         |   |        |         |  |   |         | 
|Total Revenues             |  | $                  | 26,996 |   |         | $ | 26,032 |         |  | $ | 59,012  |  |  | $ | 27,375  |  
|Operating income (loss)    |  |                    | (3,116 | ) |         |   | (2,891 | )       |  |   | 13,084  |  |  |   | (33,418 | )
|Net income (loss)          |  |                    | (2,338 | ) |         |   | (2,702 | )       |  |   | 7,011   |  |  |   | (26,384 | )
|Basic earnings per share   |  | $                  | (0.08  | ) |         | $ | (0.09  | )       |  | $ | 0.23    |  |  | $ | (0.88   | )
|Diluted earnings per share |  | $                  | (0.08  | ) |         | $ | (0.09  | )       |  | $ | 0.23    |  |  | $ | (0.88   | )



|    |                  
|--- | -----------------
|16. | SUBSEQUENT EVENTS



81



---



##### Table of Contents



GREAT WOLF RESORTS, INC. AND SUBSIDIARIES AND


GREAT LAKES PREDECESSOR


NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS  (Continued)







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








|         |                        
|-------- | -----------------------
|ITEM 9A. | CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures


13a-15(e) 15d-15(e)




Managements Report on Internal Control over
Financial Reporting






| |   |                                                                                                                                                                                                                                                                                                                                                          
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Pertain to the maintenance of records that in reasonable detail
    accurately and fairly reflect the transactions and dispositions
    of the assets of the Company;                                                                                                                                                                                    
|
| |  | Provide reasonable assurance that transactions are recorded as
    necessary to permit preparation of financial statements in
    accordance with U.S. generally accepted accounting
    principles, and that receipts and expenditures of the Company
    are being made only in accordance with authorizations of our
    management and directors; and
|
| |  | Provide reasonable assurance regarding prevention or timely
    detection of unauthorized acquisition, use or disposition of our
    assets that could have a material effect on the financial
    statements.                                                                                                                                           



82



---



##### Table of Contents







| |                                                                 
| | ----------------------------------------------------------------
| | Material Weakness Detected During the Fourth Quarter of
    2005



10-K, 10-K,


10-K.






| |                                                                
| | ---------------------------------------------------------------
| | Material Weakness Detected During the Third Quarter of
    2005

10-Q 10-Q, 10-K/ 10-Q/


83



---



##### Table of Contents







| |           
| | ----------
| | Conclusion



10-K,


Changes in Internal Control Over Financial Reporting




Remediation Measures for Material Weaknesses






| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1. We will require continuing education over the next
    12 months for our accounting and finance staff who are
    responsible for financial reporting to ensure compliance with
    current and emerging financial reporting and compliance
    practices. Our continuing education policy established beginning
    in 2006 requires that each employee responsible for financial
    reporting obtain at least 40 hours of continuing
    professional education each year.                                                                                                                                                                                                                                                                                                   
|
| | 2. We will utilize additional outside consultants, other
    than our Independent Registered Public Accounting Firm, to
    assist us in our evaluations of (a) complex accounting
    transactions and related reporting, specifically in the area of
    purchase accounting, and (b) the application of appropriate
    accounting principles in determining the deferred tax accounts
    and income tax provision in circumstances where we have entered
    into significant non-routine business transactions, in cases
    where we believe such additional expertise is appropriate. In
    the future, on a case-by-case basis management, using input from
    the Audit Committee, will utilize outside consultants to assist
    us in our evaluations of these items.
|
| | 3. We will continue to assess staff expertise in our
    accounting and finance areas and take any steps necessary to
    staff our accounting and finance departments appropriately. Our
    current review of this area has indicated that no staff changes
    are necessary at this time. We will continue to monitor on an
    ongoing basis the need to add staff.                                                                                                                                                                                                                                                                                                                                                                                                           
|
| | 4. We will reconcile all current and deferred tax asset and
    liability accounts at least quarterly and reconcile the
    associated temporary differences to underlying support at least
    annually. We will consider                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

84



---



##### Table of Contents



| |                                                                                                                                                                                                                                                                                                                                                                                             
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | the tax implications that may have resulted from significant
    non-routine business transactions and consult with outside
    consultants if we believe such expertise is appropriate. We will
    discuss all significant adjustments in the tax accounts with our
    Audit Committee at least quarterly in advance of our public
    filings of interim or annual financial statements.
|
| | 5. We and our Audit Committee, as necessary, will consider
    additional items, or will alter the planned steps above, in
    order to remediate further the material weaknesses described
    above.                                                                                                                                                                                      



85



---



##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM








Internal Control-Integrated Framework












| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The companys controls to ensure that management and
    financial reporting personnel implement complex accounting
    standards relating to purchase accounting did not operate
    effectively. In addition, managements controls over the
    accumulation of sufficient, reliable data necessary to determine
    the deferred tax accounts and income tax provision in
    circumstances involving significant non-routine business
    transactions did not operate effectively. As a result, the
    Company incorrectly determined its deferred tax balances and
    related book-tax basis differences in certain tangible and
    intangible assets. The correction of such deferred tax balances
    resulted in adjustments to amounts reported in the companys

86



---



##### Table of Contents



| |                                                                                                                                                                                                                                      
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | February 22, 2006 press release to report the
    companys financial results for the fourth quarter and year
    ended December 31, 2005. Prior to filing this Annual Report
    on Form 10-K, the
    Company corrected the errors.



Internal Control-Integrated Framework Internal Control-Integrated Framework






| |                      
| | ---------------------
| | DELOITTE & TOUCHE LLP





87



---



##### Table of Contents








|         |                  
|-------- | -----------------
|ITEM 9B. | OTHER INFORMATION






PART III







|         |                                                   
|-------- | --------------------------------------------------
|ITEM 10. | DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT








|         |                       
|-------- | ----------------------
|ITEM 11. | EXECUTIVE COMPENSATION








|         |                                                                                                  
|-------- | -------------------------------------------------------------------------------------------------
|ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
    MANAGEMENT AND RELATED STOCHILDER MATTERS








|         |                                               
|-------- | ----------------------------------------------
|ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS








|         |                                       
|-------- | --------------------------------------
|ITEM 14. | PRINCIPAL ACCOUNTANT FEES AND SERVICES








|         |                                           
|-------- | ------------------------------------------
|ITEM 15. | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a)(1) Financial Statements


10-K


(a)(2) Financial Statement Schedules




(a)(3) Exhibits




88



---



##### Table of Contents






SIGNATURES








| |                         
| | ------------------------
| | GREAT WOLF RESORTS, INC.
|
| | /s/ JOHN EMERY          
| |                         
| | John Emery              
| | Chief Executive Officer 



|                                         |  |                                                                          |  |                |  | 
|---------------------------------------- |  | ------------------------------------------------------------------------ |  | -------------- |  | 
|Signature                                |  | Title                                                                    |  | Date          
|                                         |  |                                                                          |  |               
|                                        
|/s/ JOHN EMERYJohn Emery                 |  | Chief Executive Officer (Principal Executive Officer) and
    Director   |  | March 16, 2006
|                                        
|/s/ JAMES A. CALDERJames A. Calder       |  | Chief Financial Officer (Principal Financial and Accounting
    Officer) |  | March 16, 2006
|                                        
|/s/ BRUCE D. NEVIASERBruce D. Neviaser   |  | Chairman of the Board                                                    |  | March 16, 2006
|                                        
|/s/ ELAN BLUTINGERElan Blutinger         |  | Director                                                                 |  | March 16, 2006
|                                        
|Randy Churchey                           |  | Director                                                                 |  | March 16, 2006
|                                        
|/s/ MICHAEL M. KNETTERMichael M. Knetter |  | Director                                                                 |  | March 16, 2006
|                                        
|Alissa N. Nolan                          |  | Director                                                                 |  | March 16, 2006
|                                        
|/s/ HOWARD SILVERHoward Silver           |  | Director                                                                 |  | March 16, 2006

89



---



##### Table of Contents



INDEX TO EXHIBITS


10-K.


|        |    |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|------- | -- | ----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |            
|Number  |    | Description
|        |    |            
|        | 2  | .1          |  | Form of Merger Agreement (Delaware) (incorporated herein by
    reference to Exhibit 2.1 to the Companys Registration
    Statement on Form S-1 filed August 12, 2004)                                                                                                                                                                                                                                                                                                                              
|        | 2  | .2          |  | Form of Merger Agreement (Wisconsin) (incorporated herein by
    reference to Exhibit 2.2 to the Companys Registration
    Statement on Form S-1 filed August 12, 2004)                                                                                                                                                                                                                                                                                                                             
|        | 3  | .1          |  | Form of Amended and Restated Certificate of Incorporation for
    Great Wolf Resorts, Inc. dated December 9, 2004
    (incorporated herein by reference to Exhibit 3.1 to the
    Companys Registration Statement on Form S-1 filed
    August 12, 2004)                                                                                                                                                                                                                                            
|        | 3  | .2          |  | Form of Amended and Restated Bylaws of Great Wolf Resorts, Inc.
    effective December 20, 2004 (incorporated herein by
    reference to Exhibit 3.2 to the Companys Registration
    Statement on Form S-1 filed August 12, 2004)                                                                                                                                                                                                                                                                  
|        | 4  | .1          |  | Form of the Common Stock Certificate of Great Wolf Resorts, Inc.
    (incorporated herein by reference to Exhibit 4.1 to the
    Companys Registration Statement on Form S-1 filed
    October 21, 2004)                                                                                                                                                                                                                                                                                            
|        | 4  | .2          |  | Junior Subordinated Indenture, dated as of March 15, 2005,
    between Great Wolf Resorts, Inc. and JPMorgan Chase Bank,
    National Association, as trustee (incorporated herein by
    reference to Exhibit 4.1 to the Companys Current
    Report on Form 8-K filed March 18, 2005)                                                                                                                                                                                                             
|        | 4  | .3          |  | Amended and Restated Trust Agreement, dated as of
    March 15, 2005, by and among Chase Manhattan Bank USA,
    National Association, as Delaware trustee; JPMorgan Chase Bank,
    National Association, as property trustee; Great Wolf Resorts,
    Inc., as depositor; and James A. Calder, Alex G. Lombardo and J.
    Michael Schroeder, as administrative trustees (incorporated
    herein by reference to Exhibit 4.2 to the Companys
    Current Report on Form 8-K filed March 18, 2005)
|        | 10 | .1          |  | License Agreement, dated January 30, 2004, by and between
    The Great Lakes Companies, Inc. and Jim Pattison Entertainment
    Ltd. (incorporated herein by reference to Exhibit 10.1 to
    the Companys Registration Statement on Form S-1 filed
    September 23, 2004)                                                                                                                                                                                                                        
|        | 10 | .2          |  | Development Agreement, dated as of July 30, 2003, among the
    City of Sheboygan, Wisconsin, the Redevelopment Authority of the
    City of Sheboygan, Wisconsin, The Great Lakes Companies, Inc.,
    Blue Harbor Resort Sheboygan, LLC, and Blue Harbor Resort
    Condominium, LLC (incorporated herein by reference to
    Exhibit 10.2 to the Companys Registration Statement
    on Form S-1 filed August 12, 2004)                                                                          
|        | 10 | .3          |  | First Amendment to the Development Agreement, dated
    June 25, 2004, by and among the City of Sheboygan,
    Wisconsin, the Redevelopment Authority of the City of Sheboygan,
    Wisconsin, The Great Lakes Companies, Inc., Blue Harbor Resort
    Sheboygan, LLC, and Blue Harbor Resort Condominium, LLC
    (incorporated herein by reference to Exhibit 10.3 to the
    Companys Registration Statement on Form S-1 filed
    August 12, 2004)                                              
|        | 10 | .4          |  | Tall Pines Exclusive License and Royalty Agreement, dated
    July 25, 2004, between Tall Pines Development Corporation
    and The Great Lakes Companies, Inc. (incorporated herein by
    reference to Exhibit 10.4 to the Companys
    Registration Statement on Form S-1 filed December 7,
    2004)                                                                                                                                                                                            
|        | 10 | .5+         |  | Form of Employment Agreement (incorporated herein by reference
    to Exhibit 10.5 to the Companys Registration
    Statement on Form S-1 filed January 21, 2005)                                                                                                                                                                                                                                                                                                                                   
|        | 10 | .6          |  | Form of Noncompete Agreement, Trade Secret and Confidentiality
    Agreement (incorporated herein by reference to Exhibit 10.6
    to the Companys Registration Statement on Form S-1
    filed January 21, 2005)                                                                                                                                                                                                                                                                                   
|        | 10 | .7          |  | Form of Officers and Directors Indemnification Agreement
    (incorporated herein by reference to Exhibit 10.7 to the
    Companys Registration Statement on Form S-1 filed
    August 12, 2004)                                                                                                                                                                                                                                                                                                    
|        | 10 | .8          |  | Form of Indemnity Agreement (incorporated herein by reference to
    Exhibit 10.8 to the Companys Registration Statement
    on Form S-1 filed September 23, 2004)                                                                                                                                                                                                                                                                                                                                  
|        | 10 | .9+         |  | Form of Great Wolf Resorts, Inc. Employee Stock Purchase Plan
    (incorporated herein by reference to Exhibit 10.9 to the
    Companys Registration Statement on Form S-1 filed
    August 12, 2004)                                                                                                                                                                                                                                                                                               



---



##### Table of Contents



|        |    |             |  |                                                                                                                                                                                                                                                                                                                                                      
|------- | -- | ----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |            
|Number  |    | Description
|        |    |            
|        | 10 | .10+        |  | Form of Great Wolf Resorts, Inc. 2004 Incentive Stock Plan
    (incorporated herein by reference to Exhibit 10.10 to the
    Companys Registration Statement on Form S-1 filed
    November 26, 2004)                                                                                                                                               
|        | 10 | .11+        |  | Form of Great Wolf Resorts, Inc. Deferred Compensation Plan
    (incorporated herein by reference to Exhibit 10.11 to the
    Companys Registration Statement on Form S-1 filed
    August 12, 2004)                                                                                                                                                
|        | 10 | .12         |  | Form of Transition Services Agreement between Great Wolf
    Resorts, Inc. and Great Lakes Hospitality Partners, LLC
    (incorporated herein by reference to Exhibit 10.13 to the
    Companys Registration Statement on Form S-1 filed
    August 12, 2004)                                                                                       
|        | 10 | .13         |  | Transition Services Agreement, between Great Wolf Resorts, Inc.
    and Great Lakes Housing Partners, LLC (incorporated herein by
    reference to Exhibit 10.12 to the Companys
    Registration Statement on Form S-1 filed August 12,
    2004)                                                                                                  
|        | 10 | .14         |  | Form of Registration Rights Agreement, between Great Wolf
    Resorts, Inc. and the persons named therein (incorporated herein
    by reference to Exhibit 10.14 to the Companys
    Registration Statement on Form S-1 filed August 12,
    2004)                                                                                                  
|        | 10 | .15         |  | Loan Agreement by and among Great Wolf Resorts, Inc., Citigroup
    Global Markets Realty Corp. and The Travelers Insurance Company
    (incorporated herein by reference to Exhibit 10.16 to
    Companys Registration Statement on Form S-1 filed
    January 21, 2005)                                                                           
|        | 10 | .16         |  | Purchase Agreement, dated as of March 15, 2005, among Great
    Wolf Resorts, Inc., Great Wolf Capital Trust I, Taberna
    Preferred Funding I, Ltd and Merrill Lynch International
    (incorporated herein by reference to Exhibit 1.1 to the
    Companys Current Report on Form 8-K filed
    March 18, 2005)                                  
|        | 10 | .17         |  | Venture formation and Contribution Agreement dated
    October 3, 2005, among Great Wolf Resorts, Inc., Great Bear
    Lodge of Wisconsin Dells, LLC, Great Bear Lodge of Sandusky,
    LLC, and CNL Income Partners, LP (incorporated herein by
    reference to Exhibit 10.1 to the Companys current
    Report on Form 8-K filed October 7, 2005)
|        | 21 | .1*         |  | List of Subsidiaries                                                                                                                                                                                                                                                                                                                                 
|        | 23 | .1*         |  | Consent of Deloitte & Touche LLP                                                                                                                                                                                                                                                                                                                     
|        | 31 | .1*         |  | Certification of Chief Executive Officer of Periodic Report
    Pursuant to Rule 13a-14(a) and Rule 15d-14(a)                                                                                                                                                                                                                                        
|        | 31 | .2*         |  | Certification of Chief Financial Officer of Periodic Report
    Pursuant to Rule 13a-14(a) and Rule 15d-14(a)                                                                                                                                                                                                                                        
|        | 32 | .1*         |  | Certification of Chief Executive Officer Pursuant to 18 U.S.C.
    Section 1350                                                                                                                                                                                                                                                                      
|        | 32 | .2*         |  | Certification of Chief Financial Officer Pursuant to 18 U.S.C.
    Section 1350                                                                                                                                                                                                                                                                      






| |   |                
| | - | ---------------
| | * | Filed herewith.



|  |                                                                                                                                                      
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------
|+ | Indicated management contract or compensatory plan or
    arrangement required to be filed as an exhibit pursuant to
    Item 15(c) of
    Form 10-K.