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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-K



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(Mark One)

|x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ------------------------------------------------------------------------------------

For the fiscal year ended: September 30, 2006

or



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------

For the transition period fromto.

Commission file number:
0-18741



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LESLIES POOLMART, INC.

(Exact name of registrant as specified in its charter)



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|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                       |  | 95-4620298                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)

3925 E. Broadway Road, Suite 100

Phoenix, Arizona 85040

(Address of principal executive offices)

Registrants telephone number, including area code: (602) 366-3999



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

Securities registered pursuant to section 12(g) of the Act: None.



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

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90
days.    Yes  x    No ̈

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of
accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act.



|                         |  |                    |  |                        
|------------------------ |  | ------------------ |  | -----------------------
|Large Accelerated Filer ̈ |  | Accelerated Filer ̈ |  | Non-Accelerated Filer x

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

APPLICABLE ONLY TO CORPORATE REGISTRANTS:

The Number of Shares of Common
Stock outstanding as of December 20, 2006 was 40,045,000.



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LESLIES POOLMART, INC.



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TABLE OF CONTENTS

For the Fiscal Year Ended September 30, 2006



|         |  |                                                                                                               |  |     
|-------- |  | ------------------------------------------------------------------------------------------------------------- |  | ----
|         |  |                                                                                                               |  | Page
|         |  |                                                                                                              
|         |  | PART I                                                                                                        |  |     
|Item 1.  |  | Business                                                                                                      |  | 2   
|         |  |                                                                                                              
|Item 1A. |  | Risk Factors                                                                                                  |  | 7   
|         |  |                                                                                                              
|Item 1B. |  | Unresolved Staff Comments                                                                                     |  | 8   
|         |  |                                                                                                              
|Item 2.  |  | Properties                                                                                                    |  | 9   
|         |  |                                                                                                              
|Item 3.  |  | Legal Proceedings                                                                                             |  | 11  
|         |  |                                                                                                              
|Item 4.  |  | Submission of Matters to a Vote of Security Holders                                                           |  | 11  
|         |  |                                                                                                              
|         |  | PART II                                                                                                       |  |     
|         |  |                                                                                                              
|Item 5.  |  | Market for Registrants Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities |  | 12  
|         |  |                                                                                                              
|Item 6.  |  | Selected Financial Data                                                                                       |  | 15  
|         |  |                                                                                                              
|Item 7.  |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                         |  | 18  
|         |  |                                                                                                              
|Item 7A. |  | Quantitative and Qualitative Disclosures about Market Risk                                                    |  | 27  
|         |  |                                                                                                              
|Item 8.  |  | Financial Statements and Supplementary Data                                                                   |  | 28  
|         |  |                                                                                                              
|Item 9.  |  | Changes in and Disagreements with Accountants On Accounting and Financial Disclosure                          |  | 48  
|         |  |                                                                                                              
|Item 9A. |  | Controls and Procedures                                                                                       |  | 48  
|         |  |                                                                                                              
|Item 9B. |  | Other Information                                                                                             |  | 48  
|         |  |                                                                                                              
|         |  | PART III                                                                                                      |  |     
|         |  |                                                                                                              
|Item 10. |  | Directors and Executive Officers of the Registrant                                                            |  | 49  
|         |  |                                                                                                              
|Item 11. |  | Executive Compensation                                                                                        |  | 51  
|         |  |                                                                                                              
|Item 12. |  | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters                |  | 56  
|         |  |                                                                                                              
|Item 13. |  | Certain Relationships and Related Transactions                                                                |  | 57  
|         |  |                                                                                                              
|Item 14. |  | Principal Accountant Fees and Services                                                                        |  | 58  
|         |  |                                                                                                              
|         |  | PART IV                                                                                                       |  |     
|         |  |                                                                                                              
|Item 15. |  | Exhibits and Financial Statement Schedules                                                                    |  | 59  



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Leslies Poolmart, Inc.



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PART I

ITEM 1. BUSINESS

Leslies Poolmart, Inc. (Leslies or the Company) is the
leading national specialty retailer of swimming pool supplies and related products. These products primarily consist of regularly purchased, non-discretionary pool maintenance items such as chemicals, equipment, cleaning accessories and parts, and
also include fun, safety and fitness-oriented recreational items. The Company currently markets its products under the trade name Leslies Swimming Pool Supplies through 541 company-owned retail stores in 35 states, mail order catalogs
sent to selected pool owners nationwide, and an internet web store.

The Company provides its customers a comprehensive selection of high
quality products, competitive every day low prices and superior customer service through knowledgeable and responsive sales personnel who offer a high level of technical assistance at convenient store locations. The typical Leslies store is
located in an area with high concentrations of swimming pools and approximates 3,800 square feet of space. The typical store is located either in a strip center or on a freestanding site in an area of heavy retail activity, and draws its customers
primarily from an approximately five-mile trade area. The Company maintains a proprietary mailing list of approximately 6.3 million addresses, including approximately 90% of the residential in-ground pools in the U.S. This highly focused list
of target customers is central to the Companys direct mail marketing efforts, which supports its retail stores, mail order operations and web store.

The Company was incorporated as a Delaware corporation in 1997. The Companys principal executive offices are located at 3925 E. Broadway Road, Suite 100, Phoenix, Arizona 85040, and the telephone number at that
address is (602) 366-3999. Leslies corporate website address is www.lesliespool.com.

See Item 8, Financial Statements and
Supplementary Data, for financial information.

Swimming Pool Supply Industry

We market our products and services in the estimated $5.0 billion U.S. swimming pool and spa supply industry, which can be divided into four major
segments: residential in-ground pools, residential above-ground pools, commercial pools and spas or hot tubs. According to market research firm P.K. Data, the installed base of residential in-ground pools, above-ground pools and spas and hot tubs in
the United States has grown from just under 9 million in 1993 to over 13 million in 2004, and is projected to grow to over 15.9 million by 2007. Both historic and new pool unit growth is highly correlated to macroeconomic housing
trends, as approximately 60% of all in-ground swimming pools are built as part of new home construction.

Regardless of the type or size of
a swimming pool, there are numerous ongoing maintenance and repair requirements associated with pool ownership. In order to keep a pool safe and sanitized, chemical treatment is required to maintain proper chemical balance, particularly in response
to variables such as pool usage, precipitation and temperature. A swimming pool is chemically balanced when the disinfectant, pH, alkalinity, hardness and dissolved solids are at the desired levels. The majority of swimming pool owners use chlorine
to disinfect their pools. When the pool is chemically balanced, problems such as algae, mineral and salt saturation, corrosive water, staining, eye irritation and strong chlorine smell are less likely to occur. A regular testing and maintenance
routine will result in a stable and more easily maintained pool. However, regardless of how well appropriate levels of chlorine are maintained, shocking is periodically required to break up the contaminants which invariably build up in
the pool water. To accomplish this, the pool owner can either superchlorinate the pool or use a nonchlorinated oxidizing compound. The maintenance of proper chemical balance and the related upkeep and repair of swimming pool equipment, such as
pumps, heaters, and filters, as well as safety equipment, create a non-discretionary demand for pool chemicals and other swimming pool supplies and services. Further, non-usage considerations such as a pools appearance and the overall look of
a household and yard create an ongoing demand for these maintenance related supplies. In addition, pool usage creates demand for discretionary items such as floats, games and accessories.



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The swimming pool supply industry can be divided into four major segments by pool type: residential
in-ground swimming pools, residential above-ground swimming pools (usually 12 to 24 feet in diameter), commercial swimming pools and spas or hot tubs. The Companys historical strategy was to focus primarily on the residential in-ground pool
owner. In recent years, the Company has expanded its activities to more aggressively address the commercial, above-ground and spa markets as well. In the residential categories, the Company markets its products primarily to the
do-it-yourself market as opposed to those pool owners who hire pool servicers. Through its commercial business, products and services are offered to commercial property managers, non-residential pool installers, as well as to pool
service companies which maintain either residential or commercial pools.

Seasonality

The Companys business exhibits substantial seasonality, which the Company believes is typical of the swimming pool supply industry. In general,
sales and net income are highest during the quarters ended June and September which represent the peak months of swimming pool use. Sales are substantially lower during the quarters ended December and March when the Company typically incurs net
losses. The principal external factor affecting the Companys business is weather. Hot weather and the higher frequency of pool usage in such weather create a need for more pool chemicals and supplies. Unseasonably early or late warming trends
can increase or decrease the length of the pool season. In addition, unseasonably cool weather and/or extraordinary amounts of rainfall in the peak season will tend to decrease swimming pool use. The likelihood that unusual weather patterns will
severely impact the Companys results is lessened by the geographical diversification of the Companys store locations. The Company also expects that its quarterly results of operations will fluctuate depending on the timing and amount of
revenue contributed by new stores and, to a lesser degree, the timing of costs associated with the opening of new stores. The Company attempts to open its new stores primarily in the quarter ending March in order to position itself for the following
peak season.

Products

Leslies
offers its customers a comprehensive selection of products necessary to satisfy their swimming pool supply needs. During 2006, the Company stocked approximately 1,400 items in each store, with more than 30,000 additional items available through its
other channels of distribution and special order processes. In 2006, approximately 750 items were displayed in the Companys residential mail order catalogs, approximately 2,300 items were offered through the Companys web store and 1,400
items were in the commercial catalog, although special order procedures make nearly all Leslies products available to these customers as well. In fiscal year 2006, Leslies brand name products accounted for 37% of the Companys total
sales.

The Companys major product categories are pool chemicals; major equipment; cleaning and testing equipment; safety equipment;
pool covers, reels, and liners; above-ground pools in a limited number of stores; and recreational items (which include swimming pool floats, games, lounges, masks, fins, snorkels and other impulse purchase items).

Non-discretionary and regularly consumed products such as pool chemicals, major equipment and parts represented 83% of total sales in fiscal year 2006.
The Companys non-discretionary products typically have long shelf lives and are generally not prone to either obsolescence or shrinkage which could occur from changing technology or consumer buying patterns.

Channels of Distribution

Retail Store
Operations. At the end of fiscal year 2006, Leslies marketed its products through 541 retail stores in 35 states under the trade name Leslies Swimming Pool Supplies. California represents its single largest concentration of
stores with 120, while 96 stores are located in Texas, and over 100 stores are in the northeast/mid-Atlantic states. Leslies retail stores are located in areas with high concentrations of swimming pools and typically are approximately 3,800
square feet in size. In addition to the store manager, the typical Leslies store employs one assistant manager, who is generally a full-time employee. Additionally, Leslies makes frequent use of part-time and temporary employees to
support its full-time employees during peak seasons. During 2006, the Company had 6 regional vice presidents and 35 district managers. Each district manager was responsible for approximately 15 stores.



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Mail Order Catalog and Internet Web Store. Leslies mail order catalogs provide an
extension of its service philosophies and products to those areas not currently served by a retail store and allow the scope of the Companys business to be truly nationwide. The Company also operates a web store (www.lesliespool.com) providing
online customers with thousands of products available for ordering and important information on pool cleaning, equipment, sanitation, and safety advice. The virtual store allows customers an opportunity to shop online and the ability to retrieve
relevant information, 24 hours a day, seven days a week. The Company believes that its mail order catalogs and Web Store build awareness of the Leslies name, provide it with buying and direct marketing efficiencies and, when coupled with
information from its retail stores, are instrumental in determining site selection for new stores.

Customer Service

Due to the complicated nature of pool chemistry and equipment maintenance and consistent with its philosophy of being a full service swimming pool supply
retailer, Leslies offers a high level of technical assistance to support its customers. The Company considers its training of store personnel to be an integral part of its service philosophy. Leslies extensive training program for all
full-time and part-time store employees includes courses in water chemistry, water testing, trouble shooting on equipment, equipment sizing and parts replacement.

A significant number of Leslies stores are supported by the Leslies Service Department, which offers poolside equipment installation and repair, leak detection and repair, and seasonal opening and closing
services. The Service Department utilizes both Company employees and subcontractors to perform these services.

Marketing

The majority of the Companys marketing is done on a direct mail basis through its proprietary mailing list of approximately 6.3 million
addresses at which, primarily, residential pools are located. Leslies has found that its ability to mail directly to this highly focused group is an effective and efficient way to conduct its marketing activities to both retail store and mail
order customers. The Company constantly updates its address list through proprietary research techniques and in-store customer sign-ups.

Addresses on the Companys proprietary list that are located within a specified service area of a retail store receive circulars once or twice per month from late March or early April through September or, selectively, through October.
As a regular part of Leslies promotional activities, each mailer highlights specific items which are intended to increase store traffic, and reinforces to the customer the advantages of shopping at Leslies, which include everyday low
pricing, knowledgeable employees, a high level of customer service, and a broad selection of high quality products. Addresses outside the Companys store service areas, and recently active mail order customers within those service areas,
receive the Companys mail order catalogs. The Company also markets through online channels using its proprietary database, search engines and other online media. The Company utilizes local print media when it enters a new market, and does so
regularly in connection with its above-ground pool sales markets. New store openings typically involve additional advertising in the first two to three months of operation.

Purchasing

Leslies management believes that because it is one of the largest purchasers of
swimming pool supplies for retail sales in the United States, the Company is able to obtain very favorable pricing on its purchases from outside suppliers. Most raw materials and those products not repackaged by the Company are purchased directly
from manufacturers. It is common in the swimming pool supply industry for certain manufacturers to offer extended dating terms on certain products to quantity purchasers such as Leslies. These dating terms are typically available to the
Company for pre-season or early season purchases.



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The Companys principal chemical raw materials and granular chlorine compounds are purchased
primarily from three suppliers. At the end of fiscal year 2006, the Company extended a multi-year product purchase agreement with a major producer of one of the principal chlorine compounds, the chlorinated isocyanurates. The Company believes there
are several other reliable suppliers of chlorine products in the marketplace today. Although the Company has one sole source supplier for a nonchlorine shocking compound, the Company believes that termination of supply would not pose any significant
problems because substitute chemicals and alternate shocking techniques are available. The Company believes that reliable alternative sources of supply are available for all of its raw materials and finished products.

Vertical Integration

Leslies operates a plant
in Ontario, California where it converts dry granular chlorine into tablet form and repackages a variety of bulk chemicals into various sized containers suitable for retail sales. Leslies also formulates a variety of specialty liquids,
including water clarifiers, tile cleaners, algaecides and stain preventives. The chemicals the Company processes have a relatively long shelf life. Leslies believes that supplying its stores with chemicals from its own repackaging plant
provides it with cost savings, as well as greater control over product availability and quality, as compared to non-integrated pool supply retailers. It also offers the Company greater flexibility of product sourcing and vital information when
negotiating with third-party repackagers and chemical providers. The Leslies branded product names appear on all products processed at its repackaging plant, and on the majority of its chemical products. The Company believes it is among the
largest processors of chlorine products for the swimming pool supply industry.

In connection with the operation of its four distribution
centers outside of California, the Company has expanded its use of third-party chemical repackagers and its purchase of products already in end-use configurations. These products are also generally packaged under the Leslies brand name. The
Company continually evaluates the cost effectiveness of third-party sourcing versus internal manufacturing in order to minimize its cost of goods. The Company also operates a packaging operation of specialty items at its Hebron, Kentucky
distribution facility. In addition to chemicals, a variety of the Companys other products are packaged under the Leslies brand name.

Distribution

In 2006, the Company distributed its products to its retail stores and to its catalog customers through its
leased distribution facilities in Ontario, California; Dallas, Texas; Swedesboro, New Jersey; Hebron, Kentucky; and Orlando, Florida.

The
Company purchases the majority of the chemicals to be distributed from the Dallas, Swedesboro and Hebron distribution centers from outside manufacturers rather than obtaining them through its repackaging facility in Southern California. During the
height of its seasonal activities, each of the Companys retail stores inventory is generally replenished every 5 to 7 days.

The Company utilizes a variety of leased and owned equipment, supplemented by additional equipment leased during the busy season, to transport its goods to stores.

Competition

Competition within the pool supply industry is highly fragmented and largely populated
by local mom and pop stores and regional chains. Based on the number of stores, the Company estimates that the next largest specialty pool supply retailer is less than one-third of its size. Mass merchant and home improvement chains
participate in the category on a seasonal basis. While the ability of these merchants to accept low margins on the limited number of items they offer makes them aggressive price competitors of the Company, they are not generally priced significantly
below Leslies and do not offer the level of customer service or wide selection of swimming pool supplies available at Leslies.



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Employees

As of September 30, 2006, Leslies employed approximately 2,200 persons. During the height of the Companys seasonal activities in 2006, it employed approximately 3,200 persons, including seasonal and
part-time store employees who generally are not employed during the off season. The Company is not subject to any collective bargaining agreements and believes its overall relationship with its employees is good.

Trademarks

In the course of its business,
Leslies employs various trademarks, trade names and service marks as well as its logo in packaging and advertising its products. The Company has registered trademarks and trade names for several of its major products on the Principal Register
of the United States Patent and Trademark Office. The Company distinguishes the products produced in its chemical repackaging operation or by third party repackagers at its direction through the use of the Leslies brand name and logo and the
trademarks and trade names of the individual items, none of which is patented, licensed, or otherwise restricted to or by the Company. The Company believes the strength of its trademarks and trade names has been beneficial to its business and
intends to continue to protect and promote its trademarks in appropriate circumstances.



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ITEM 1A. RISK FACTORS

Certain factors that may affect our business and could cause actual results to differ materially from those expressed in any forward-looking statements include the following:

A small group of stockholders are able to exercise control over our business.

GCP California Fund, L.P. (GCP) and additional affiliates of Leonard Green & Partners, L.P. (LGP), through their ownership or control of over 80% of the outstanding shares of the
Companys common stock, have the power to elect a majority of the Leslies Board of Directors. Accordingly, those entities have the power to approve all amendments to the Companys certificate of incorporation and bylaws and to effect
fundamental corporate transactions such as mergers, asset sales and public offerings.

Our continued success depends on our successful expansion in new
and existing markets.

The Companys continued growth depends to a significant degree on its ability to open new stores in existing
and new markets and to operate these stores on a profitable basis. To a lesser extent, the Companys continued growth depends on increasing comparable store sales. The Company opened 37 net new stores in 2004, 41 net new stores in 2005 and 27
net new stores in 2006. We cannot assure that we will be able to open new stores in a timely manner; to hire, train and integrate employees; to continue locating and obtaining favorable store sites; and to adapt its distribution, management
information and other operating systems to the extent necessary to grow in a successful and profitable manner. Further, we cannot assure that the Companys new stores will achieve historical levels of sales or profitability. Since the
Companys new stores generally have lower operating margins following their opening than mature stores, the opening of a large number of stores could have an adverse effect on total operating margins. Additionally, the Companys expansion
plans could be adversely affected by a significant downturn in the economy and resulting decrease in new home and swimming pool construction. We expect that the Companys quarterly results of operations will fluctuate depending on the timing
and the amount of revenue contributed by new stores and, to a lesser degree, the timing of costs associated with the opening of new stores.

Our
business is highly seasonal and results of operations fluctuate as a result of weather conditions.

Our business exhibits substantial
seasonality which we believe is typical of the swimming pool supply industry. In general, sales and earnings are highest during the quarters ending in June and September, which represent the peak months of swimming pool use. Typically, all of the
Companys operating income is generated in these two quarters which offsets the operating losses incurred in each of the other two quarters. Our business is significantly affected by weather patterns. For example, unseasonably late warming
trends can decrease the length of the pool season, and unseasonably cool weather and/or extraordinary amounts of rainfall in the peak season may decrease swimming pool use, resulting in lower maintenance needs and decreased sales.



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We may not be able to successfully compete.

Most of the Companys competition comes from local stores or regional chains which do not typically repackage products and which generally buy
products in smaller quantities. The chain store competitors include a large franchise operator of approximately 170 retail outlets in the Florida market and a limited number of other retail chains of approximately 15 to 30 stores. We compete on
selected principal products with large-volume mass merchants and home centers which offer a limited selection of pool supplies as compared to us. Should mass merchants increase the breadth of their pool related product offerings, it would likely
have an adverse effect on our business. There are no proprietary technologies or other significant barriers to prevent other firms from entering the swimming pool supply retail market in the future. Competition could adversely impact the
Companys sales and operating margins.

Our business may be adversely affected by an economic downturn.

Consumer demand for swimming pool related products may decline if discretionary spending declines as a result of a downturn in the economy. While spending
for maintenance, repairs and replacement by existing pool owners must occur to maintain existing swimming pools, a portion of the Companys growth depends on the continued expansion of the installed swimming pool base, which may be considered a
discretionary expenditure and could be negatively affected by a difficult economy.

Our business includes the packaging and storage of chemicals and an
accident related to those chemicals could subject us to liability and increases costs.

We operate chemical repackaging facilities in
Ontario, California and Hebron, Kentucky and we store chemicals in our retail stores and in distribution facilities in Ontario, California; Dallas, Texas; Swedesboro, New Jersey; Orlando, Florida; and Hebron, Kentucky. Since some of the chemicals we
repackage and store are flammable or combustible compounds, we must comply with various fire and safety ordinances. However, a release at a retail store or a fire at one of the Companys facilities could give rise to liability claims against
us. In addition, if an incident involves a repackaging or distribution facility, we might be required temporarily to use alternate sources of supply which could increase the Companys cost of sales. We believe that we maintain adequate
insurance coverage. However, due to changes in the insurance industry that have led to higher costs, we can not guarantee that we will be able to maintain adequate insurance at reasonable rates or that the Companys insurance coverage will be
adequate to cover future claims that may arise.

Our business is subject to compliance with environmental, health, transportation and safety
regulations.

We are subject to various regulations under federal, state and local environmental, health, transportation and safety
requirements. These regulations govern the storage and sale of pool chemicals, as well as packaging, labeling, handling, and transportation of those products. Failure to comply with these laws may result in the assessment of civil and criminal
penalties. Compliance with such laws in the future may be costly, as the trend in such regulations has been increasingly restrictive on activities that impact the environment.

We are dependent on key personnel and the loss of their services could adversely affect us.

We
believe that the Companys success is largely dependent upon the abilities and experience of its senior management team. The loss of services of one or more of these senior executives could adversely affect the Companys results of
operations.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.



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ITEM 2. PROPERTIES

As of September 30, 2006, the Company operated 541 stores in 35 states. The following table sets forth information concerning the Companys stores:



|               |  |                
|-------------- |  | ---------------
|State          |  | Number ofStores
|Alabama        |  | 5              
|Arizona        |  | 54             
|Arkansas       |  | 1              
|California     |  | 120            
|Connecticut    |  | 9              
|Delaware       |  | 2              
|Florida        |  | 60             
|Georgia        |  | 21             
|Illinois       |  | 4              
|Indiana        |  | 6              
|Iowa           |  | 1              
|Kansas         |  | 1              
|Kentucky       |  | 4              
|Louisiana      |  | 7              
|Maryland       |  | 6              
|Massachusetts  |  | 7              
|Michigan       |  | 7              
|Mississippi    |  | 1              
|Missouri       |  | 8              
|Nebraska       |  | 1              
|Nevada         |  | 16             
|New Hampshire  |  | 2              
|New Jersey     |  | 21             
|New Mexico     |  | 2              
|New York       |  | 22             
|North Carolina |  | 4              
|Ohio           |  | 10             
|Oklahoma       |  | 7              
|Pennsylvania   |  | 18             
|Rhode Island   |  | 1              
|South Carolina |  | 3              
|Tennessee      |  | 6              
|Texas          |  | 96             
|Utah           |  | 1              
|Virginia       |  | 7              
|               |  |                
|Total Stores   |  | 541            
|               |  |                

Except for 25 owned stores, the Company has leases on the remaining retail stores with lease terms
expiring between 2006 and 2015. The Companys typical lease term is five years, and in many instances, the Company has renewal options at increased rents. Four leases provide for rent contingent on sales exceeding specific amounts. No other
leases require payment based on a percentage rent.

The Companys corporate office is located in Phoenix, Arizona. The 36,000 square
foot office space was leased for five years and had one five-year renewal option. During 2002, the Company renegotiated its existing lease adding approximately 16,000 square feet of space. The new lease extends the term until June 2009, and has one
five-year renewal option.

The Companys Southern California distribution center is located in a 183,000 square foot facility in
Ontario, California. The Ontario facility is leased for a 10-year term, expiring in 2007 and the lease has two five-year renewal options.



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The Companys distribution facility in Dallas, Texas contains 126,000 square feet of space. The
lease of this facility was renewed in 2005 and is scheduled to expire in 2015, with one five-year option thereafter. The 131,000 square foot distribution facility in Swedesboro, New Jersey is leased for a 10-year term, expiring in 2008. The lease
includes options to renew for two five-year periods. The 146,000 square foot distribution center in Covington, Kentucky is leased for a 12-year term, expiring in 2010 and provides for three five-year renewal options. The 20,500 square foot
distribution center in Orlando, Florida is leased for a 5-year term, expiring in 2009 and provides for two five-year renewal options.



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ITEM 3. LEGAL PROCEEDINGS

The Company is routinely involved in legal proceedings involving claims related to the ordinary course of its business. The Company is currently not party to any material legal proceedings. The Company is named as a
defendant in a purported class action lawsuit that was filed in September 2006 in Los Angeles County Superior Court. The plaintiffs are seeking damages under a claim that Leslies policy of obtaining personal information from customers who are
returning products purchased from the Company is a violation of California Code of Civil Procedure Section 1021.5. Leslies is evaluating the claims made in the lawsuit and has retained class action counsel to defend the company. While the
outcome of any litigation is inherently unpredictable, the Company does not believe that the ultimate resolution of any of these matters will have a material adverse impact on the Companys financial condition, results of operations or cash
flows.

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

None.



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PART II

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

There is no public trading market for the Companys common stock. As of December 15, 2006, there were 31 stockholders of the Companys common stock.

We did not pay or declare dividends on our common stock during the 2006, 2005 or 2004 fiscal years and we do not presently intend to pay cash dividends
in the foreseeable future.

On February 28, 2006, Steven L. Ortega, Executive Vice President and Chief Financial Officer, purchased
200,000 shares of the Companys Common Stock for a purchase price of $1.00 per share for an aggregate cash payment of $200,000. The stock purchase was contemplated by Mr. Ortegas Executive Employment Agreement dated April 18,
2005 and amended July 1, 2005 and previously filed as Exhibit 10.1 to the quarterly report on Form 10-Q filed with the Securities Exchange Commission on August 12, 2005. The Company did not directly or indirectly pay any commission or
remuneration to any person in connection with the sale and issued and sold the Common Stock in reliance upon the exemption afforded by the provisions of Rule 506 of the Securities Act of 1933, as amended

Equity Compensation Plan Information:

The information in
the following table is presented as of September 30, 2006 with respect to shares of the Companys common stock that may be issued under our existing equity compensation plan, which has been approved by the Companys stockholders.



|                                                           |  |                                                                                           |  |                                                                           |      |                                                                                                                                        |       
|---------------------------------------------------------- |  | ----------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------- | ---- | -------------------------------------------------------------------------------------------------------------------------------------- | ------
|                                                           |  | (a)                                                                                       |  | (b)                                                                       |      | (c)                                                                                                                                   
|Plan Category                                              |  | Number of securities to beissued upon exercise ofoutstanding options,warrants, and
rights |  | Weighted-average exerciseprice of outstandingoptions, warrants, andrights |      | Number of securitiesremaining available forfuture issuance
underequity compensation plans(excluding securitiesreflected in column (a))
|Equity compensation plans approved by security holders     |  | 1,233,500                                                                                 |  | $                                                                         | 1.91 |                                                                                                                                        | 66,500
|Equity compensation plans not approved by security holders |  |                                                                                          |  |                                                                           |     |                                                                                                                                        |      
|Total                                                      |  | 1,233,500                                                                                 |  | $                                                                         | 1.91 |                                                                                                                                        | 66,500



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During the fiscal year ended October 1, 2005, the company consummated the following transactions
which we refer to collectively as the Recapitalization.

The Merger

LPM Acquisition LLC (LPM Acquisitions), a newly-formed entity controlled by GCP and affiliates of LGP, merged with and into Leslies on
January 25, 2005, with Leslies continuing as the surviving entity in the merger. Immediately prior to the consummation of the merger, GCP, one of the Companys directors and one of the Companys executive officers who is also a
director contributed a portion of their shares of Leslies common stock with a value of $29.1 million to LPM Acquisition in exchange for common units of LPM Acquisition. In addition, GCP and an additional affiliate of LGP contributed $10.9
million in cash to LPM Acquisition in exchange for common units of LPM Acquisition. As a result of this merger, the common units of LPM Acquisition were converted into Leslies common stock and Leslies common stock is now owned by GCP,
additional affiliates of LGP and some of Leslies directors and members of management.

In the merger, all of the shares of common and
preferred stock outstanding prior to the merger and outstanding options (other than those that were contributed to LPM Acquisition) were exchanged for cash consideration of $189.5 million. The cash paid for each share of common stock was $15.00, and
the cash paid for each share of preferred stock, including redemption premium and accrued interest and dividends, was $1,389.00.

In
connection with the merger, GCP and additional affiliates of LGP also acquired shares valued at $40.1 million of a new series of preferred stock from Leslies. One of the Companys directors contributed common stock valued at $0.9 million
in exchange for shares of such preferred stock.

The issuances of the 40,000,000 shares of Leslies common stock and 41,000 shares of
Leslies preferred stock were exempt from registration under Rule 506 of the Securities Act. The shares of Leslies common stock and preferred stock were issued to no more than 35 non-accredited investors. The non-accredited investors were
represented by a purchaser representative. The issuance of shares of Leslies common and preferred stock was not accomplished through a general advertising or solicitation and the Company exercised reasonable care to ensure that the purchasers
of the securities were not statutory underwriters.

The Tender Offer and Consent Solicitation

On December 23, 2004, the Company commenced a tender offer and solicitation of consents, or the Tender Offer, to purchase all of the
$59.5 million outstanding principal amount of the Companys 103/8% Senior Notes due 2008, and to amend the
indenture governing the 103/8% notes to eliminate most of the covenants and certain events of default. On January 11, 2005, the Company entered into a supplemental indenture with The Bank of New York
Trust Company, N.A., as the trustee, supplementing the indenture dated as of May 21, 2003 as contemplated by the terms of the tender offer. The supplemental indenture eliminated substantially all of the restrictive covenants and certain events
of default under the indenture relating to the 103/8% notes. The total consideration for the 103/8% notes which was paid in respect of the 103/8% notes
accepted for payment that were validly tendered with consents and not withdrawn on or prior to 5:00 p.m., New York City time on January 7, 2005 was $1,059.30 for each $1,000 principal amount of the 103/8% notes. The
103/8% notes accepted for payment that were validly tendered subsequent to 5:00 p.m., New York City time on January 7, 2005 but on or prior to 5:00 p.m., New York City time, on February 2, 2005, received the tender
offer consideration of $1,029.30 for each $1,000 principal amount of the 103/8% notes, which is equal to the total consideration minus the consent payment of $30.00 per $1,000 principal amount
of the 103/8% notes. $55.5 million aggregate principal amount of the notes were tendered and accepted in the tender offer.



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Note Offering

On January 25, 2005, the Company issued an aggregate of $170.0 million principal amount of the 73/4% Senior Notes. The proceeds from the offering of the 73/4% notes, net of a $1.3 million discount incentive, were combined together with borrowings under an amended credit
facility, proceeds from the issuance of equity securities and cash on hand, and used by the Company to complete the Recapitalization and repurchase the outstanding 103/8% notes that were
tendered in the Tender Offer. Subsequent to the initial private placement of the 73/4% notes, the 73/4% notes were exchanged for new registered 73/4% Senior Notes, Series B in June 2005, pursuant to an exchange offer.

The Amended Credit
Facility

On January 25, 2005, the Company amended its existing credit facility with Wells Fargo Retail Finance, LLC to provide for
the extension by the lender of revolving loans and other financial accommodations in an aggregate principal amount of $75.0 million. The Companys obligations under the amended credit facility are secured by a lien on substantially all of the
Companys assets. In addition to the $75.0 million commitment, the total commitment was increased by $30.0 million via a temporary over-advance facility through June 30, 2005 and $20.0 million through March 31, 2006. Finally, at the
lenders discretion, an over-advance facility of $10.0 million may be available to the Company from September 30, 2006 through March 31, 2007.



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ITEM 6. SELECTED FINANCIAL DATA

SELECTED CONSOLIDATED FINANCIAL DATA

The following table presents selected
consolidated financial data of the Company as of and for the fiscal years ended September 30, 2006, October 1, 2005, October 2, 2004, September 27, 2003 and September 28, 2002. The fiscal year ended October 2, 2004
consists of 53 weeks, and all other fiscal years presented consist of 52 weeks. This financial data was derived from the audited historical consolidated financial statements of the Company and should be read in conjunction with the consolidated
financial statements of the Company and Managements Discussion and Analysis of Financial Condition and Results of Operations.



|                                                |  |                    |          |   |                 |   |          |                 |  |   |                    |   |  |                   |         |   |  |   |         |  
|----------------------------------------------- |  | ------------------ | -------- | - | --------------- | - | -------- | --------------- |  | - | ------------------ | - |  | ----------------- | ------- | - |  | - | ------- | -
|                                                |  | Fiscal Years Ended |         
|(Dollar Amounts in Thousands)                   |  | September 30, 2006 |          |   | October 1, 2005 |   |          | October 2, 2004 |  |   | September 27, 2003 |   |  | September 28,2002 |        
|Operating Results:                              |  |                    |          |   |                 |   |          |                 |  |   |                    |   |  |                   |         |   |  |   |         |  
|Sales                                           |  | $                  | 440,565  |   |                 | $ | 388,506  |                 |  | $ | 356,041            |   |  | $                 | 327,165 |   |  | $ | 313,311 |  
|Gross Profit                                    |  |                    | 218,183  |   |                 |   | 188,497  |                 |  |   | 172,113            |   |  |                   | 155,946 |   |  |   | 146,971 |  
|Gross Margin                                    |  |                    | 49.5     | % |                 |   | 48.5     | %               |  |   | 48.3               | % |  |                   | 47.7    | % |  |   | 46.9    | %
|Loss on Disposition of Fixed Assets             |  |                    | 600      |   |                 |   | 703      |                 |  |   | 440                |   |  |                   | 497     |   |  |   | 1,332   |  
|Depreciation and Amortization                   |  |                    | 11,789   |   |                 |   | 11,881   |                 |  |   | 11,281             |   |  |                   | 10,186  |   |  |   | 9,631   |  
|Operating Income(1)                             |  |                    | 57,400   |   |                 |   | 24,608   |                 |  |   | 34,232             |   |  |                   | 27,656  |   |  |   | 20,073  |  
|Interest Expense, net                           |  |                    | 19,397   |   |                 |   | 18,834   |                 |  |   | 7,172              |   |  |                   | 9,566   |   |  |   | 10,690  |  
|Net Income/(Loss)(1)                            |  |                    | 20,505   |   |                 |   | (4,422   | )               |  |   | 16,246             |   |  |                   | 10,343  |   |  |   | 4,693   |  
|Balance Sheet Data:                             |  |                    |          |   |                 |   |          |                 |  |   |                    |   |  |                   |         |   |  |   |         |  
|Working Capital                                 |  |                    | 43,213   |   |                 |   | 23,657   |                 |  |   | 33,354             |   |  |                   | 15,410  |   |  |   | 34,634  |  
|Total Assets                                    |  |                    | 178,855  |   |                 |   | 142,405  |                 |  |   | 141,169            |   |  |                   | 121,472 |   |  |   | 140,862 |  
|Long-term Debt(2)                               |  |                    | 168,946  |   |                 |   | 175,954  |                 |  |   | 59,495             |   |  |                   | 59,495  |   |  |   | 90,000  |  
|Redeemable Preferred Stock(2)                   |  |                    | 41,000   |   |                 |   | 41,000   |                 |  |   | 46,316             |   |  |                   | 45,915  |   |  |   | 45,517  |  
|Stockholders Deficit(2)                        |  |                    | (122,224 | ) |                 |   | (142,557 | )               |  |   | (39,091            | ) |  |                   | (48,177 | ) |  |   | (52,899 | )
|Selected Operating Data:                        |  |                    |          |   |                 |   |          |                 |  |   |                    |   |  |                   |         |   |  |   |         |  
|Capital Expenditures                            |  |                    | 11,180   |   |                 |   | 12,305   |                 |  |   | 10,899             |   |  |                   | 8,616   |   |  |   | 8,472   |  
|Recapitalization and Restructuring Charges(1,3) |  |                    |         |   |                 |   | 26,869   |                 |  |   |                   |   |  |                   |        |   |  |   | 1,500   |  
|Adjusted EBITDA(1,3)                            |  |                    | 69,189   |   |                 |   | 54,477   |                 |  |   | 45,513             |   |  |                   | 37,842  |   |  |   | 31,204  |  
|Adjusted EBITDA Margin(1,2,4)                   |  |                    | 15.7     | % |                 |   | 14.0     | %               |  |   | 12.8               | % |  |                   | 11.6    | % |  |   | 10.0    | %
|Cash flow from Operating Activities             |  |                    | 55,058   |   |                 |   | 26,747   |                 |  |   | 26,518             |   |  |                   | 26,743  |   |  |   | 21,631  |  
|Cash flow used in Investing Activities          |  |                    | (10,950  | ) |                 |   | (12,168  | )               |  |   | (10,281            | ) |  |                   | (8,607  | ) |  |   | (8,452  | )
|Cash flow used in Financing Activities(1)       |  |                    | (7,276   | ) |                 |   | (29,174  | )               |  |   | (260               | ) |  |                   | (32,112 | ) |  |   | (957    | )
|Number of Employees                             |  |                    | 2,201    |   |                 |   | 2,026    |                 |  |   | 1,892              |   |  |                   | 2,006   |   |  |   | 1,843   |  
|Number of Stores                                |  |                    | 541      |   |                 |   | 515      |                 |  |   | 474                |   |  |                   | 437     |   |  |   | 410     |  
|                                                |  |                    |          |   |                
|Comparable Store Sales Growth(5)                |  |                    | 9.2      | % |                 |   | 6.4      | %               |  |   | 3.3                | % |  |                   | 2.3     | % |  |   | 1.9     | %



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|(1) | During 2005 and as part of the Recapitalization, the Company recognized $26.9 million in unusual charges for the following costs associated with the transaction:
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------



|                                        |  |      |       
|--------------------------------------- |  | ---- | ------
|(in thousands)                          |  | 2005
|Unusual operating charges:              |  |      |       
|Stock and other compensation expense    |  | $    | 17,988
|                                        | 
|Other unusual operating charges:        |  |      |       
|Bond tender consideration and premium   |  |      | 3,246 
|Preferred stock premium                 |  |      | 470   
|Miscellaneous, legal and advisory fees  |  |      | 2,904 
|Unamortized discount on preferred stock |  |      | 571   
|Write-off debt issuance costs           |  |      | 1,690 
|                                        |  |      |       
|Total                                   |  |      | 8,881 
|Total unusual charges                   |  | $    | 26,869
|                                        |  |      |       



| | In the second quarter of 2002, the Company recorded an unusual charge of $1.5 million for expenses associated with defending a class action lawsuit that was settled.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | In the first quarter of 2005 and as part of the Recapitalization, the Company issued an aggregate of $170.0 million principal amount of its 7.75% Senior Notes due
2013. Further, $41.0 million of a new series of 10% senior redeemable exchangeable cumulative preferred stock was issued as part of the Recapitalization.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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|(3) | Adjusted EBITDA is defined as earnings before interest, taxes, depreciation, amortization, loss/(gain) on disposition of fixed assets, stock compensation expense,
write-off of debt issuance costs and unusual charges. Adjusted EBITDA is not a measure of financial performance under U.S. generally accepted accounting principles (GAAP), but is used by some investors to determine a Companys
ability to service or incur indebtedness. Adjusted EBITDA is not calculated in the same manner by all companies and accordingly is not necessarily comparable to similarly entitled measures of other companies and may not be an appropriate measure for
performance relative to other companies. Adjusted EBITDA should not be construed as an indicator of a Companys operating performance or liquidity, and should not be considered in isolation from or as a substitute for net income (loss), cash
flows from operations or cash flow data which are all prepared in accordance with GAAP. We have presented Adjusted EBITDA solely as supplemental disclosure because we believe it allows for a more complete analysis of results of operations. Adjusted
EBITDA is not intended to represent and should not be considered more meaningful than, or as an alternative to, measures of operating performance as determined in accordance with GAAP.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The calculation of Adjusted EBITDA is shown as follows:



|                                            |  |                    |        |                 |   |        |                 |  |                    |        |                    |   |        |  |   |       
|------------------------------------------- |  | ------------------ | ------ | --------------- | - | ------ | --------------- |  | ------------------ | ------ | ------------------ | - | ------ |  | - | ------
|                                            |  | Fiscal Years Ended
|(Amounts in Thousands)                      |  | September 30, 2006 |        | October 1, 2005 |   |        | October 2, 2004 |  | September 27, 2003 |        | September 28, 2002
|Net income/(loss)                           |  | $                  | 20,505 |                 | $ | (4,422 | )               |  | $                  | 16,246 |                    | $ | 10,343 |  | $ | 4,693 
|Depreciation and amortization               |  |                    | 11,789 |                 |   | 11,881 |                 |  |                    | 11,281 |                    |   | 10,186 |  |   | 9,631 
|Stock compensation expense                  |  |                    |       |                 |   | 17,988 |                 |  |                    |       |                    |   |       |  |   |      
|Recapitalization and restructuring expenses |  |                    |       |                 |   | 7,191  |                 |  |                    |       |                    |   |       |  |   | 1,500 
|Interest expense, net                       |  |                    | 19,397 |                 |   | 18,834 |                 |  |                    | 7,172  |                    |   | 9,566  |  |   | 10,690
|Write-off of debt issuance costs            |  |                    |       |                 |   | 1,690  |                 |  |                    |       |                    |   | 420    |  |   |      
|Loss on disposition of assets               |  |                    | 600    |                 |   | 703    |                 |  |                    | 440    |                    |   | 497    |  |   | 1,332 
|Income tax expense/(benefit)                |  |                    | 16,898 |                 |   | 612    |                 |  |                    | 10,374 |                    |   | 6,830  |  |   | 3,358 
|                                            |  |                    |        |                 |   |        |                 |  |                    |        |                    |   |        |  |   |       
|Adjusted EBITDA                             |  | $                  | 69,189 |                 | $ | 54,477 |                 |  | $                  | 45,513 |                    | $ | 37,842 |  | $ | 31,204
|                                            |  |                    |        |                 |   |        |                 |  |                    |        |                    |   |        |  |   |       

---

|(4) | Adjusted EBITDA Margin represents Adjusted EBITDA as a percentage of sales.
|--- | ---------------------------------------------------------------------------

|(5) | The Company considers a store to be comparable in the first full month after it has completed 52 weeks of sales. Closed stores become non-comparable during their
last partial month of operation. Stores that are relocated are considered comparable stores at the time the relocation is completed. Comparable store sales is not a measure of financial performance under GAAP. Comparable store sales is not
calculated in the same manner by all companies and accordingly is not necessarily comparable to similarly entitled measures of other companies and may not be an appropriate measure for performance relative to other companies.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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

The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements. Certain
information included in this document (as well as information included in oral statements or other written statements made or to be made by the Company) contains statements that are forward-looking, such as statements relating to plans for future
activities. Such forward-looking information involves important risks and uncertainties that could significantly affect anticipated results in the future and, accordingly, such results may differ from those expressed in any forward-looking
statements made by or on behalf of the Company. These risks and uncertainties include, but are not limited to, those relating to the Companys capital structure, weather conditions, domestic economic conditions, activities of competitors,
seasonality, changes in federal or state tax laws and the administration of such laws.

EXECUTIVE SUMMARY

Leslies is the leading national specialty retailer of swimming pool supplies and related products. The Company offers a broad range of products that
consist of regularly purchased, non-discretionary pool maintenance items such as chemicals, equipment, cleaning accessories and parts, and also include fun, safety and fitness-oriented recreational items. The Company markets its products through 541
company-owned retail stores in 35 states and through catalogs and other offerings made available to select residential and commercial pool owners nationwide via mail order and Internet channels.

The typical Leslies store approximates 3,800 square feet of space, is located either in a strip center or on a freestanding site in an area of
heavy retail activity, and draws its customers primarily from an approximately five-mile trade area. Of the 541 stores, the Company operates 12 commercial service center formats that average approximately 11,000 square feet of space and are located
primarily in industrial type real estate space. These centers are designed to cater to the Companys existing non-residential commercial and service customers and provide more customized service than is typically available at the other retail
locations.

Results of Operations

The
following table sets forth certain statements of income data expressed as a percentage of sales for the periods indicated.



|                                            |  |                    |   |  |                 |    |  |                 |  
|------------------------------------------- |  | ------------------ | - |  | --------------- | -- |  | --------------- | -
|                                            |  | Fiscal Years Ended |  
|                                            |  | September 30, 2006 |   |  | October 1, 2005 |    |  | October 2, 2004 |  
|Sales                                       |  | 100.0              | % |  | 100.0           | %  |  | 100.0           | %
|Cost of sales                               |  | 50.5               |   |  | 51.5            |    |  | 51.7            |  
|                                            |  |                    |   |  |                 |    |  |                 |  
|Gross margin                                |  | 49.5               |   |  | 48.5            |    |  | 48.3            |  
|Selling, general and administrative expense |  | 36.5               |   |  | 37.6            |    |  | 38.7            |  
|Recapitalization expense                    |  |                   |   |  | 4.6             |    |  |                |  
|                                            |  |                    |   |  |                 |    |  |                 |  
|Operating income                            |  | 13.0               |   |  | 6.3             |    |  | 9.6             |  
|Other expense                               |  | 4.5                |   |  | 7.3             |    |  | 2.1             |  
|Income tax expense                          |  | 3.8                |   |  | 0.2             |    |  | 2.9             |  
|                                            |  |                    |   |  |                 |    |  |                 |  
|Net income/(loss)                           |  | 4.7                | % |  | (1.2            | )% |  | 4.6             | %
|                                            |  |                    |   |  |                 |    |  |                 |  



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Fiscal year 2006 compared to fiscal year 2005:

For the 52 weeks ended September 30, 2006, sales increased 13.4% to $440.6 million from $388.5 million in the 52 weeks of 2005. Of the 13.4% increase
in sales, approximately 10.0% was attributable to an increase in comparable store sales and approximately 3.9% was due to the addition of 33 new store locations. These gains were offset by approximately 0.5% of a decrease due to the closing of six
stores during the 52 weeks of 2006.

Comparable store sales increased 9.2% on a 52 week basis, as compared to the prior year. The
comparable store sales increase was primarily attributable to very favorable weather conditions in most of the Companys markets and price increases that were passed through the supply chain. For definition purposes, a store is considered a
comparable store in the first full month after it has completed 52 weeks of sales. Closed stores become non-comparable during their last partial month of operation. Stores that are relocated are considered comparable stores at the time the
relocation is completed.

Gross profit for the fiscal year ended September 30, 2006 improved to $218.2 million or 49.5% of sales, as
compared to $188.5 million or 48.5% in 2005. Gross profit represents sales less the cost of services and purchased goods, chemical repackaging costs and related distribution costs. Gross profit dollars improved primarily due to the increase in sales
and expanded margins on inventory that had been purchased earlier in the year in anticipation of market increases.

In 2006, total
operating expenses were $160.8 million, versus $163.9 million during the 52 weeks of 2005, a decrease of 1.9%. Operating expenses as a percentage of sales were 36.5% for the 52 weeks of fiscal year 2006 compared to 42.2% for the 52 weeks of fiscal
year 2005. The decrease in operating expenses during fiscal year 2006 was due primarily to a $26.9 million charge for expenses related to the Recapitalization in fiscal year 2005 offset by $4.1 million for increased expenses associated with the
increase in store count, as compared to the prior year.

In 2005, the Company incurred $26.9 million in stock compensation and
Recapitalization expenses related to the January merger. Of the $26.9 million, $16.9 million was paid out in connection with the stock options that were exercised as part of the Recapitalization. During 2005, the Company also recorded a charge of
$10.0 million for other expenses related to the Recapitalization.

For the fiscal year ended September 30, 2006, the Company
recognized losses on the disposition of fixed assets totaling approximately $0.6 million as compared to $0.7 million in the prior year. Of these losses, $0.2 million in fiscal year 2006 and $0.4 million in fiscal year 2005 were primarily associated
with the Companys decision to close or relocate stores that were unproductive or not meeting expectations. In fiscal year 2006 a $0.4 million charge was recognized for impaired assets compared to $0.3 million in fiscal year 2005.

Adjusted EBITDA in 2006 increased 27.0% to $69.2 million from $54.5 million in fiscal year 2005. Approximately $7.3 million of the increase was the
result of increased sales and expanded gross profit, with the remaining increase due to improved expense control and continued leveraging of fixed expenses during the year.

Operating income for 2006 increased 133.2% to $57.4 million from $24.6 million in 2005 as a result of stock compensation expenses previously noted above
and by the gross profit improvements.

Interest expense was $19.4 million in 2006, as compared to $18.8 million in 2005. The increase was
primarily the result of the increase in average debt balances.

The Company recorded income tax expense of $16.9 million in 2006, or an
effective tax rate of 45.2%, versus $0.6 million in the prior year, or an effective tax rate of negative 16.1%. The effective rate increase in 2006 was primarily due to the non-deductibility of the preferred stock interest expense of $4.6 million.



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Fiscal year 2005 compared to fiscal year 2004:

For the 52 weeks ended October 1, 2005, sales increased 9.1% to $388.5 million from $356.0 million in the 53 weeks of 2004. Of the 9.1% increase in
sales, approximately 4.4% was attributable to an increase in comparable store sales and approximately 5.2% was due to the addition of 45 new store locations. These gains were offset by approximately 0.6% of a decrease due to the closing of four
stores during the 52 weeks of 2005. Adjusting for the effect of the additional 53rdweek of sales in 2004, fiscal
year 2005 total sales increased by 10.8%.

Comparable store sales increased 6.4% on a 52 week basis, as compared to the prior year. The
comparable store sales increase was primarily attributable to very favorable weather conditions in most of the Companys markets. For definition purposes, a store is considered a comparable store in the first full month after it has completed
52 weeks of sales. Closed stores become non-comparable during their last partial month of operation. Stores that are relocated are considered comparable stores at the time the relocation is completed.

Gross profit for the fiscal year ended October 1, 2005 improved to $188.5 million or 48.5% of sales, as compared to $172.1 million or 48.3% in 2004.
Gross profit represents sales less the cost of services and purchased goods, chemical repackaging costs and related distribution costs. Gross profit dollars improved primarily due to the increase in sales.

In 2005, total operating expenses were $163.9 million, versus $137.9 million during the 53 weeks of 2004, an increase of 18.9%. Operating expenses as a
percentage of sales were 42.2% for the 52 weeks of fiscal year 2005 compared to 38.7% for the 53 weeks of fiscal year 2004. The increase in operating expenses in 2005 was due primarily to a $26.9 million charge for expenses related to the
Recapitalization and $4.1 million for increased expenses associated with the increase in store count, as compared to the prior year.

In
2005, the Company incurred $26.9 million in stock compensation and Recapitalization expenses related to the January merger. Of the $26.9 million, $16.9 million was paid out in connection with the stock options that were exercised as part of the
Recapitalization. During 2005, the Company also recorded a charge of $10.0 million for other expenses related to the Recapitalization.

For
the fiscal year ended October 1, 2005, the Company recognized losses on the disposition of fixed assets totaling approximately $0.7 million as compared to $0.4 million in the prior year. Of these losses, $0.4 million in fiscal year 2005 and
$0.3 million in fiscal year 2004 were primarily associated with the Companys decision to close or relocate stores that were unproductive or not meeting expectations and a $0.3 million charge in fiscal year 2005 for impaired assets.

Adjusted EBITDA in 2005 increased 19.8% to $54.5 million from $45.5 million in the 53 weeks of 2004. Of such increase, $4.1 million was the result of
increased sales and the remaining increase due to improved expense control and continued leveraging of fixed expenses during the year.

Operating income for 2005 decreased 28.1% to $24.6 million from $34.2 million in 2004 as a result of stock compensation expenses previously noted above, offset by the gross profit improvements.

Interest expense was $18.8 million in 2005, as compared to $7.2 million in 2004. The increase in interest expense was due to the impact of the
Companys adoption of Statement of Financial Accounting Standard SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity, beginning in fiscal year 2005, whereby the Company
records the accrued interest and accretion of preferred stock as interest expenses instead of a reduction to retained earnings resulting in an increased expense of $5.3 million. Interest expenses incurred in 2005 were primarily the result of the
increase in average debt balances due to the Recapitalization.

The Company recorded income tax expense of $0.6 million in 2005, or an
effective tax rate of negative 16.1%, versus $10.4 million in the prior year, or an effective tax rate of 39.0%. The effective rate decrease in 2005 was primarily due to the non-deductibility of the preferred stock interest expense of $5.3 million.



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Liquidity and Capital Resources

Overview

The following table highlights selected cash flow components for fiscal year 2006 and
fiscal year 2005, and selected balance sheet components as of September 30, 2006 and October 1, 2005.



|                                |  |                    |         |   |                 |   |         |               |  |   |                |   |  |         |   
|------------------------------- |  | ------------------ | ------- | - | --------------- | - | ------- | ------------- |  | - | -------------- | - |  | ------- | --
|                                |  | Fiscal Years Ended |         |   |                 |   |         |               | 
|(Dollar amounts in thousands)   |  | September 30, 2006 |         |   | October 1, 2005 |   |         | Dollar Change |  |   | Percent Change |  
|Cash provided by (used in):     |  |                    |         |   |                 |   |         |               |  |   |                |   |  |         |   
|Operating activities            |  | $                  | 55,058  |   |                 | $ | 26,747  |               |  | $ | 28,311         |   |  | 105.8   | % 
|Investing activities            |  |                    | (10,950 | ) |                 |   | (12,168 | )             |  |   | 1,218          |   |  | (10.0   | )%
|Financing activities            |  |                    | (7,276  | ) |                 |   | (29,174 | )             |  |   | 21,898         |   |  | (75.1   | )%
|                                |  |                    |         |   |                 |   |         |               |  |   |                |   |  |         |   
|Cash & cash equivalents         |  | $                  | 39,004  |   |                 | $ | 2,172   |               |  | $ | 36,832         |   |  | 1,695.8 | % 
|Working Capital                 |  |                    | 43,213  |   |                 |   | 23,657  |               |  |   | 19,556         |   |  | 82.7    | % 
|Other long term liabilities     |  |                    | 12,632  |   |                 |   | 7,201   |               |  |   | 5,431          |   |  | 75.4    | % 
|Senior notes and long term debt |  |                    | 168,946 |   |                 |   | 175,954 |               |  |   | (7,008         | ) |  | (4.0    | )%
|                                |  |                    |         |   |                 |   |         |               |  |   |                |   |  |         |   

Working capital

Working capital as of September 30, 2006 and October 1, 2005 consisted of the following:



|                                          |  |                    |         |                 |   |               |  |   |                |   |  |        |   
|----------------------------------------- |  | ------------------ | ------- | --------------- | - | ------------- |  | - | -------------- | - |  | ------ | --
|                                          |  | Fiscal Years Ended |         |                 |   |               |  |  
|(Dollar amounts in thousands)             |  | September 30,2006  |         | October 1, 2005 |   | Dollar Change |  |   | Percent Change |  
|Cash and cash equivalents                 |  | $                  | 39,004  |                 | $ | 2,172         |  | $ | 36,832         |   |  | 1695.8 | % 
|Accounts and other receivables            |  |                    | 7,315   |                 |   | 11,691        |  |   | (4,376         | ) |  | (37.4  | )%
|Inventories                               |  |                    | 64,544  |                 |   | 60,925        |  |   | 3,619          |   |  | 5.9    | % 
|Prepaid expenses and other current assets |  |                    | 2,522   |                 |   | 2,058         |  |   | 464            |   |  | 22.5   | % 
|Deferred tax assets                       |  |                    | 8,329   |                 |   | 7,618         |  |   | 711            |   |  | 9.3    | % 
|                                          |  |                    |         |                 |   |               |  |   |                |   |  |        |   
|Total current assets                      |  |                    | 121,714 |                 |   | 84,464        |  |   | 37,250         |   |  | 44.1   | % 
|Accounts payable                          |  |                    | 31,473  |                 |   | 21,321        |  |   | 10,152         |   |  | 47.6   | % 
|Accrued expenses                          |  |                    | 35,860  |                 |   | 31,637        |  |   | 4,223          |   |  | 13.3   | % 
|Income taxes payable                      |  |                    | 11,040  |                 |   | 7,739         |  |   | 3,301          |   |  | 42.7   | % 
|Deferred tax liabilities                  |  |                    | 128     |                 |   | 110           |  |   | 18             |   |  | 16.4   | % 
|                                          |  |                    |         |                 |   |               |  |   |                |   |  |        |   
|Total current liabilities                 |  |                    | 78,501  |                 |   | 60,807        |  |   | 17,694         |   |  | 29.1   | % 
|                                          |  |                    |         |                 |   |               |  |   |                |   |  |        |   
|Working capital                           |  | $                  | 43,213  |                 | $ | 23,657        |  | $ | 19,556         |   |  | 82.7   | % 
|                                          |  |                    |         |                 |   |               |  |   |                |   |  |        |   



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From October 1, 2005 to September 30, 2006, total current assets increased $37.3 million
from $84.5 million to $121.7 million. Approximately $36.8 million of the increase in current assets was the result of the increase in cash due to increase in cash provided by operating activities.

From October 1, 2005 to September 30, 2006, total current liabilities increased $17.7 million from $60.8 million to $78.5 million, primarily
due to the increase in accounts payable. The increase in accounts payable is due to the increase in inventory.

For the fiscal year ended
September 30, 2006, cash provided by operating activities was $55.1 million compared to cash provided by operating activities of $26.7 million in the prior year. The change was due primarily to the increase in net income coupled by the increase
in accounts payable due to the change in inventory.

In 2006, cash used in investing activities was $11.0 million compared with cash used
in investing activities of $12.2 million in the prior year, primarily due to the Companys store growth plan.

Cash used in financing
activities was $7.3 million in fiscal year 2006 compared with cash used in financing activities of $29.2 million in 2005. The significant decrease in financing activities was due to the Recapitalization, which occurred on January 25, 2005.
The Company had no borrowings under its secured loan agreement at September 30, 2006 compared to $7.1 million in borrowings at October 1, 2005. At September 30, 2006 the Company had $75.0 million of borrowing capacity. Funds borrowed
under this agreement are used primarily to fund working capital and other general corporate purposes.

From October 1, 2005 to
September 30, 2006, other long term liabilities increased by $5.4 million from $7.2 million to $12.6 million due to the increase in dividends payable on the Series A Preferred Stock. As of September 30, 2006, the cumulative unpaid dividend
was $7.4 million as compared to $2.9 million as of October 1, 2005.

The Company believes its internally generated funds, as well as
its borrowing capacity, are adequate to meet its working capital needs, maturing obligations and capital expenditure requirements, including those relating to the opening of new stores.

Seasonality and Quarterly Fluctuations

The Companys business exhibits substantial seasonality
which the Company believes is typical of the swimming pool supply industry. In general, sales and net income are highest during the quarters ended June and September, which represent the peak months of swimming pool use. Sales are substantially
lower during the quarters ended December and March when the Company will typically incur net losses. The principal external factor affecting the Companys business is weather. Hot weather and the higher frequency of pool usage in such weather
create a greater demand for more pool chemicals and supplies. Unseasonably early or late warming trends can increase or decrease the length of the pool season. In addition, unseasonably cool weather and/or extraordinary amounts of rainfall in the
peak season decrease swimming pool use.

The Company expects its quarterly results of operations will fluctuate depending on the timing and
amount of revenue contributed by new stores and, to a lesser degree, the timing of costs associated with the opening of new stores. The Company attempts to open its new stores primarily in the quarter ending in March in order to position itself for
the following peak season.



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Contractual Obligations and Commercial Commitments

The following table summarizes the Companys significant contractual obligations as of September 30, 2006, and the effect such obligations are
expected to have on the Companys liquidity and cash flows in future periods. This table excludes amounts already recorded on the Companys balance sheet as current liabilities at September 30, 2006 and certain other purchase
obligations as discussed below.



|                              |  |                        |         |                  |   |             |  |             |        |               |   |        |  |   |        
|----------------------------- |  | ---------------------- | ------- | ---------------- | - | ----------- |  | ----------- | ------ | ------------- | - | ------ |  | - | -------
|(in thousands)                |  | Payments Due By Period
|Contractual Obligations       |  | Total                  |         | Less than 1 Year |   | 1  3 years |  | 4  5 years |        | After 5 years
|Senior notes*                 |  | $                      | 253,357 |                  | $ | 13,175      |  | $           | 26,350 |               | $ | 26,350 |  | $ | 187,482
|Revolving Commitments*        |  |                        |        |                  |   |            |  |             |       |               |   |       |  |   |       
|Preferred stock*              |  |                        | 311,108 |                  |   |            |  |             |       |               |   |       |  |   | 311,108
|Operating leases              |  |                        | 120,731 |                  |   | 35,638      |  |             | 54,638 |               |   | 24,920 |  |   | 5,535  
|                              |  |                        |         |                  |   |             |  |             |        |               |   |        |  |   |        
|Total contractual obligations |  | $                      | 685,196 |                  | $ | 48,813      |  | $           | 80,988 |               | $ | 51,270 |  | $ | 504,125
|                              |  |                        |         |                  |   |             |  |             |        |               |   |        |  |   |        

---

|* | Amounts include estimated interest and dividend payments
|- | --------------------------------------------------------



|                               |  |                                             |       |                  |   |             |  |             |   |               |   |   |  |   |  
|------------------------------ |  | ------------------------------------------- | ----- | ---------------- | - | ----------- |  | ----------- | - | ------------- | - | - |  | - | -
|(in thousands)                 |  | Amounts of Commitment Expiration Per Period
|Commercial Commitments         |  | Total AmountsCommitted                      |       | Less than 1 Year |   | 1  3 years |  | 4  5 years |   | After 5 years
|Standby letters of credit      |  | $                                           | 4,300 |                  | $ | 4,300       |  | $           |  |               | $ |  |  | $ | 
|                               |  |                                             |       |                  |   |             |  |             |   |               |   |   |  |   |  
|Financial responsibility bonds |  | $                                           | 160   |                  | $ | 160         |  | $           |  |               | $ |  |  | $ | 
|                               |  |                                             |       |                  |   |             |  |             |   |               |   |   |  |   |  

Purchase orders for raw materials, finished goods and other goods and services are not included in
the above table. We are not able to determine the aggregate amount of such purchase orders that represent contractual obligations, as purchase orders may represent authorizations to purchase rather than binding agreements. For the purpose of this
table, contractual obligations for purchase of goods or services are defined as agreements that are enforceable and legally binding on us and that specify all significant terms, including: fixed or minimum quantities to be purchased; fixed, minimum
or variable price provisions; and the approximate timing of the transaction. The Companys purchase orders are based on the Companys current manufacturing needs and are fulfilled by the Companys vendors with relatively short
timetables. We do not have significant agreements for the purchase of raw materials or finished goods specifying minimum quantities or set prices that exceed the Companys short-term expected requirements.

The expected timing of payment of the obligations discussed above is estimated based on current information. Timing of payments and actual amounts paid
may be different depending on the time of receipt of goods or services or changes to agreed-upon amounts for some obligations.



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Critical Accounting Policies and Estimates

The Companys consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States
which requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, sales and expenses. On an ongoing basis, the Company evaluates its estimates, including those related to inventory reserves,
allowance for doubtful accounts, valuation allowance for the net deferred income tax asset, contingencies and litigation liabilities. The Company bases its estimates on historical experience, independent valuations, and various other assumptions
that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from
these estimates under different assumptions or conditions.

The Company believes the following critical accounting policies affect its more
significant judgments and estimates used in the preparation of its consolidated financial statements.

Revenue Recognition

Revenue on retail sales is recognized upon purchase by the customer. Revenue on services, is recognized as services are performed and the fee is fixed or
determinable and collection is probable. Terms are customarily FOB shipping point or point of sale, net of related discounts. The Company does not provide an estimated allowance for sales returns as they are deemed to be immaterial.

Inventories

Inventories are stated at the lower of
cost or market. The Company values inventory using the weighted average cost method. Included in cost of sales are the costs of services and purchased goods, chemical repackaging costs and related distribution costs. The Company establishes a
reserve for inventory obsolescence and shrinkage, which is analyzed and reviewed periodically and may require adjustments based on physical inventory counts, the relationship and fluctuation of historical product sales versus inventory on hand and
changes in customer preferences. The reserve is intended to reflect the value of inventory in excess of expected realizable value.

Vendor Rebates

The Company accounts for vendor rebates in accordance with Emerging Issues Task Force Issue 02-16, Accounting by a Customer
(Including a Reseller) for Certain Consideration Received from a Vendor. The Company recognizes consideration received from vendors at the time its obligations to purchase products or perform services have been completed. These items are
recorded as a reduction of inventory until we sell the product, at which time such rebates reduce cost of goods sold in the statement of operations.

Income Taxes

The Company records deferred tax assets or liabilities based on differences between financial reporting and
tax basis of assets and liabilities using currently enacted rates and laws that will be in effect when the Company expects the differences to reverse. Due to changing tax laws and state income tax rates, judgment is required to estimate the
effective tax rate expected to apply to tax differences which are expected to reverse in future periods.

Self Insurance

The Company retains self insurance risks for workers compensation, general liability, property and health insurance programs. The Company has limited its
exposure by maintaining excess and aggregate liability coverage. The Company establishes self insurance reserves based on claims filed and estimates of claims incurred but not reported. The estimates are based upon information provided to the
Company by the claims administrators and are periodically revised to reflect changes in loss trends.



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The Company expects that the quarterly results of operations will continue to fluctuate depending on
the season, weather conditions, and the timing and amount of revenue contributed by new stores. Due to the seasonal nature of the swimming pool industry, the results of any one or more quarters are not necessarily a good indication of results for an
entire year, or of continuing trends.

Summarized Quarterly Financial Data (Unaudited)

(Dollar Amounts In Thousands)



|                                           |  |                |        |    |         |   |         |        |  |   |          |   |  |   |         |  
|------------------------------------------ |  | -------------- | ------ | -- | ------- | - | ------- | ------ |  | - | -------- | - |  | - | ------- | -
|                                           |  | 13 Weeks Ended |       
|2006                                       |  | Dec. 31        |        |    | April 1 |   |         | July 1 |  |   | Sept. 30 |  
|Sales                                      |  | $              | 48,145 |    |         | $ | 48,352  |        |  | $ | 198,114  |   |  | $ | 145,954 |  
|Gross profit                               |  |                | 22,754 |    |         |   | 25,473  |        |  |   | 98,436   |   |  |   | 71,520  |  
|Operating income/(loss)                    |  |                | (9,005 | )  |         |   | (8,348  | )      |  |   | 48,635   |   |  |   | 26,118  |  
|Net income/(loss)                          |  |                | (8,842 | )  |         |   | (5,710  | )      |  |   | 23,065   |   |  |   | 11,992  |  
|Adjusted EBITDA(1)                         |  |                | (6,160 | )  |         |   | (5,581  | )      |  |   | 51,999   |   |  |   | 28,931  |  
|Comparable store sales growth(2)           |  |                | 12.0   | %  |         |   | 1.0     | %      |  |   | 10.7     | % |  |   | 9.1     | %
|                                           |  |                |        |   
|2005                                       |  | Jan. 1         |        |    | April 2 |   |         | July 2 |  |   | Oct. 1   |  
|Sales                                      |  | $              | 40,937 |    |         | $ | 44,836  |        |  | $ | 173,343  |   |  | $ | 129,390 |  
|Gross profit                               |  |                | 19,372 |    |         |   | 21,830  |        |  |   | 85,918   |   |  |   | 61,377  |  
|Operating income/(loss)                    |  |                | (9,426 | )  |         |   | (26,937 | )      |  |   | 39,885   |   |  |   | 21,086  |  
|Net income/(loss)                          |  |                | (8,633 | )  |         |   | (24,850 | )      |  |   | 20,236   |   |  |   | 8,825   |  
|Adjusted EBITDA(1)                         |  |                | (6,477 | )  |         |   | (7,086  | )      |  |   | 43,875   |   |  |   | 24,165  |  
|Comparable store sales growth/(decline)(2) |  |                | (5.4   | )% |         |   | 7.8     | %      |  |   | 10.4     | % |  |   | 5.0     | %

---

|(1) | Adjusted EBITDA is defined as earnings before interest, taxes, depreciation, amortization, loss/(gain) on disposition of fixed assets, stock compensation expense,
write-off of debt issuance costs and unusual charges. Adjusted EBITDA is not a measure of financial performance under U.S. generally accepted accounting principles (GAAP), but is used by some investors to determine a companys
ability to service or incur indebtedness. Adjusted EBITDA is not calculated in the same manner by all companies and accordingly is not necessarily comparable to similarly entitled measures of other companies and may not be an appropriate measure for
performance relative to other companies. Adjusted EBITDA should not be construed as an indicator of a companys operating performance or liquidity, and should not be considered in isolation from or as a substitute for net income (loss), cash
flows from operations or cash flow data, all of which are prepared in accordance with GAAP. We have presented Adjusted EBITDA solely as supplemental disclosure because we believe it allows for a more complete analysis of results of operations.
Adjusted EBITDA is not intended to represent and should not be considered more meaningful than, or as an alternative to, measures of operating performance as determined in accordance with GAAP.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | The Company considers a store to be comparable in the first full month after it has completed 52 weeks of sales. Closed stores become non-comparable during their
last partial month of operation. Stores that are relocated are considered comparable stores at the time the relocation is completed. Comparable store sales is not a measure of financial performance under GAAP. Comparable store sales is not
calculated in the same manner by all companies and accordingly is not necessarily comparable to similarly entitled measures of other companies and may not be an appropriate measure for performance relative to other companies.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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Recent Accounting Pronouncements

On December 16, 2004, the Financial Accounting Standards Board (FASB) issued FASB Statement No. 123; (Revised 2004) (Statement 123(R))
Share-Based Payment, which is a revision of FASB Statement No. 123, Accounting for Stock-Based Compensation. Statement 123(R) supersedes APB opinion 25, Accounting for Stock Issued to Employees and amends
FASB Statement No. 95, Statement of Cash Flows. Statement 123(R) requires all share-based payments to employees to be recognized in the financial statements based on their fair market values. For the purpose of Statement 123(R), the
Company is considered a non-public entity since it does not have equity securities trading in a public market. For non-public entities the effective date to adopt the complete provisions of Statement 123(R) is for fiscal
years beginning after December 15, 2005. Statement 123(R) will be effective for the Company beginning October 1, 2006.

As
permitted by Statement 123, the Company currently accounts for share-based payments to employees using APB Opinion 25s intrinsic value method and, as such, generally recognizes no compensation cost for employee stock options. Accordingly, the
adoption of Statement 123(R)s fair value method could have a significant impact on the Companys results of operations, although it will have no impact on the Companys overall cash position. The impact of adoption of Statement
123(R) cannot be predicted at this time because it will depend on levels of share-based payments granted in the future. However, had the Company adopted Statement 123(R) in prior periods, the impact of that standard would have approximated the
impact of Statement 123 as described in the disclosure of pro forma net income in Note 13. Statement 123(R) also requires the benefits of tax deductions in excess of recognized compensation cost to be reported as a financing cash flow, rather than
as an operating cash flow as required under current literature.

In June 2006, the FASB issued FASB Interpretation No. 48 (FIN 48),
Accounting for Uncertainty in Income Taxes. FIN 48 is an interpretation of FASB Statement No. 109 Accounting for Income Taxes and must be adopted by the Company no later than September 30, 2007. FIN 48 prescribes a
comprehensive model for recognizing, measuring, presenting, and disclosing in the financial statements uncertain tax positions that the company has taken or expects to take in its tax returns. The Company has not evaluated the impact of adopting FIN
48.



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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Companys Amended Loan and Security Agreement described in Note 5 to the consolidated financial statements as well as in Managements
Discussion and Analysis, carries interest rate risk. Amounts borrowed under this Agreement bear interest at either LIBOR plus 1.75%, or at the Companys choice, the lenders reference rate. Should the lenders base rate change, the
Companys interest expense will increase or decrease accordingly. As of September 30, 2006, there was no borrowing under this facility.



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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS



|                                                                                                                               |  |     
|------------------------------------------------------------------------------------------------------------------------------ |  | ----
|                                                                                                                               |  | Page
|Report of Independent Registered Public Accounting Firm                                                                        |  | 29  
|                                                                                                                               | 
|Consolidated Balance Sheets  September 30, 2006 and October 1, 2005                                                           |  | 30  
|                                                                                                                               | 
|Consolidated Statements of Operations Fiscal Years Ended September 30, 2006, October 1, 2005, and October 2, 2004             |  | 31  
|                                                                                                                               | 
|Consolidated Statements of Stockholders Deficit  Fiscal Years Ended September 30, 2006, October 1, 2005, and October 2, 2004 |  | 32  
|                                                                                                                               | 
|Consolidated Statements of Cash Flows  Fiscal Years Ended September 30, 2006, October 1, 2005, and October 2, 2004            |  | 33  
|                                                                                                                               | 
|Notes to Consolidated Financial Statements                                                                                     |  | 34  



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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders of Leslies Poolmart,
Inc.:

We have audited the accompanying consolidated balance sheets of Leslies Poolmart, Inc. as of September 30, 2006 and
October 1, 2005 and the related consolidated statements of operations, stockholders deficit and cash flows for each of the three years in the period ended September 30, 2006. These consolidated financial statements are the
responsibility of the Companys management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about
whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Companys internal control over financial reporting. Our audits included consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Companys internal control over financial reporting. Accordingly, we
express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our
opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Leslies Poolmart, Inc. at September 30, 2006 and October 1, 2005 and the consolidated results of its
operations and its cash flows for each of the three years in the period ended September 30, 2006, in conformity with U.S. generally accepted accounting principles.

/s/ ERNST & YOUNG LLP

Phoenix, Arizona

December 1, 2006



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Consolidated Balance Sheets

(Dollar Amounts in Thousands, Except Share Information)



|                                                                                                                                                                      |  |                    |          |   |                 |   |          |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------ | -------- | - | --------------- | - | -------- | -
|                                                                                                                                                                      |  | September 30, 2006 |          |   | October 1, 2005 |  
|ASSETS                                                                                                                                                                |  |                    |          |   |                 |   |          |  
|Current assets:                                                                                                                                                       |  |                    |          |   |                 |   |          |  
|Cash and cash equivalents                                                                                                                                             |  | $                  | 39,004   |   |                 | $ | 2,172    |  
|Accounts and other receivables, net                                                                                                                                   |  |                    | 7,315    |   |                 |   | 11,691   |  
|Inventories, net                                                                                                                                                      |  |                    | 64,544   |   |                 |   | 60,925   |  
|Prepaid expenses and other current assets                                                                                                                             |  |                    | 2,522    |   |                 |   | 2,058    |  
|Deferred tax assets                                                                                                                                                   |  |                    | 8,329    |   |                 |   | 7,618    |  
|                                                                                                                                                                      |  |                    |          |   |                 |   |          |  
|Total current assets                                                                                                                                                  |  |                    | 121,714  |   |                 |   | 84,464   |  
|Property, plant and equipment, net                                                                                                                                    |  |                    | 38,136   |   |                 |   | 39,596   |  
|Intangible assets                                                                                                                                                     |  |                    | 8,072    |   |                 |   | 8,051    |  
|Deferred financing costs, net                                                                                                                                         |  |                    | 6,168    |   |                 |   | 7,184    |  
|Deferred tax assets                                                                                                                                                   |  |                    | 4,445    |   |                 |   | 2,598    |  
|Other assets                                                                                                                                                          |  |                    | 320      |   |                 |   | 512      |  
|                                                                                                                                                                      |  |                    |          |   |                 |   |          |  
|Total assets                                                                                                                                                          |  | $                  | 178,855  |   |                 | $ | 142,405  |  
|                                                                                                                                                                      |  |                    |          |   |                 |   |          |  
|LIABILITIES AND STOCKHOLDERS DEFICIT                                                                                                                                 |  |                    |          |   |                 |   |          |  
|Current liabilities:                                                                                                                                                  |  |                    |          |   |                 |   |          |  
|Accounts payable                                                                                                                                                      |  | $                  | 31,473   |   |                 | $ | 21,321   |  
|Accrued expenses                                                                                                                                                      |  |                    | 35,860   |   |                 |   | 31,637   |  
|Income taxes payable                                                                                                                                                  |  |                    | 11,040   |   |                 |   | 7,739    |  
|Deferred tax liabilities                                                                                                                                              |  |                    | 128      |   |                 |   | 110      |  
|                                                                                                                                                                      |  |                    |          |   |                 |   |          |  
|Total current liabilities                                                                                                                                             |  |                    | 78,501   |   |                 |   | 60,807   |  
|Revolving commitment                                                                                                                                                  |  |                    |         |   |                 |   | 7,104    |  
|Other long term liabilities                                                                                                                                           |  |                    | 12,632   |   |                 |   | 7,201    |  
|Redeemable preferred stock, $0.001 par value, authorized 1,000,000 shares, issued and outstanding 41,000 Series A at September 30, 2006
and October 1, 2005           |  |                    | 41,000   |   |                 |   | 41,000   |  
|Senior notes, net                                                                                                                                                     |  |                    | 168,946  |   |                 |   | 168,850  |  
|                                                                                                                                                                      |  |                    |          |   |                 |   |          |  
|Total liabilities                                                                                                                                                     |  |                    | 301,079  |   |                 |   | 284,962  |  
|Commitments and contingencies                                                                                                                                         |  |                    |          |   |                 |   |          |  
|Stockholders deficit:                                                                                                                                                |  |                    |          |   |                 |   |          |  
|Common stock, $0.001 par value, authorized 50,000,000 shares, issued and outstanding 40,045,000 shares at September 30, 2006 and
39,975,000 shares at October 1, 2005 |  |                    | 40       |   |                 |   | 40       |  
|Paid-in deficit                                                                                                                                                       |  |                    | (144,081 | ) |                 |   | (144,216 | )
|Treasury stock, 90,000 shares at cost at September 30, 2006 and 25,000 shares at cost at October 1, 2005                                                              |  |                    | (332     | ) |                 |   | (25      | )
|Retained earnings                                                                                                                                                     |  |                    | 22,149   |   |                 |   | 1,644    |  
|                                                                                                                                                                      |  |                    |          |   |                 |   |          |  
|Total stockholders deficit                                                                                                                                           |  |                    | (122,224 | ) |                 |   | (142,557 | )
|                                                                                                                                                                      |  |                    |          |   |                 |   |          |  
|Total liabilities and stockholders deficit                                                                                                                           |  | $                  | 178,855  |   |                 | $ | 142,405  |  
|                                                                                                                                                                      |  |                    |          |   |                 |   |          |  

See accompanying Notes which are an integral part of these consolidated financial statements.



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Consolidated Statements of Operations

(Dollar Amounts in Thousands)



|                                                                                                                      |  |                    |         |   |                |   |         |                |  |   |         |  
|--------------------------------------------------------------------------------------------------------------------- |  | ------------------ | ------- | - | -------------- | - | ------- | -------------- |  | - | ------- | -
|                                                                                                                      |  | Fiscal Years Ended |        
|                                                                                                                      |  | September 30, 2006 |         |   | October 1,2005 |   |         | October 2,2004 | 
|Sales                                                                                                                 |  | $                  | 440,565 |   |                | $ | 388,506 |                |  | $ | 356,041 |  
|Cost of merchandise and services sold, including warehousing and transportation expenses, and related occupancy costs |  |                    | 222,382 |   |                |   | 200,009 |                |  |   | 183,928 |  
|                                                                                                                      |  |                    |         |   |                |   |         |                |  |   |         |  
|Gross profit                                                                                                          |  |                    | 218,183 |   |                |   | 188,497 |                |  |   | 172,113 |  
|Selling, general and administrative expenses                                                                          |  |                    | 160,783 |   |                |   | 145,901 |                |  |   | 137,881 |  
|Stock and other compensation expense                                                                                  |  |                    |        |   |                |   | 17,988  |                |  |   |        |  
|                                                                                                                      |  |                    |         |   |                |   |         |                |  |   |         |  
|Operating income                                                                                                      |  |                    | 57,400  |   |                |   | 24,608  |                |  |   | 34,232  |  
|Other (income) expense:                                                                                               |  |                    |         |   |                |   |         |                |  |   |         |  
|Interest expense                                                                                                      |  |                    | 20,087  |   |                |   | 18,839  |                |  |   | 7,204   |  
|Interest income                                                                                                       |  |                    | (690    | ) |                |   | (5      | )              |  |   | (32     | )
|Loss on disposition of fixed assets                                                                                   |  |                    | 600     |   |                |   | 703     |                |  |   | 440     |  
|Recapitalization expense                                                                                              |  |                    |        |   |                |   | 8,881   |                |  |   |        |  
|                                                                                                                      |  |                    |         |   |                |   |         |                |  |   |         |  
|Total other expense                                                                                                   |  |                    | 19,997  |   |                |   | 28,418  |                |  |   | 7,612   |  
|                                                                                                                      |  |                    |         |   |                |   |         |                |  |   |         |  
|Income/(loss) before taxes                                                                                            |  |                    | 37,403  |   |                |   | (3,810  | )              |  |   | 26,620  |  
|Income tax expense                                                                                                    |  |                    | 16,898  |   |                |   | 612     |                |  |   | 10,374  |  
|                                                                                                                      |  |                    |         |   |                |   |         |                |  |   |         |  
|Net income/(loss)                                                                                                     |  |                    | 20,505  |   |                |   | (4,422  | )              |  |   | 16,246  |  
|Series A preferred stock dividends and accretion                                                                      |  |                    |        |   |                |   |        |                |  |   | 7,160   |  
|                                                                                                                      |  |                    |         |   |                |   |         |                |  |   |         |  
|Income/(loss) applicable to common shareholders                                                                       |  | $                  | 20,505  |   |                | $ | (4,422  | )              |  | $ | 9,086   |  
|                                                                                                                      |  |                    |         |   |                |   |         |                |  |   |         |  

See accompanying Notes which are an integral part of these consolidated financial
statements.



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Consolidated Statements of Stockholders Deficit

(Dollar Amounts in Thousands, Except Share Amounts)



|                                                 |  |                 |   |  |        |     |   |                             |   |      |                |  |   |               |   |  |                             |      |   |                                    |   |        |   |  |   |          |  
|------------------------------------------------ |  | --------------- | - |  | ------ | --- | - | --------------------------- | - | ---- | -------------- |  | - | ------------- | - |  | --------------------------- | ---- | - | ---------------------------------- | - | ------ | - |  | - | -------- | -
|                                                 |  | Common Stock    |   |  |        |     |   |                             |   |      |                |  |   |               |   |  |                             |     
|                                                 |  | Number ofShares |   |  | Amount |     |   | StockSubscriptionReceivable |   |      | Paid InDeficit |  |   | TreasuryStock |   |  | RetainedEarnings/ (Deficit) |      |   | TotalStockholdersEquity/(Deficit) |  
|Balance, at September 27, 2003                   |  | 7,369,502       |   |  | $      | 7   |   |                             | $ | (450 | )              |  | $ | (44,714       | ) |  | $                           |     |   |                                    | $ | (3,020 | ) |  | $ | (48,177  | )
|Series A preferred stock dividends and accretion |  |                |   |  |        |    |   |                             |   |     |                |  |   |              |   |  |                             |     |   |                                    |   | (7,160 | ) |  |   | (7,160   | )
|Net income                                       |  |                |   |  |        |    |   |                             |   |     |                |  |   |              |   |  |                             |     |   |                                    |   | 16,246 |   |  |   | 16,246   |  
|                                                 |  |                 |   |  |        |     |   |                             |   |      |                |  |   |               |   |  |                             |      |   |                                    |   |        |   |  |   |          |  
|Balance, at October 2, 2004                      |  | 7,369,502       |   |  |        | 7   |   |                             |   | (450 | )              |  |   | (44,714       | ) |  |                             |     |   |                                    |   | 6,066  |   |  |   | (39,091  | )
|Stock option compensation                        |  |                |   |  |        |    |   |                             |   |     |                |  |   | 16,070        |   |  |                             |     |   |                                    |   |       |   |  |   | 16,070   |  
|Equity transaction fees                          |  |                |   |  |        |    |   |                             |   |     |                |  |   | (628          | ) |  |                             |     |   |                                    |   |       |   |  |   | (628     | )
|Warrants exercised                               |  | 1,592,223       |   |  |        | 2   |   |                             |   |     |                |  |   | 14            |   |  |                             |     |   |                                    |   |       |   |  |   | 16       |  
|Purchase of common stock                         |  | (10,598,964     | ) |  |        | (11 | ) |                             |   |     |                |  |   | (158,974      | ) |  |                             |     |   |                                    |   |       |   |  |   | (158,985 | )
|Repayment of stock subscription receivable       |  |                |   |  |        |    |   |                             |   | 450  |                |  |   |              |   |  |                             |     |   |                                    |   |       |   |  |   | 450      |  
|Issuance of common stock                         |  | 41,637,239      |   |  |        | 42  |   |                             |   |     |                |  |   | 44,016        |   |  |                             |     |   |                                    |   |       |   |  |   | 44,058   |  
|Repurchase of treasury stock                     |  | (25,000         | ) |  |        |    |   |                             |   |     |                |  |   |              |   |  |                             | (25  | ) |                                    |   |       |   |  |   | (25      | )
|Net loss                                         |  |                |   |  |        |    |   |                             |   |     |                |  |   |              |   |  |                             |     |   |                                    |   | (4,422 | ) |  |   | (4,422   | )
|                                                 |  |                 |   |  |        |     |   |                             |   |      |                |  |   |               |   |  |                             |      |   |                                    |   |        |   |  |   |          |  
|Balance, at October 1, 2005                      |  | 39,975,000      |   |  |        | 40  |   |                             |   |     |                |  |   | (144,216      | ) |  |                             | (25  | ) |                                    |   | 1,644  |   |  |   | (142,557 | )
|Issuance of common stock                         |  | 135,000         |   |  |        |    |   |                             |   |     |                |  |   | 135           |   |  |                             |     |   |                                    |   |       |   |  |   | 135      |  
|Repurchase of treasury stock                     |  | (65,000         | ) |  |        |    |   |                             |   |     |                |  |   |              |   |  |                             | (307 | ) |                                    |   |       |   |  |   | (307     | )
|Net income                                       |  |                |   |  |        |    |   |                             |   |     |                |  |   |              |   |  |                             |     |   |                                    |   | 20,505 |   |  |   | 20,505   |  
|                                                 |  |                 |   |  |        |     |   |                             |   |      |                |  |   |               |   |  |                             |      |   |                                    |   |        |   |  |   |          |  
|Balance, at September 30, 2006                   |  | 40,045,000      |   |  | $      | 40  |   |                             | $ |     |                |  | $ | (144,081      | ) |  | $                           | (332 | ) |                                    | $ | 22,149 |   |  | $ | (122,224 | )
|                                                 |  |                 |   |  |        |     |   |                             |   |      |                |  |   |               |   |  |                             |      |   |                                    |   |        |   |  |   |          |  

See accompanying Notes which are an integral part of these consolidated financial statements.



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Consolidated Statements of Cash Flows

(Dollar Amounts in Thousands)



|                                                                                         |  |                    |         |   |                 |   |          |                 |  |   |         |  
|---------------------------------------------------------------------------------------- |  | ------------------ | ------- | - | --------------- | - | -------- | --------------- |  | - | ------- | -
|                                                                                         |  | Fiscal Years Ended |        
|                                                                                         |  | September 30, 2006 |         |   | October 1, 2005 |   |          | October 2, 2004 | 
|OPERATING ACTIVITIES:                                                                    |  |                    |         |   |                 |   |          |                 |  |   |         |  
|Net income/(loss)                                                                        |  | $                  | 20,505  |   |                 | $ | (4,422   | )               |  | $ | 16,246  |  
|Adjustments to reconcile net income/(loss) to net cash provided by operating activities: |  |                    |         |   |                 |   |          |                 |  |   |         |  
|Dividends and accretion on preferred stock                                               |  |                    | 4,554   |   |                 |   | 5,341    |                 |  |   |        |  
|Depreciation and amortization                                                            |  |                    | 11,789  |   |                 |   | 11,881   |                 |  |   | 11,281  |  
|Stock option compensation                                                                |  |                    |        |   |                 |   | 16,070   |                 |  |   |        |  
|Amortization of loan fees                                                                |  |                    | 1,016   |   |                 |   | 2,573    |                 |  |   | 518     |  
|Amortization of loan discounts                                                           |  |                    | 96      |   |                 |   | 108      |                 |  |   |        |  
|Provision for doubtful accounts                                                          |  |                    | 109     |   |                 |   | 258      |                 |  |   | 316     |  
|Deferred income taxes                                                                    |  |                    | (2,540  | ) |                 |   | 1,434    |                 |  |   | (1,911  | )
|Loss on disposition of assets                                                            |  |                    | 600     |   |                 |   | 703      |                 |  |   | 440     |  
|Changes in operating assets and liabilities:                                             |  |                    |         |   |                 |   |          |                 |  |   |         |  
|Accounts and other receivables                                                           |  |                    | 4,267   |   |                 |   | (336     | )               |  |   | (3,398  | )
|Inventories                                                                              |  |                    | (3,619  | ) |                 |   | (6,863   | )               |  |   | (1,278  | )
|Prepaid expenses and other current assets                                                |  |                    | (464    | ) |                 |   | (654     | )               |  |   | (103    | )
|Other assets                                                                             |  |                    | 192     |   |                 |   | (44      | )               |  |   | (2      | )
|Accounts payable and accrued expenses                                                    |  |                    | 15,252  |   |                 |   | 5,827    |                 |  |   | 3,975   |  
|Income taxes payable                                                                     |  |                    | 3,301   |   |                 |   | (5,129   | )               |  |   | 434     |  
|                                                                                         |  |                    |         |   |                 |   |          |                 |  |   |         |  
|Net cash provided by operating activities                                                |  |                    | 55,058  |   |                 |   | 26,747   |                 |  |   | 26,518  |  
|                                                                                         |  |                    |         |   |                 |   |          |                 |  |   |         |  
|INVESTING ACTIVITIES:                                                                    |  |                    |         |   |                 |   |          |                 |  |   |         |  
|Purchases of property, equipment and intangibles                                         |  |                    | (11,180 | ) |                 |   | (12,305  | )               |  |   | (10,899 | )
|Proceeds from disposition of property                                                    |  |                    | 230     |   |                 |   | 137      |                 |  |   | 618     |  
|                                                                                         |  |                    |         |   |                 |   |          |                 |  |   |         |  
|Net cash used in investing activities                                                    |  |                    | (10,950 | ) |                 |   | (12,168  | )               |  |   | (10,281 | )
|                                                                                         |  |                    |         |   |                 |   |          |                 |  |   |         |  
|FINANCING ACTIVITIES:                                                                    |  |                    |         |   |                 |   |          |                 |  |   |         |  
|Net revolving commitment borrowing/(repayment)                                           |  |                    | (7,104  | ) |                 |   | 7,104    |                 |  |   |        |  
|Preferred stock premium                                                                  |  |                    |        |   |                 |   | 1,041    |                 |  |   |        |  
|Proceeds from warrants and options exercised                                             |  |                    |        |   |                 |   | 4,067    |                 |  |   |        |  
|Purchase of common stock                                                                 |  |                    |        |   |                 |   | (157,634 | )               |  |   |        |  
|Proceeds from issuance of common stock, net of fees                                      |  |                    | 135     |   |                 |   | 39,378   |                 |  |   |        |  
|Payments of deferred financing costs                                                     |  |                    |        |   |                 |   | (7,946   | )               |  |   | (260    | )
|Payments of long-term debt                                                               |  |                    |        |   |                 |   | (59,495  | )               |  |   |        |  
|Proceeds from sale of bonds                                                              |  |                    |        |   |                 |   | 168,742  |                 |  |   |        |  
|Repurchase of treasury stock                                                             |  |                    | (307    | ) |                 |   | (25      | )               |  |   |        |  
|Purchase of preferred stock                                                              |  |                    |        |   |                 |   | (64,506  | )               |  |   |        |  
|Proceeds from sale of preferred stock                                                    |  |                    |        |   |                 |   | 40,100   |                 |  |   |        |  
|                                                                                         |  |                    |         |   |                 |   |          |                 |  |   |         |  
|Net cash used in financing activities                                                    |  |                    | (7,276  | ) |                 |   | (29,174  | )               |  |   | (260    | )
|                                                                                         |  |                    |         |   |                 |   |          |                 |  |   |         |  
|NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS                                     |  |                    | 36,832  |   |                 |   | (14,595  | )               |  |   | 15,977  |  
|CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                                           |  |                    | 2,172   |   |                 |   | 16,767   |                 |  |   | 790     |  
|                                                                                         |  |                    |         |   |                 |   |          |                 |  |   |         |  
|CASH AND CASH EQUIVALENTS AT END OF YEAR                                                 |  | $                  | 39,004  |   |                 | $ | 2,172    |                 |  | $ | 16,767  |  
|                                                                                         |  |                    |         |   |                 |   |          |                 |  |   |         |  

See accompanying Notes which are an integral part of these consolidated financial statements.



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Leslies Poolmart, Inc.

Notes to the Consolidated Financial Statements



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1. Business and Operations

Leslies Poolmart, Inc. (Leslies or the Company) is a specialty retailer of swimming pool supplies and related products. As of September 30, 2006, the Company markets its
products under the trade name Leslies Swimming Pool Supplies through 541 retail stores in 35 states and through mail order catalogs sent to select swimming pool owners nationwide. The Company also repackages certain bulk chemical products for
retail sale. The Companys business is highly seasonal as the majority of its sales and all of its operating profits are generated in the quarters ending in June and September.

Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standards (SFAS) 131, Disclosures about Segments
of an Enterprise and Related Information, establishes standards for the way that public companies report information about operating segments in annual financial statements and establishes standards for related disclosures about product and
services, geographic areas and major customers. The Company has reviewed SFAS 131 and determined that we have a single reportable segment.

During the
fiscal year ended October 1, 2005 the Company consummated the following transactions, which the Company refers to collectively as the Recapitalization:

The Merger

LPM Acquisition LLC (LPM Acquisition), a newly-formed entity controlled by GCP California Fund, L.P.
(GCP), and affiliates of Leonard Green & Partners, L.P. (LGP), merged with and into Leslies on January 25, 2005, with Leslies continuing as the surviving entity in the merger. Immediately prior to
the consummation of the merger, GCP, one of the Companys directors and one of the Companys executive officers who is also a director contributed a portion of their shares of Leslies common stock with a value of $29.1 million to LPM
Acquisition in exchange for common units of LPM Acquisition. In addition, GCP and an additional affiliate of LGP contributed $10.9 million in cash to LPM Acquisition in exchange for common units of LPM Acquisition. As a result of this merger, the
common units of LPM Acquisition were converted into Leslies common stock and Leslies common stock is now owned by GCP, additional affiliates of LGP and some of Leslies directors and members of management.

In the merger, all of the shares of common and preferred stock outstanding prior to the merger and outstanding options (other than those that were
contributed to LPM Acquisition) were exchanged for cash consideration of $189.5 million. The cash paid for each share of common stock was $15.00, and the cash paid for each share of preferred stock, including redemption premium and accrued interest
and dividends, was $1,389.00.

In connection with the merger, GCP and additional affiliates of LGP also acquired shares valued at $40.1
million of a new series of preferred stock from Leslies. One of the Companys directors contributed common stock valued at $0.9 million in exchange for shares of such preferred stock.



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Leslies Poolmart, Inc.

Notes to the Consolidated Financial Statements



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The Tender Offer and Consent Solicitation

On December 23, 2004, the Company commenced a tender offer and solicitation of consents, or the Tender Offer, to purchase all of the
$59.5 million outstanding principal amount of the Companys 103/8% Senior Notes due 2008, and to amend the
indenture governing the 103/8% notes to eliminate most of the covenants and certain events of default. On January 11, 2005, the Company entered into a supplemental indenture with The Bank of New York
Trust Company, N.A., as the trustee, supplementing the indenture dated as of May 21, 2003 as contemplated by the terms of the tender offer. The supplemental indenture eliminated substantially all of the restrictive covenants and certain events
of default under the indenture relating to the 103/8% notes. The total consideration for the 103/8% notes which was paid in respect of the 103/8% notes
accepted for payment that were validly tendered with consents and not withdrawn on or prior to 5:00 p.m., New York City time on January 7, 2005 was $1,059.30 for each $1,000.00 principal amount of the 103/8% notes. The
103/8% notes accepted for payment that were validly tendered subsequent to 5:00 p.m., New York City time on January 7, 2005 but on or prior to 5:00 p.m., New York City time, on February 2, 2005, received the Tender
Offer consideration of $1,029.30 for each $1,000.00 principal amount of the 103/8% notes, which is equal to the total consideration minus the consent payment of $30.00 per $1,000.00 principal
amount of the 103/8% notes. $55.5 million aggregate principal amount of the notes were tendered and accepted in the Tender Offer.

Note Offering

On January 25, 2005, the Company
issued an aggregate of $170.0 million principal amount of the Senior Notes. The net proceeds from the offering of the 73/4% notes, together with borrowings under an amended credit facility, proceeds from the
issuance of equity securities and cash on hand, were used to complete the Recapitalization and repurchase the outstanding 103/8% notes that were tendered in the Tender Offer. Subsequent to the initial private placement of the 73/4% notes, the notes were exchanged for new registered 73/4% Senior Notes, Series B, in June 2005, pursuant to an exchange offer.

The Amended Credit Facility

On January 25,
2005, the Company amended its existing credit facility with Wells Fargo Retail Finance, LLC to provide for the extension by the lender of revolving loans and other financial accommodations in an aggregate principal amount of $75.0 million. The
Companys obligations under the amended credit facility are secured by a lien on substantially all of the Companys assets. In addition to the $75.0 million commitment, the total commitment was increased by $30.0 million via a temporary
over-advance facility through June 30, 2005. At the Companys option, the over-advance facility was again available in the amount of $20.0 million from October 1, 2005 through March 31, 2006. Finally, at the lenders
discretion, an over-advance facility of $10.0 million may be available to the Company from September 30, 2006 through March 31, 2007.

The January 25, 2005 Recapitalization was accounted for as a series of equity transactions and there was no change in the accounting basis for the Companys recorded assets and liabilities. Accordingly, no goodwill or other
intangible assets were recorded related to the Recapitalization.



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Leslies Poolmart, Inc.

Notes to the Consolidated Financial Statements



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2. Summary of Significant Accounting Policies

Principles of Consolidation

The
consolidated financial statements of the Company include Leslies Poolmart, Inc., and its wholly owned subsidiaries, LPM Manufacturing Inc., Sandys Pool Supply, Inc. and Blackwood & Simmons, Inc. All significant inter-company
transactions and accounts have been eliminated.

Fiscal Periods

The Companys fiscal year ends on the Saturday closest to September 30. The fiscal year ended on September 30, 2006 and October 1,
2005 included 52 weeks and the fiscal year ended October 2, 2004 included 53 weeks.

Cash and Cash Equivalents

The Company considers all investments with a maturity of three months or less when purchased to be cash equivalents.

Accounts and Other Receivables, Net

As a result of hurricane damages in 2005 the Company has insurance recovery receivables in the amount of $0.4 million recorded at October 1, 2005. The Company applies FASB Interpretation No. 30 Accounting for Involuntary
Conversions of Non-Monetary Assets to Monetary Assets to account for these transactions.

Accounts and other receivables include
allowances for doubtful accounts of $0.8 million, $0.9 million and $0.9 million at September 30, 2006, October 1, 2005 and October 2, 2004, respectively.

Allowance for doubtful accounts consists of the following:



|                              |  |                               |       |                       |     |            |      |   |                        |   |    
|----------------------------- |  | ----------------------------- | ----- | --------------------- | --- | ---------- | ---- | - | ---------------------- | - | ---
|(Dollar amounts in thousands) |  | Balance at beginning ofperiod |       | Additions             |     | Deductions |      |   | Balance atend ofperiod
|                              |  | Charged to costsAnd expenses  |       | Write-off ofbad debts |     |           
|Balance at October 2, 2004    |  | $                             | 1,125 |                       | 316 |            | (513 | ) |                        | $ | 928
|Balance at October 1, 2005    |  | $                             | 928   |                       | 258 |            | (265 | ) |                        | $ | 921
|Balance at September 30, 2006 |  | $                             | 921   |                       | 109 |            | (254 | ) |                        | $ | 776



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Notes to the Consolidated Financial Statements



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Inventories, Net

Inventories are stated at the lower of cost or market. The Company values inventory using the weighted average method. The Company tests for obsolete
inventory and records appropriate reserves.

Inventory reserves consist of the following:



|                              |  |                              |       |                              |       |                         |        |   |                        |   |      
|----------------------------- |  | ---------------------------- | ----- | ---------------------------- | ----- | ----------------------- | ------ | - | ---------------------- | - | -----
|                              |  |                              |       | Additions                    |       | Deductions              |        |   |                       
|(Dollar amounts in thousands) |  | Balance atbeginning ofperiod |       | Charged to costsand expenses |       | Write-off ofInventories |        |   | Balance atend ofperiod
|Balance at October 2, 2004    |  | $                            | 1,191 |                              | 420   |                         | (364   | ) |                        | $ | 1,247
|Balance at October 1, 2005    |  | $                            | 1,247 |                              | 2,927 |                         | (1,043 | ) |                        | $ | 3,131
|Balance at September 30, 2006 |  | $                            | 3,131 |                              | 279   |                         | (480   | ) |                        | $ | 2,930

Property, Plant and Equipment

Property, plant and equipment are stated at cost. Costs of normal maintenance and repairs are charged to expense as incurred.

Major replacements or improvements of property, plant and equipment are capitalized. When items are sold or otherwise disposed of, the cost and related
accumulated depreciation or amortization are removed from the accounts, and any resulting gain or loss is included in the statements of income.

Depreciation and amortization are computed using the straight-line method (considering appropriate salvage values) and leasehold improvements are amortized over the life of the initial lease term. These charges are based on the following
estimated average useful lives:



|                                  |  |                                                                      
|--------------------------------- |  | ---------------------------------------------------------------------
|Buildings and improvements        |  | 5-39 years                                                           
|Vehicles, machinery and equipment |  | 3-10 years                                                           
|Office furniture and equipment    |  | 3-7 years                                                            
|Leasehold improvements            |  | 5-10 years, not to exceed the lease life, including expected renewals

Consistent with FASB Statement 144 Accounting for the Impairment of Disposal of Long-Lived
Assets the Company reviews its long-lived assets and certain identifiable intangibles for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If such assets are considered
to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets.



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Notes to the Consolidated Financial Statements



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Intangibles

In accordance with the provisions of SFAS No. 141 Business Combinations and SFAS No. 142 Goodwill and Other Intangible Assets, the Company applied the new rules on accounting for goodwill and
other intangible assets deemed to have indefinite lives beginning on September 29, 2002. The Company also performed the required impairment tests of goodwill and indefinite lived intangible assets and there was no impairment identified. The
Company no longer amortizes its goodwill under SFAS No. 142, but does subject its goodwill to periodic assessments as defined therein. The Company recorded no amortization for the years ended September 30, 2006, October 1, 2005 and
October 2, 2004.

Other intangibles are comprised of costs associated with acquiring the mailing addresses for the Companys
customer database, which is used for purposes of market research, new store location decisions, customer research and in the Companys ongoing advertising efforts. For the years ending September 30, 2006 and October 1, 2005, the gross
amount capitalized on the balance sheet for mailing addresses were $1.0 million and $0.9 million, respectively. These other intangibles are amortized over a 15 year period and the amounts of annual amortization for other intangibles for the next
five years are as follows:



|                              |  |   |   
|----------------------------- |  | - | --
|(Dollar amounts in thousands) |  |  
|2007                          |  | $ | 57
|2008                          |  |   | 57
|2009                          |  |   | 57
|2010                          |  |   | 57
|2011                          |  |   | 57

Deferred Financing Costs

In connection with issuing the Senior Notes due 2013 and entering into a credit agreement in 2005, the Company paid an aggregate of $7.9 million in
financing costs that are being deferred and amortized over the lives of the corresponding agreements. During fiscal year 2005, the Company wrote off the remaining deferred issuance costs related to the Senior Notes due 2008 and the credit agreement
in the amount of $1.5 million and $0.2 million, respectively. The deferred finance cost balance recorded at September 30, 2006 and October 1, 2005 was net of accumulated amortization of $1.8 million and $0.8 million, respectively.

Income Taxes

The
Company provides for deferred income taxes relating to timing differences in the recognition of income and expense items for financial and tax reporting purposes. Deferred taxes at September 30, 2006 and October 1, 2005 include a provision
for the differences between tax and financial asset values except that deferred taxes were not provided with respect to amounts allocated to goodwill.

Sales

Revenue on retail sales is recognized upon purchase by the customer. Revenue on services is
recognized as services are performed and the fee is fixed or determinable and collection is probable. Terms are customarily FOB shipping point or point of sale, net of related discounts. The Company does not provide an estimated allowance for sales
returns as they are immaterial.



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Leslies Poolmart, Inc.

Notes to the Consolidated Financial Statements



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Cost of Sales

Included in cost of sales are the costs of services and purchased goods, chemical repackaging costs and related distribution costs. The Company recognizes consideration received from vendors at the time the
obligations to purchase products or perform services have been completed. These items are recorded as a reduction in cost of goods sold in the statement of income. For the years ending September 30, 2006, October 1, 2005 and
October 2, 2004, the Companys recorded advertising expense was shown net of cooperative advertising of $0.8 million, $0.4 million and $0.4 million respectively.

Shipping and Handing Costs

The Company records shipping and handling costs paid by customers as
revenue. The actual costs for shipping and handling are charged to cost of sales.

Advertising

The Company expenses advertising costs as incurred. Advertising expense for the years ended September 30, 2006, October 1, 2005, and
October 2, 2004 was approximately $8.1 million, $7.5 million, and $8.3 million, respectively.

Stock Based Compensation

The Company grants stock options for a fixed number of shares to employees and directors with an exercise price equal to the fair market value of the
shares at the date of grant. The Company accounts for such stock option grants using the intrinsic-value method of accounting in accordance with Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees,
and related interpretations, and the disclosure requirements of Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based Compensation and SFAS No. 148, Accounting for Stock-Based Compensation 
Transition and Disclosure. Under APB 25, the Company generally recognizes no compensation expense with respect to such awards. Also, the Company does not record any compensation expense in connection with its stock option plans. If stock options
had been accounted for consistent with SFAS No. 123, these amounts would be amortized on a straight-line basis as compensation expense over the average vesting period of the options and the Companys net income would not have been effected
for the fiscal year ended 2006. The Companys net income would have decreased by less than $0.1 million in fiscal year 2006, no effect in fiscal year 2005 and the Companys income would have decreased by $0.1 million in fiscal year 2004.

Pro forma results disclosed are based on the provisions of SFAS 123 using the Black-Scholes option valuation model and are not likely to
be representative of the effects on pro forma net income for future years. In addition, the Black-Scholes option valuation model was developed for use in estimating the fair value of traded options, which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Companys stock options have characteristics significantly different from those of
traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in the Companys opinion, the estimating models do not necessarily provide a reliable single measure of the fair value of
stock options.

Fair Value of Financial Instruments

The fair value of the $170.0 million Senior Notes due 2013 using quoted market prices as of September 30, 2006 is $167.5 million. The carrying amounts of other long-term debt approximate fair value because either
the interest rate fluctuates based on market rates or interest rates appear to approximate market rates for similar instruments. The fair value estimates are subjective in nature and involve uncertainties and matters of judgment and therefore cannot
be determined with precision. Changes in assumptions could significantly affect these estimates.



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Notes to the Consolidated Financial Statements



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Use of Estimates in the Preparation of Consolidated Financial Statements

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Actual
results could differ from those estimates.

Reclassification of Accounts

Certain prior year amounts have been reclassified to conform to the current year presentation. The reclassification had no effect on net income as
previously reported.

Recent Accounting Pronouncements

On December 16, 2004, the Financial Accounting Standards Board (FASB) issued FASB Statement No. 123; (Revised 2004) (Statement 123(R)) Share-Based Payment, which is a revision of FASB Statement
No. 123, Accounting for Stock-Based Compensation. Statement 123(R) supersedes APB opinion 25, Accounting for Stock Issued to Employees and amends FASB Statement No. 95, Statement of Cash Flows. Statement
123(R) requires all share-based payments to employees to be recognized in the financial statements based on their fair market values. For the purpose of Statement 123(R), the Company is considered a non-public entity since it does not
have equity securities trading in a public market. For non-public entities the effective date to adopt the complete provisions of Statement 123(R) is for fiscal years beginning after December 15, 2005. Statement 123(R) will be
effective for the Company beginning October 1, 2006.

As permitted by Statement 123, the Company currently accounts for share-based
payments to employees using APB Opinion 25s intrinsic value method and, as such, generally recognizes no compensation cost for employee stock options. Accordingly, the adoption of Statement 123(R)s fair value method could have a
significant impact on the Companys results of operations, although it will have no impact on the Companys overall cash position. The impact of adoption of Statement 123(R) cannot be predicted at this time because it will depend on levels
of share-based payments granted in the future. However, had the Company adopted Statement 123(R) in prior periods, the impact of that standard would have approximated the impact of Statement 123 as described in the disclosure of pro forma net income
in Note 13. Statement 123(R) also requires the benefits of tax deductions in excess of recognized compensation cost to be reported as a financing cash flow, rather than as an operating cash flow as required under current literature.

In June 2006, the FASB issued FASB Interpretation No. 48 (FIN 48), Accounting for Uncertainty in Income Taxes. FIN 48 is an
interpretation of FASB Statement No. 109 Accounting for Income Taxes and must be adopted by the Company no later than September 30, 2007. FIN 48 prescribes a comprehensive model for recognizing, measuring, presenting, and
disclosing in the financial statements uncertain tax positions that the company has taken or expects to take in its tax returns. The Company has not evaluated the impact of adopting FIN 48.



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Leslies Poolmart, Inc.

Notes to the Consolidated Financial Statements



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3. Inventories

Inventories consist of the following:



|                              |  |                    |        |   |                 |   |        |  
|----------------------------- |  | ------------------ | ------ | - | --------------- | - | ------ | -
|(Dollar amounts in thousands) |  | September 30, 2006 |        |   | October 1, 2005 |  
|Raw materials and supplies    |  | $                  | 1,116  |   |                 | $ | 520    |  
|Finished goods                |  |                    | 66,358 |   |                 |   | 63,536 |  
|Reserve                       |  |                    | (2,930 | ) |                 |   | (3,131 | )
|                              |  |                    |        |   |                 |   |        |  
|Total Inventories             |  | $                  | 64,544 |   |                 | $ | 60,925 |  
|                              |  |                    |        |   |                 |   |        |  

4. Property, Plant and Equipment

Property, plant and equipment consists of the following:



|                                                |  |                    |         |   |                 |   |         |  
|----------------------------------------------- |  | ------------------ | ------- | - | --------------- | - | ------- | -
|(Dollar amounts in thousands)                   |  | September 30, 2006 |         |   | October 1, 2005 |  
|Land                                            |  | $                  | 5,865   |   |                 | $ | 5,865   |  
|Buildings                                       |  |                    | 7,902   |   |                 |   | 7,459   |  
|Vehicles, machinery and equipment               |  |                    | 5,703   |   |                 |   | 5,029   |  
|Leasehold improvements                          |  |                    | 57,807  |   |                 |   | 52,948  |  
|Office furniture, equipment and other           |  |                    | 39,340  |   |                 |   | 36,536  |  
|Construction-in-process                         |  |                    | 892     |   |                 |   | 1,184   |  
|                                                |  |                    |         |   |                 |   |         |  
|                                                |  |                    | 117,509 |   |                 |   | 109,021 |  
|Less  accumulated deprecation and amortization |  |                    | (79,373 | ) |                 |   | (69,425 | )
|                                                |  |                    |         |   |                 |   |         |  
|Total Property, Plant and Equipment             |  | $                  | 38,136  |   |                 | $ | 39,596  |  
|                                                |  |                    |         |   |                 |   |         |  

5. Loan and Security Agreement

On January 25, 2005, the Company entered into an Amended and Restated Loan and Security Agreement (the Loan Agreement) with the lenders
noted therein and Wells Fargo Retail Finance LLC as agent for the Lenders. The Loan Agreement provides for the extension by the lenders of revolving loans and other financial accommodations in an aggregate principal amount of $75.0 million. The
amended credit facility was and will be used to refinance the existing credit facility, to provide a portion of the financing required to consummate the Recapitalization, and for general corporate purposes. A portion of the amended credit facility
is available for letters of credit. The obligations under the amended credit facility are secured by a lien on substantially all of the Companys assets.

In addition to the $75.0 million commitment, the total commitment had been increased by $30.0 million via a temporary over-advance facility through June 30, 2005 and by $20.0 million from September 30, 2005
through March 31, 2006. During these periods, the Company will have the ability to draw on the over-advance facility in $2.5 million tranches. Finally, at the lenders discretion, an over-advance facility of $10.0 million may be available
to the Company from September 30, 2006 through March 31, 2007.



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Notes to the Consolidated Financial Statements



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Borrowings under the amended credit facility bear interest at the lenders reference rate or at
LIBOR plus the applicable LIBOR rate margin. The applicable LIBOR rate margin will be adjusted quarterly based on the Companys EBITDA (as defined in the amended credit facility) for the 12 month period ended as of the end of the latest fiscal
quarter. The applicable margin for the amended credit facility is initially 0% with respect to base rate loans and 1.75% with respect to eurodollar loans. Borrowings under the over-advance facility will bear interest at LIBOR plus 4.00%.

On the closing of the Recapitalization, the Company paid the lender an upfront fee as well as a commitment fee on the $30.0 million over-advance
facility. In addition, the Company is obligated to pay the lender a commitment fee equal to1/4 of 1% per annum
of the unused portion of the $75.0 million commitment. If the Company uses the $20.0 million or $10.0 million over-advance facility in the future, it will be required to pay a commitment fee on such facility at such point in time. The Company is
also obligated to pay a commission on all outstanding letters of credit as well as customary administrative, issuance, fronting, amendment, payment and negotiation fees.

The amended credit facility contains customary representations and warranties, covenants and conditions to borrowing. There can be no assurance that the conditions to borrowing under the amended credit facility will
be satisfied.

The amended credit facility requires the maintenance of certain quarterly financial and operating ratios and covenants,
including minimum calculated EBITDA levels, fixed charge coverage ratio, and senior leverage ratio.

The amended credit facility also
contains customary events of default, including default upon the nonpayment of principal, interest, fees or other amounts or the occurrence of a change of control.

To the Companys knowledge, no event of default has occurred under the Loan Agreement.

6. Senior Notes

On January 25, 2005, the Company sold, through a private placement exempt from the registration requirements under the Securities
Act of 1933, as amended, $170 million in aggregate principal amount of its 7.75% Senior Notes due 2013 (the Notes). Interest on the Notes will be payable semi-annually on February 1 and August 1 of each year, beginning with
August 1, 2005. The Notes were sold in the United States only to qualified institutional buyers pursuant to Rule 144A under the Securities Act and to non-U.S. persons in accordance with Regulation S under the Securities Act. The Notes were not
registered under the Securities Act and can not be offered or sold in the United States absent registration or an applicable exemption from registration requirements. The Company used the net proceeds of this offering to finance the Recapitalization
and to redeem $59.5 million of its 10.375% Senior Notes due 2008. In connection with the closing of the Private Placement, the Company entered into (i) an indenture, dated January 25, 2005 with The Bank of New York Trust Company, N.A., as
the trustee, governing the terms and conditions of the Notes (the Indenture) and (ii) a registration rights agreement, dated January 25, 2005 with the initial purchasers of the Notes in the Private Placement (the
Registration Rights Agreement).

Under the Registration Rights Agreement, the Company agreed to use its best efforts to
register notes having substantially identical terms as the Notes with the Securities and Exchange Commission as part of an offer to exchange freely tradeable exchange notes for the Notes initially issued under the Indenture. The Company filed a
registration statement for the exchange notes with the Commission on April 22, 2005 and caused such registration statement for the 7.75% Senior Notes, Series B, due 2013, to be declared effective June 16, 2005.

The Indenture contains customary covenants, including those that will limit the Companys ability to grant liens on assets to secure debt, enter
into certain sale and lease-back transactions, and merge or consolidate with another company or sell substantially all assets. To the Companys knowledge, no event of default has occurred under the Indenture.



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Notes to the Consolidated Financial Statements



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7. Leases

The Company leases certain store, office, distribution and manufacturing facilities under operating leases which expire at various dates through 2015. Lease agreements generally provide for increases related to cost
of living indices and require the Company to pay for property taxes, repairs and insurance. Future annual minimum lease payments at September 30, 2006 are as follows:



|                              |  |   |        
|----------------------------- |  | - | -------
|(Dollar amounts in thousands) |  |  
|2007                          |  | $ | 35,638 
|2008                          |  |   | 30,412 
|2009                          |  |   | 24,226 
|2010                          |  |   | 16,105 
|2011                          |  |   | 8,815  
|Thereafter                    |  |   | 5,535  
|                              |  |   |        
|                              |  | $ | 120,731
|                              |  |   |        

Certain leases are renewable at the option of the Company for periods of one to ten years. Rent
expense charged against income totaled $33.7 million, $31.1 million, and $26.5 million in fiscal years 2006, 2005 and 2004 respectively. Four leases provided for rent contingent on sales exceeding specific amounts.

8. Income Taxes

The provision/(benefit) for income
taxes is comprised of the following:



|                              |  |             |        |   |             |   |      |             |  |   |        |  
|----------------------------- |  | ----------- | ------ | - | ----------- | - | ---- | ----------- |  | - | ------ | -
|(Dollar amounts in thousands) |  | Fiscal 2006 |        |   | Fiscal 2005 |   |      | Fiscal 2004 | 
|Federal:                      |  |             |        |   |             |   |      |             |  |   |        |  
|Current                       |  | $           | 15,545 |   |             | $ | (531 | )           |  | $ | 9,722  |  
|Deferred                      |  |             | (2,031 | ) |             |   | 926  |             |  |   | (1,512 | )
|                              |  |             |        |   |             |   |      |             |  |   |        |  
|                              |  | $           | 13,514 |   |             | $ | 395  |             |  | $ | 8,210  |  
|                              |  |             |        |   |             |   |      |             |  |   |        |  
|State:                        |  |             |        |   |             |   |      |             |  |   |        |  
|Current                       |  | $           | 3,893  |   |             | $ | (291 | )           |  | $ | 2,563  |  
|Deferred                      |  |             | (509   | ) |             |   | 508  |             |  |   | (399   | )
|                              |  |             |        |   |             |   |      |             |  |   |        |  
|                              |  |             | 3,384  |   |             |   | 217  |             |  |   | 2,164  |  
|                              |  |             |        |   |             |   |      |             |  |   |        |  
|Total                         |  | $           | 16,898 |   |             | $ | 612  |             |  | $ | 10,374 |  
|                              |  |             |        |   |             |   |      |             |  |   |        |  



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Notes to the Consolidated Financial Statements



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A reconciliation of the provision for income taxes to the amount computed at the federal statutory
rate is as follows:



|                                     |  |             |        |   |             |   |        |             |  |   |        |  
|------------------------------------ |  | ----------- | ------ | - | ----------- | - | ------ | ----------- |  | - | ------ | -
|(Dollar amounts in thousands)        |  | Fiscal 2006 |        |   | Fiscal 2005 |   |        | Fiscal 2004 | 
|Federal income tax at statutory rate |  | $           | 13,091 |   |             | $ | (1,333 | )           |  | $ | 9,317  |  
|Permanent differences                |  |             | 1,633  |   |             |   | 2,273  |             |  |   | 36     |  
|State taxes, net of federal benefit  |  |             | 2,200  |   |             |   | 141    |             |  |   | 1,407  |  
|Reduction in tax contingency reserve |  |             | (26    | ) |             |   | (469   | )           |  |   | (386   | )
|                                     |  |             |        |   |             |   |        |             |  |   |        |  
|                                     |  | $           | 16,898 |   |             | $ | 612    |             |  | $ | 10,374 |  
|                                     |  |             |        |   |             |   |        |             |  |   |        |  

The tax effect of temporary differences which give rise to significant portions of the deferred
tax asset and liability are summarized below.



|                              |  |                     |        |   |                          |   |      |                     |  |   |                         |   |  |   |      |  
|----------------------------- |  | ------------------- | ------ | - | ------------------------ | - | ---- | ------------------- |  | - | ----------------------- | - |  | - | ---- | -
|                              |  | Fiscal 2006         |        |   | Fiscal 2005              |  
|(Dollar amounts in thousands) |  | Deferred Tax Assets |        |   | Deferred Tax Liabilities |   |      | Deferred Tax Assets |  |   | Deferred TaxLiabilities |  
|Depreciation and amortization |  | $                   | 4,445  |   |                          | $ |     |                     |  | $ | 2,309                   |   |  | $ |     |  
|State income taxes            |  |                     |       |   |                          |   | (128 | )                   |  |   |                        |   |  |   | (110 | )
|Inventory                     |  |                     | 1,853  |   |                          |   |     |                     |  |   | 1,021                   |   |  |   |     |  
|Reserves and other accruals   |  |                     | 3,207  |   |                          |   |     |                     |  |   | 3,515                   |   |  |   |     |  
|Deferred rent                 |  |                     | 2,474  |   |                          |   |     |                     |  |   | 2,167                   |   |  |   |     |  
|Compensation accruals         |  |                     | 773    |   |                          |   |     |                     |  |   | 1,156                   |   |  |   |     |  
|Net operating loss            |  |                     | 235    |   |                          |   |     |                     |  |   | 2,317                   |   |  |   |     |  
|Valuation allowance           |  |                     | (213   | ) |                          |   |     |                     |  |   | (2,269                  | ) |  |   |     |  
|                              |  |                     |        |   |                          |   |      |                     |  |   |                         |   |  |   |      |  
|                              |  | $                   | 12,774 |   |                          | $ | (128 | )                   |  | $ | 10,216                  |   |  | $ | (110 | )
|                              |  |                     |        |   |                          |   |      |                     |  |   |                         |   |  |   |      |  

The Company has federal net operating losses (NOL) of $0.6 million available to offset
future tax liabilities expiring in 2006. The losses are subject to Internal Revenue Code Section 382 which limits the annual utilization of NOLs after an ownership change. The Companys annual Section 382 limitation is
approximately $0.1 million. As such, approximately $0.5 million of these NOLs will expire as worthless and no benefits have been recorded for these amounts. The Company has recorded a valuation allowance amount of $0.2 million and $2.3 million
as of September 30, 2006 and October 1, 2005, respectively.

9. Contingencies

The Company is a defendant in lawsuits or potential claims encountered in the normal course of business; such matters are being vigorously defended. In
the opinion of management, the resolutions of these matters will not have a material effect on the Companys financial position or results of operations.

The Companys workers compensation insurance program, general liability insurance program and employee group medical plan have self-insurance retention features of $0.3 million, $0.3 million and $0.1
million per incident, respectively. As of September 30, 2006 and October 1, 2005, the Company had standby letters of credit outstanding in the amounts of $4.3 million and $4.1 million, respectively, for the purpose of securing such
obligations under its workers compensation self insurance programs.



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Notes to the Consolidated Financial Statements



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10. 401(k) Plan

The Company provides for the benefit of its employees a voluntary retirement plan under Section 401(k) of the Internal Revenue Code. During 2006, the plan covered all eligible employees and provided for a
matching contribution by the Company of 50% of each participants contribution up to 4% of the individuals compensation as defined. The expenses related to this program were $0.6 million, $0.4 million and $0.4 million for fiscal years
2006, 2005 and 2004 respectively.

11. Equity Transactions

Preferred Stock

In connection with the Recapitalization, all of the Companys preferred
stock outstanding prior to the merger was exchanged for cash. The cash paid for each share of preferred stock, including redemption premium and accrued interest and dividends, was $1,389 or an aggregate $64.5 million. In connection with the merger,
GCP and additional affiliates of LGP also acquired shares valued at $40.1 million of a new series of 10% senior redeemable exchangeable cumulative preferred stock from the Company. One of the Companys directors contributed common stock valued
at $0.9 million in exchange for shares of such preferred stock.

The preferred stock ranks senior as to dividend rights or upon liquidation
to all of the Companys common stock and all of the Companys future series of preferred stock which is designated as junior. Dividends accrue quarterly on the preferred stock at a rate per annum equal to ten percent (10%) and on any
dividend payment date, the Company may exchange all of the preferred stock for 10% junior subordinated debentures having a maturity date which is the same date as the mandatory redemption date for the preferred stock. As of September 30, 2006,
the Company has accrued a dividend payable of $7.4 million. The incurrence of the indebtedness represented by the debentures is limited by the covenants in the amended credit facility and the indenture governing the notes.

The preferred stock is subject to mandatory redemption 20.5 years after the date of issuance at a redemption price equal to the liquidation preference,
together with accrued and unpaid dividends to the date of redemption and is subject to mandatory redemption upon the occurrence of a change of control of Leslies at a redemption price equal to 101% of the liquidation preference, together with
accrued and unpaid dividends to the date of redemption.

After the fifth anniversary of the issuance date, the preferred stock will be
subject to redemption at any time, in whole or in part, at the Companys option, by payment of the amounts (stated as a percentage of the liquidation preference) set forth below if redeemed during the twelve month period beginning on the
anniversary of the issuance date of each of the years indicated, plus accrued and unpaid dividends to the date of redemption:



|                    |  |                   |  
|------------------- |  | ----------------- | -
|Year                |  | Redemption Price: |  
|2010                |  | 106               | %
|2011                |  | 104               | %
|2012                |  | 102               | %
|2013 and thereafter |  | 100               | %

In addition, prior to the third anniversary of the issuance date, at the Companys option,
the Company may redeem up to 35% of the outstanding shares of preferred stock at a redemption price of 110% of the liquidation preference, together with accrued and unpaid dividends to the date of redemption, with the proceeds from one or more
public equity offerings.

Voting.The preferred stock is non-voting except as required by Delaware law, except that holders of a
majority of the outstanding shares of preferred stock, voting as a separate class, has the right to approve (a) each issuance by the Company of any securities that rank senior to or on parity with the preferred stock as to dividends or upon a
liquidation, (b) any amendment to the Companys certificate of incorporation that would be adverse to holders of the preferred stock and (c) any amendment of the junior subordinated debentures indenture that would be adverse to
holders of the junior subordinated debentures.



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Leslies Poolmart, Inc.

Notes to the Consolidated Financial Statements



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Common Stock

On February 28, 2006, Steven L. Ortega, Executive Vice President and Chief Financial Officer, purchased 200,000 shares of the Companys common
stock for a purchase price of $1.00 per share for an aggregate cash payment of $200,000. Of such shares, 135,000 shares were newly issued and 65,000 shares were issued from treasury stock.

During fiscal year 2006, the Company purchased the Companys common stock from certain management shareholders that terminated their employment with
the Company. The total shares purchased were 130,000 shares at a weighted average purchase price of $2.86 per share, calculated in accordance with the Stockholders Agreement dated as of January 25, 2005, as amended.

12. Related Party Transactions

With the consummation
of the Recapitalization, the Company entered into a Management Services Agreement with LGP. The Management Services Agreement provides that the Company will pay LGP an annual fee of $1.0 million for ongoing management, consulting and financial
services. In addition, the Management Services Agreement provides that LGP may provide the Company with financial advisory or investment banking services in connection with major financial transactions, and LGP will be paid a customary fee for such
services. The Management Services Agreement will terminate on the earlier of (a) the tenth anniversary of its execution dated January 25, 2005; provided that the agreement will automatically extend for one year periods thereafter unless
either the Company or LGP gives the other three months prior notice of termination, (b) the consummation of a change of control, including the date that LGP affiliates hold 40% or less of the Companys shares and (c) the consummation
of a public offering of the Companys common stock in an aggregate offering amount of at least $50 million or as a result of which at least 15% of the Companys shares of common stock is publicly traded. In the event of the Companys
bankruptcy, liquidation, insolvency or winding-up, the payment of all accrued and unpaid fees pursuant to the Management Services Agreement is subordinated to the prior payment in full of all amounts due and owing under the indenture governing the
notes.

During the fiscal years ended September 30, 2006, October 1, 2005 and October 2, 2004, the Company paid management
fees to LGP in the amount of $1.0 million, $0.8 million and $0.2 million respectively, and the Company paid a structuring fee of $5.0 million to LGP for services rendered in support of the Recapitalization during fiscal year 2005.

13. Stock Based Compensation Plans

During 1997, the
Company adopted a non-qualified common stock option plan (the NQ Option Plan) and an incentive common stock option plan (the ISO Option Plan) and reserved 417,995 shares and 1,369,730 shares, respectively, of Leslies
common stock for issuance upon the exercise of options to be granted to certain employees of Leslies thereunder. Options to purchase Leslies common stock have been granted at an exercise price of $1.00 per share for options granted under
the NQ Option Plan (NQ Options) and $2.00 per share for options granted under the ISO Option Plan (ISO Options).

NQ Options are all vested. NQ Options have a term of ten years and remain exercisable without regard to any termination of employment of the holder.

Under the ISO Plan, as amended, ISO Options vest in one-third increments on the first, second and third anniversaries of the original grant date. Options intended to qualify as incentive stock options and
options not intended to so qualify may be granted under the ISO Option Plan. Pursuant to law, options intended to qualify as incentive stock options are subject to limitations on aggregate amounts granted and must be issued to any holder
of 10% or more of the issuers outstanding common stock at 110% of fair market value. Vested ISO Options may be exercised for 90 days post termination of employment, except in the case of the death of the option holder, in which case the vested
portion may be exercised within twelve months from the date of termination. ISO Options have a term of ten years.

In November 1998, the
Leslies Board adopted its 1998 Incentive Stock Option Plan (the 1998 Plan), and reserved 300,000 shares of nonvoting common stock for issuance thereunder. In January 2000, the Board approved an amendment to the Plan to increase the
number of shares of nonvoting common stock issuable thereunder to 500,000 shares in the aggregate.

All existing options were accelerated
and terminated on January 25, 2005 in connection with the Recapitalization and each optionholder received with respect to each option held an amount equal to the excess of $15.00 over the exercise price of such option. As a result, the Company
recorded a stock compensation charge of $16.1 million for the year ended September 30, 2006.



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Leslies Poolmart, Inc.

Notes to the Consolidated Financial Statements



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In August 2005, Leslies Board adopted its 2005 Incentive Stock Option Plan (the 2005
Plan), and reserved 1,300,000 shares of nonvoting common stock for issuance thereunder.

The Company accounts for stock-based
compensation plans under APB Opinion No. 25, under which no compensation expense has been recognized in the accompanying consolidated financial statements for stock-based employee awards with an exercise price equal to or greater than the fair
value of the common stock on the date of grant. For purposes of SFAS No. 123, Accounting for Stock-Based Compensation, the fair value of each option granted has been estimated at the date of the grant using the Black-Scholes option
pricing model using the following weighted-average assumptions used for grants for each of the fiscal years ended 2006, 2005 and 2004: risk free interest rate of 4.0%, expected volatility of 0%, expected lives of 7 years and no expected dividend
yield. Based on these assumptions, the weighted average fair value of the options granted is $ 0.38 in 2006 and $1.42 in 2005 and in 2004.

A summary of option activities for all plans is as follows:



|                                 |  |             |   |             |                   |             |        |            |   |                  |   |        |  |           |                  |  |   |     
|-------------------------------- |  | ----------- | - | ----------- | ----------------- | ----------- | ------ | ---------- | - | ---------------- | - | ------ |  | --------- | ---------------- |  | - | ----
|                                 |  | Fiscal 2006 |   | Fiscal 2005 |                   | Fiscal 2004
|                                 |  | Shares      |   |             | Wt. Avg. Ex Price |             | Shares |            |   | Wt. Avg.Ex Price |   | Shares |  |           | Wt. Avg.Ex Price
|Outstanding at beginning of year |  | 700,000     |   |             | $                 | 1.00        |        | 1,628,760  |   |                  | $ | 2.42   |  | 1,456,060 |                  |  | $ | 1.97
|Granted (Plans prior to 2005)    |  |            |   |             |                   |            |        | 26,000     |   |                  |   | 5.80   |  | 190,200   |                  |  |   | 5.80
|Granted (2005 Plan)              |  | 538,500     |   |             |                   | 3.08        |        | 700,000    |   |                  |   | 1.00   |  |           |                  |  |   |     
|Exercised                        |  |            |   |             |                   |            |        | (1,637,239 | ) |                  |   | 2.47   |  |          |                  |  |   |    
|Cancelled                        |  | (5,000      | ) |             |                   | 1.00        |        | (17,521    | ) |                  |   | 1.31   |  | (17,500   | )                |  |   | 2.00
|                                 |  |             |   |             |                   |             |        |            |   |                  |   |        |  |           |                  |  |   |     
|Outstanding at end of year       |  | 1,233,500   |   |             | $                 | 1.91        |        | 700,000    |   |                  | $ | 1.00   |  | 1,628,760 |                  |  | $ | 2.42
|                                 |  |             |   |             |                   |             |        |            |   |                  |   |        |  |           |                  |  |   |     
|Exercisable at end of year       |  | 175,000     |   |             | $                 | 1.00        |        |           |   |                  | $ |       |  | 1,385,054 |                  |  | $ | 1.97
|                                 |  |             |   |             |                   |             |        |            |   |                  |   |        |  |           |                  |  |   |     

The fair value of the common stock underlying the 1998 Incentive Stock Option Plan options granted
during fiscal year 2005 was determined to be $5.80 per share, as that amount was the most recent price paid for the Companys common stock by a third party and no significant intervening events had occurred to change this established fair value
price and as these options were granted prior to the Recapitalization. Between August and September of 2003, 1,088,030 shares of the Companys common stock and 526,820 warrants for the Companys common stock (greater than 15% of fully
diluted shares then outstanding) were either sold or repurchased for $5.80 per share in eleven separately negotiated arms length transactions. As the Companys stock is privately held and has no quoted market price, the Company determined the
$5.80 per share to be the fair value of the common stock underlying the options granted during fiscal year 2005.

The fair value of the
common stock underlying the 2005 Incentive Stock Option Plan options granted during fiscal year 2005 was determined to be $1.00 per share, consistent with the value of the Companys common stock after the Recapitalization. As the Companys
stock is privately held and has no quoted market price, the Company determined the fair value of options granted during fiscal year 2006 to be based on an enterprise value of 6.5 times the Companys trailing twelve-month Adjusted EBITDA results
as reported in the companys SEC filings.

The Company has adopted the provisions of SFAS No. 148 Accounting for
Stock-Based Compensation  Transition and Disclosure which amends SFAS No. 123 Accounting for Stock-Based Compensation.

For the purpose of Statement 123(R) Share Based Payment, the Company is considered a non-public entity since it does not have equity securities trading in a public market. For non-public entities the
effective date to adopt the complete provisions of Statement 123(R) is for fiscal years beginning after December 15, 2005. Statement 123(R) will be effective for the Company beginning October 1, 2006. If stock options had been accounted
for consistent with SFAS No. 123, these amounts would be amortized on a straight-line basis as compensation expense over the average vesting period of the options and the Companys net income would not have been effected for the fiscal
year ended 2006. The Companys net income would have decreased by less than $0.1 million in fiscal year 2006, no effect in fiscal year 2005 and the Companys net income would have decreased by $0.1 million in fiscal year 2004



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Leslies Poolmart, Inc.

Notes to the Consolidated Financial Statements



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The Company has adopted the disclosure only provision of SFAS No. 123 and accordingly recognizes
no compensation expense upon grant for employee stock option grants.

14. Supplemental Cash Flow Disclosures

The Company paid interest charges of $14.4 million, $15.2 million, and $7.0 million in 2006, 2005 and 2004, respectively. The Company paid income taxes of
$16.1 million, $4.3 million and $11.9 million in 2006, 2005 and 2004, respectively. The Preferred Stock dividends and the accretion of the Warrants were excluded from the statement of cash flows as non-cash transactions.

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

None

ITEM 9A. CONTROLS AND PROCEDURES

Under the supervision and with the participation of the Companys
management, including the Companys principal executive officer and principal financial officer, the Company conducted an evaluation of the effectiveness of the design and operation of the Companys disclosure controls and procedures, as
defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, as of the end of the period covered by this report (the Evaluation Date). Based on this evaluation, the Companys principal
executive officer and principal financial officer concluded as of the Evaluation date that the Companys disclosure controls and procedures were effective such that the material information relating to the Company, including its consolidated
subsidiaries, required to be disclosed in the Companys Securities and Exchange Commission (SEC) reports is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and was made known to
the Companys principal executive officer and principal accounting officer during the period when this report was being prepared to allow timely decisions regarding required disclosure.

In addition, there were no changes in the Companys internal controls or in other factors that could significantly affect these controls subsequent
to the Evaluation Date. We have not identified any significant deficiencies or material weaknesses in the Companys internal controls, and therefore there were no corrective actions taken.

ITEM 9B. OTHER INFORMATION

None



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Leslies Poolmart, Inc.



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PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The directors, executive officers and significant employees
of the Company are as follows:



|                    |  |     |  |                                                               
|------------------- |  | --- |  | --------------------------------------------------------------
|Name                |  | Age |  | Positions                                                     
|Lawrence H. Hayward |  | 52  |  | Chairman of the Board and Chief Executive Officer             
|Steven L. Ortega    |  | 45  |  | Executive Vice President, Chief Financial Officer and Director
|Michael L. Hatch    |  | 53  |  | President, Chief Operating Officer and Director               
|Edward C. Agnew     |  | 67  |  | Director                                                      
|John M. Baumer      |  | 39  |  | Director                                                      
|John G. Danhakl     |  | 50  |  | Director                                                      
|Michael J. Fourticq |  | 62  |  | Director                                                      
|Ted C. Nark         |  | 47  |  | Director                                                      
|Janet I. McDonald   |  | 49  |  | Senior Vice President, Chief Information Officer              
|Rick D. Carlson     |  | 42  |  | Senior Vice President, Commercial, Service and Logistics      
|Brian P. Agnew      |  | 41  |  | Senior Vice President, Store Operations                       

Lawrence H. Hayward is Chairman of the Board of Directors and Chief Executive Officer. He joined
the Company in January 2000 as President and Chief Executive Officer and assumed the additional role of Chairman of the Board in September 2000. Most recently, Mr. Hayward was the President of ABCO Desert Markets located in Phoenix, Arizona.
From 1995 until 1999, he served as President and Chief Executive Officer of Carr Gottstein Foods Co., Alaskas largest food and drug retailer and wholesale provider. From 1990 to 1995, Mr. Hayward held other senior level positions at
Buttrey Food and Drug Store Company. From 1981 until 1990 he served in various corporate positions at American Stores Company headquartered in Salt Lake City, Utah.

Steven L. Ortega is Executive Vice President, Chief Financial Officer and Director of the Company. He joined the Company in August, 2005 and assumed his duties effective with the resignation of Mr. Donald J.
Anderson who had resigned from all of his positions with the Company as of August 17, 2005. Mr. Ortega served as Executive Vice President and Chief Financial Officer for BI-LO LLC from 1999 to 2005. Prior to joining BI-LO, Mr. Ortega
was with American Stores Company, where he held various positions within their supermarket and drug store subsidiaries, including Vice President  Finance and Administration, and Vice President  Logistics. Prior to this period at American
Stores, Mr. Ortega held various management positions in finance, accounting, audit and store operations at Lucky Stores, Inc., where he last held the position of Director of Finance and Accounting.

Michael L. Hatch has been President, Chief Operating Officer and Director of the Company since September 2006. Prior to that, Mr. Hatch served as
Senior Vice President, Merchandising and Marketing of the Company since November 2000. Mr. Hatch has more than 30 years of experience in the retail industry. Most recently, Mr. Hatch was the President of ABCO Desert Markets, located in
Phoenix, Arizona. From 1996 to 1999 he was employed by Smiths Food and Drug where he held various positions including Senior Vice President and Southwest Manager and Vice President of Sales, Merchandising and Marketing. From 1970 to 1996,
Mr. Hatch held various senior management positions at Smittys Super Valu, Inc. located in Phoenix, Arizona, which later merged with Smiths Food and Drug.

Edward C. Agnew became a director in December 2002. He is a former retail executive with over 36 years of retail experience. Mr. Agnew held various officer level assignments with Jewel Companies, Inc., Buttrey
Food and Drug, Inc., and American Stores/Albertsons, Inc. Mr. Agnew began his career in 1963 with Jewel Food & Drug Stores where he served in various capacities including General Manager of its Midwest Division. In 1987, Mr. Agnew
was appointed President and Chief Executive Officer of Buttrey Food and Drug, Inc. In 1990, Mr. Agnew successfully led a leveraged buyout of Buttrey Food and Drug Store Company and successfully completed an initial public offering of the
Company in early 1993. In 1994, Mr. Agnew returned to American Stores, Inc., where he served as a Senior Vice President and member of the Companys Executive Committee until his retirement in 1999.

John M. Baumer became a director of the Company in November 2001. He has been an executive officer and equity owner of LGP, the firm that manages Green
Equity Investors II, L.P. (GEI), since 1999. Mr. Baumer had previously been a Vice President at Donaldson, Lufkin & Jenrette Securities Corporation (DLJ), and had been with DLJ since 1995. Prior to joining DLJ,
Mr. Baumer was at Fidelity Investments and Arthur Andersen. Mr. Baumer is also a director of FTD, Inc., Intercontinental Art, Inc., Phoenix Scientific, Inc., Rand McNally & Co. and VCA Antech, Inc.



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John G. Danhakl became a director of the Company in June 1997. He has been an executive officer and
an equity owner of LGP, the firm that manages GEI, since 1995. Mr. Danhakl had previously been a Managing Director at DLJ and had been with DLJ since 1990. Prior to joining DLJ, Mr. Danhakl was a Vice President at Drexel Burnham Lambert
Incorporated. Mr. Danhakl is also a director of Rite Aid Corporation, Arden Group, Inc., Big 5 Sporting Goods Corp., Petco Animal Supplies, Inc., Phoenix Scientific, Inc. and Diamond Triumph Auto Glass, Inc.

Michael J. Fourticq became a director of the Company in June 1997. He also served as Chairman of the Board of Directors from May 1988 until January 2000.
Between May 1988 and August 1992, he served as the Companys Chief Executive Officer. From 1995 to 2001, Mr. Fourticq had been the Chairman and Chief Executive Officer of Brown Jordan International, a leading manufacturer of outdoor and
casual furniture products. Since 1985 he has been the sole general partner of Hancock Park Associates, which is the general partner and affiliate of several investment partnerships. Mr. Fourticq is also on the Boards of Mikol Missile-Air, Brown
Jordan International, Gordon Biersch, FHI dba Body Home Fitness, The Right Start, Classic Party Rentals, Stanton International and Saleen, Inc.

Ted C. Nark became a director of the Company in November of 2004. He served as the Chief Executive Officer of White Cap Industries, Inc. from 2002 to 2005 and is currently an operating partner at LGP. From 1998 until 2002, Mr. Nark was
the Chief Executive Officer and Managing Director of Corporate Express Australia, a publicly traded, business-to-business office products distribution company in Australia. From 1992 until 1998, Mr. Nark worked for Corporate Express, Inc., as
Northwest Division President (from 1992 until 1995) and then as Group President (from 1995 until 1998).

Janet I. McDonald is Senior Vice
President, Chief Information Officer of the Company. She joined the Company in August of 2000. Ms. McDonald has over 29 years of retail experience. Most recently Ms. McDonald owned and operated her own consulting business where she
provided project management, management training, marketing, economic and other business services. From 1990 to 1992 she served as Director Information Technology for Buttrey Food and Drug Store Company. From 1981 to 1990 she held progressive levels
of management responsibility in corporate technology for American Stores Company.

Rick D. Carlson is Senior Vice President of Commercial,
Service and Logistics of the Company. Mr. Carlson has over 16 years of retail experience and has been with the Company since February of 2000 when he joined the team as Vice President of Logistics. Most recently Mr. Carlson was the General
Manager of the Alaska Division of Totem Ocean Trailer Express. From 1995 until 1999, he was the Director of Transportation and Freight Operations of Carr Gottstein Foods Co., Alaska's largest food and drug retailer and wholesale provider. Prior to
that time he held several management positions at Buttrey Food and Drug Co.

Brian P. Agnew became Senior Vice President, Store Operations
on September 29, 2005. Brian Agnew is a 15 year retail veteran and was previously the regional Vice President of Operations in the Companys Southeast Region from September 2003 through October 2005. From May 2003 through September 2003 he
held the position of District Manager with the Company. Prior to joining Leslies, Brian Agnew held several management positions in the retail grocery industry with Jewel Foods, American Stores Company and Albertsons, Inc. Brian Agnew is
the son of Edward C. Agnew, who has served as a director of the Company since December 2003.

All executive officers of the Company are
chosen by the Board of Directors and serve at the Boards discretion except as provided in the employment agreements described below under Executive Compensation  Employment Agreements.

Leslies, GCP, Leslies Coinvestment, LLC, Michael Fourticq, Lawrence Hayward, certain management parties and the holders of certain management
options are parties to a Stockholders Agreement.

The Board of Directors of Leslies Poolmart, Inc. does not have an audit committee
financial expert within the meaning of the regulations of the Securities and Exchange Commission, and we are not required to do so. We do not believe that we could recruit a financial expert without unwarranted expense and difficulty.

The Company has adopted a Code of Ethics and a copy may be obtained by written request to the Company Attention: Corporate Secretary.



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ITEM 11. EXECUTIVE COMPENSATION

Summary Compensation Table

The following summary compensation table sets forth for the fiscal years
ended September 30, 2006, October 1, 2005, and October 2, 2004, respectively, the compensation for services to the Company of the Chief Executive Officer, the Chief Financial Officer and the three next most highly compensated
executive officers of the Company as of September 30, 2006.



|                                     |  |      |  |                          |  |                        |  |                        |  |               |  |                        |    
|------------------------------------ |  | ---- |  | ------------------------ |  | ---------------------- |  | ---------------------- |  | ------------- |  | ---------------------- | ---
|                                     |  |      |  | Fiscal Year Compensation |  | Long-Term Compensation |  | All Other Compensation | 
|                                     |  | Year |  | Salary ($)               |  | Bonus ($)(1)           |  | Stock Options (#)(2)   |  | 401(k) ($)(3) |  | Insurance/Other ($)(4) |    
|Lawrence H. Hayward                  |  | 2006 |  | 517,000                  |  | 542,850                |  | 50,000                 |  | 4,200         |  | 83,658                 |    
|Chairman of the Board,               |  | 2005 |  | 501,849                  |  | 526,715                |  |                       |  | 4,100         |  | 777,120                | (5)
|Chief Executive Officer and Director |  | 2004 |  | 451,971                  |  | 463,118                |  | 60,000                 |  | 4,000         |  | 46,186                 |    
|Steven L. Ortega                     |  | 2006 |  | 326,510                  |  | 294,131                |  | 20,000                 |  | 4,200         |  | 24,601                 |    
|Executive Vice President,            |  | 2005 |  | 74,813                   |  | 150,000                |  | 700,000                |  |              |  | 237,985                | (6)
|Chief Financial Officer and Director |  | 2004 |  |                         |  |                       |  |                       |  |              |  |                       |    
|Michael L. Hatch                     |  | 2006 |  | 216,000                  |  | 140,282                |  | 45,000                 |  | 4,200         |  | 276                    |    
|President,                           |  | 2005 |  | 199,140                  |  | 104,549                |  |                       |  | 4,100         |  | 287                    |    
|Chief Operating Officer and Director |  | 2004 |  | 194,670                  |  | 98,741                 |  | 5,000                  |  | 4,000         |  | 1,517                  |    
|Janet I. McDonald                    |  | 2006 |  | 172,910                  |  | 90,818                 |  | 20,000                 |  | 4,200         |  | 180                    |    
|Senior Vice President,               |  | 2005 |  | 168,713                  |  | 88,574                 |  |                       |  | 4,100         |  | 187                    |    
|Chief Information Officer            |  | 2004 |  | 164,135                  |  | 78,854                 |  | 5,000                  |  | 3,000         |  | 1,417                  |    
|Rick D. Carlson                      |  | 2006 |  | 167,000                  |  | 71,688                 |  | 20,000                 |  | 4,200         |  | 120                    |    
|Senior Vice President,               |  | 2005 |  | 157,166                  |  | 66,210                 |  |                       |  | 4,100         |  | 125                    |    
|Commercial, Service and Logistics    |  | 2004 |  | 152,187                  |  | 57,585                 |  | 5,000                  |  | 4,000         |  | 117                    |    

---

|(1) | Bonuses are attributed to the year earned and are paid out after the conclusion of the fiscal year. Bonuses were paid on a twelve-month basis for all of the fiscal
years shown.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | All options were granted at their fair market value on the date of grant.
|--- | -------------------------------------------------------------------------

|(3) | Represents expected Company matching contributions to individuals 401(k) accounts.
|--- | -----------------------------------------------------------------------------------

|(4) | Insurance portion represents premiums paid by the Company for life insurance not generally available to all Company employees. Other compensation is primarily
related a cash allowance for the reimbursement of certain personal expenses.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) | Includes a bonus of $700,000 related to the Recapitalization.
|--- | -------------------------------------------------------------

|(6) | Includes signing and relocation payments of $232,279 made pursuant to Mr. Ortegas employment agreement.
|--- | --------------------------------------------------------------------------------------------------------



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Option Plans

During 1997, the Company adopted a non-qualified common stock option plan (the NQ Option Plan) and an incentive common stock option plan (the ISO Option Plan) and reserved 417,995 shares and
1,369,730 shares, respectively, of Leslies common stock for issuance upon the exercise of options to be granted to employees of Leslies thereunder. Options to purchase common stock have been granted at an exercise price of $1.00 per
share for options granted under the NQ Option Plan (NQ Options) and $2.00 and $5.80 per share in the case of options granted under the ISO Option Plan (ISO Options).

NQ Options are all vested. NQ Options have a term of ten years and remain exercisable without regard to any termination of employment of the holder.

Under the ISO Plan, as amended, ISO Options vest in one-third increments on the first, second and third anniversaries of the original
grant date. Options intended to qualify as incentive stock options and options not intended to so qualify may be granted under the ISO Option Plan. Pursuant to law, options intended to qualify as incentive stock options are
subject to limitations on aggregate amounts granted and must be issued to any holder of 10% or more of the issuers outstanding common stock at 110% of fair market value. Vested ISO Options may be exercised for 90 days post termination of
employment, except in the case of the death of the option holder, in which case the vested portion may be exercised within twelve months from the date of termination. ISO Options have a term of ten years.

In November 1998, the Leslies Board adopted its 1998 Incentive Stock Option Plan (the 1998 Plan) and reserved 300,000 shares of
nonvoting common stock for issuance thereunder. In January 2000, the Board approved an amendment to the Plan to increase the number of shares of nonvoting common stock issuable thereunder to 500,000 shares in the aggregate. Options to purchase
Leslies nonvoting common stock have been granted at an exercise price of the fair market value at the time of such grant.

On
February 15, 2001, the Board of Directors approved a resolution to effectuate the cancellation and later reissuance of options outstanding under the Companys ISO Option Plan and the 1998 Plan. Under the program, 198,500 existing options
were cancelled and holders thereof were entitled to receive new Options on a date which would be at least 6 months and a day from the date of cancellation, at a price equal to the then market value of the Companys stock. The options cancelled
had exercise prices that were higher than the Boards view of the then current market price of the Companys stock and had impaired the ability of such options to fulfill their purpose.

On February 15, 2001, the Board of Directors approved a resolution to amend the Companys Certificate of Incorporation to effectuate a 5 for 1
stock split whereby each outstanding share of the Companys common stock, par value $.001 per share, was converted into five shares of common stock. Following approval by the Companys stockholders, an amendment to the Companys
Articles of Incorporation was filed with the Delaware Secretary of State on February 22, 2001.

All existing options, including those
granted in fiscal year 2005, were accelerated and terminated on January 25, 2005 in connection with the Recapitalization and each option holder received, with respect to each option held, an amount equal to the excess of $15.00 over the
exercise price of such option.



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2005 Stock Option Plan

In August 2005, the Board of Directors of the Company adopted and approved the 2005 Stock Option Plan or the 2005 Plan. The 2005 Plan will be administered by the Board of Directors of the Company or, in
its discretion, by a committee consisting of two or more directors of the Company to whom the administration of the Plan has been duly delegated by the Board. The aggregate number of shares of common stock that may be issued pursuant to the stock
options under the 2005 Plan may not exceed 1,300,000 in the aggregate and 700,000 during any calendar year to any one participant. Awards will either be in the form of stock options that are intended to qualify as incentive stock options or stock
options that are not intended to qualify as incentive stock options.

Option Grants in 2006

The following table sets forth the stock options granted to the Chief Executive Officer and the other executive officers of the Company, during the twelve
months ended September 30, 2006, pursuant to the Companys ISO Option Plan, or 2005 Plan.

OPTION/SAR GRANTS IN LAST FISCAL
YEAR



|                    |  |                                                      |  |                                                              |       |  |                             |      |                |            |                                                                                                |   |         |  |   |        
|------------------- |  | ---------------------------------------------------- |  | ------------------------------------------------------------ | ----- |  | --------------------------- | ---- | -------------- | ---------- | ---------------------------------------------------------------------------------------------- | - | ------- |  | - | -------
|                    |  | Individual Grants                                    |  |                                                              |       | 
|Name                |  | Number ofSecuritiesUnderlyingOptions/SARsGranted (1) |  | Percent ofTotalOptions/SARsGranted ToEmployees inFiscal Year |       |  | ExerciseOr BasePrice ($/Sh) |      | ExpirationDate |            | Potential Realizable ValueAt Assumed Annual Rate ofStock Price Appreciation forOption Term (2)
|                    |  |                                                      |  |                                                              | 5%($) |  | 10%($)                     
|Lawrence H. Hayward |  | 50,000                                               |  | 9.29                                                         | %     |  | $                           | 4.75 |                | 08/04/2015 |                                                                                                | $ | 149,500 |  | $ | 378,500
|Steven L. Ortega    |  | 20,000                                               |  | 3.71                                                         | %     |  | $                           | 4.75 |                | 08/04/2015 |                                                                                                |   | 59,800  |  |   | 151,400
|Michael L. Hatch    |  | 10,000                                               |  | 1.86                                                         | %     |  | $                           | 1.00 |                | 08/04/2015 |                                                                                                |   | 6,300   |  |   | 15,900 
|Michael L. Hatch    |  | 15,000                                               |  | 2.79                                                         | %     |  | $                           | 3.15 |                | 08/04/2015 |                                                                                                |   | 29,700  |  |   | 75,300 
|Michael L. Hatch    |  | 20,000                                               |  | 3.71                                                         | %     |  | $                           | 4.75 |                | 08/04/2015 |                                                                                                |   | 59,800  |  |   | 151,400
|Janet I. McDonald   |  | 10,000                                               |  | 1.86                                                         | %     |  | $                           | 1.00 |                | 08/04/2015 |                                                                                                |   | 6,300   |  |   | 15,900 
|Janet I. McDonald   |  | 10,000                                               |  | 1.86                                                         | %     |  | $                           | 4.75 |                | 08/04/2015 |                                                                                                |   | 29,900  |  |   | 75,700 
|Rick D. Carlson     |  | 10,000                                               |  | 1.86                                                         | %     |  | $                           | 1.00 |                | 08/04/2015 |                                                                                                |   | 6,300   |  |   | 15,900 
|Rick D. Carlson     |  | 10,000                                               |  | 1.86                                                         | %     |  | $                           | 4.75 |                | 08/04/2015 |                                                                                                |   | 29,900  |  |   | 75,700 

---

|(1) | Granted pursuant to the 2005 Plan. Options granted during the fiscal year 2006 vest over a five-year period.
|--- | ------------------------------------------------------------------------------------------------------------

|(2) | These columns show the hypothetical gains of "option spreads" of the outstanding options granted based on assumed annual compound stock appreciation rates of 5% and 10% over the
options' terms. The 5% and 10% assumed rates of appreciation are mandated by the rules of the Securities and Exchange Commission (the "SEC") and do not represent the Company's estimate or projections of the future prices of the Company's Common
Stock.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The Board of Directors administers all Company stock plans and makes decisions regarding compensation and benefits of
executive officers and certain other key employees of the Company. The Board reviews and approves the salaries, bonuses and benefit programs for the Companys executive officers and certain other key employees and aligns executive compensation
to continuous improvements in corporate performance and increases in stockholder value.



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Aggregated Option Exercises in Fiscal Year 2006 and Option Values

The table below shows stock option exercises by our executives during fiscal year 2006.



|                    |  |                               |  |                   |   |                                                                                                       |         |                                                                                              |   |          
|------------------- |  | ----------------------------- |  | ----------------- | - | ----------------------------------------------------------------------------------------------------- | ------- | -------------------------------------------------------------------------------------------- | - | ---------
|Name                |  | Sharesacquired onexercise (#) |  | Value realized($) |   | Number of securitiesunderlying unexercisedoptions at September 30, 2006 (#) Exercisable/Unexercisable |         | Value of unexercised in-the-money optionsat September 30, 2006 ($) Exercisable/Unexercisable
|Lawrence H. Hayward |  |                              |  | $                 |  |                                                                                                       | 50,000  |                                                                                              | $ | 40,625   
|Steven L. Ortega    |  |                              |  | $                 |  |                                                                                                       | 720,000 |                                                                                              | $ | 3,210,003
|Michael L. Hatch    |  |                              |  | $                 |  |                                                                                                       | 45,000  |                                                                                              | $ | 98,063   
|Janet I. McDonald   |  |                              |  | $                 |  |                                                                                                       | 20,000  |                                                                                              | $ | 53,750   
|Rick D. Carlson     |  |                              |  | $                 |  |                                                                                                       | 20,000  |                                                                                              | $ | 53,750   

Directors Compensation

Directors do not receive any compensation directly for their service on the Companys Board of Directors, with the exception of Mr. Agnew and Mr. Nark, the Companys outside directors, who receive
$4,000 per each quarterly meeting. The existing options owned by Mr. Agnew and Mr. Nark were accelerated and terminated in connection with the Recapitalization and both optionholders received an amount equal to the excess of $15.00 over
the exercise price of such options. Pursuant to a Management Agreement dated June 11, 1997, which terminated upon the closing of the Recapitalization, during fiscal year 2005 Leslies paid LGP an annual fee in the amount of $.8 million
plus out-of-pocket expenses of approximately $38,000 for various management, consulting and financial planning services, including assistance in strategic planning, providing market and financial analysis, negotiating and structuring financing and
exploring expansion opportunities. In connection with the Recapitalization, the Company entered into a new Management Services Agreement with LGP dated as of January 25, 2005. Pursuant to this revised agreement, the Company will pay LGP an
annual fee of $1.0 million for ongoing management, consulting and financial services.

John M. Baumer and John D. Danhakl are members of
the Companys Board of Directors and are executive officers and equity owners of LGP. Mr. Nark is an operating partner with LGP.

Employment
Agreements

Lawrence Hayward entered into an employment agreement with Leslies, dated as of November 2003. Mr. Haywards
employment agreement contains non-solicitation and confidentiality covenants and provides that the executive is eligible to participate in Leslies benefit plans consistent with the benefits extended to the most senior of Leslies
executives (including vacation, personal and sick leave, and disability, medical and life insurance). Mr. Haywards employment agreement also provides that the executive will serve at the will of the Companys Board of Directors.
Mr. Haywards employment agreement was amended in January 2005 and expires in November 2008.

Mr. Haywards employment
agreement provides for a minimum base salary of $517,000 annually, plus a minimum target bonus of no less than $362,000. If Leslies terminates Mr. Haywards employment for any reason other than Just Cause (as defined in the
Agreement), Mr. Hayward will receive a lump sum payment equal to 200% of the sum of his base salary, bonus and certain costs for health and medical insurance coverage. The benefits are also payable upon a sale of substantially all of the
business or assets of the Company or a consolidation, merger or change of control of the Company (a Change of Control), if Mr. Hayward chooses to terminate his employment with the Company as a result of the Change in Control.



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The Company entered into an employment agreement with Steven Ortega in April 2005, as amended in
July 2005 (the Employment Agreement), for his employment as Executive Vice President and Chief Financial Officer. The Employment Agreement provides for a minimum base salary of $315,000 annually, plus a minimum target bonus as set forth
in the Employment Agreement. If the Company terminates Mr. Ortegas employment for any reason other than Cause (as defined in the Employment Agreement), Mr. Ortega will receive a lump sum payment equal to 200% of the sum of his base
salary and bonus and will be reimbursed for certain costs for health and medical insurance coverage. The Employment Agreement contains non-solicitation and confidentiality covenants and provides that Mr. Ortega is eligible to participate in the
Companys benefit plans consistent with the benefits extended to the most senior of the Companys executives (including vacation, personal and sick leave, and disability, medical and life insurance). The Employment Agreement also provides
that Mr. Ortega will serve as a Director at the will of the Companys Board of Directors. The Employment Agreement expires in June 2010.



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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The following table sets forth information as of September 30, 2006 with respect to (i) all persons known by us to be the
beneficial owner of more than 5% of the Companys common stock; (ii) all executive officers; (iii) all directors; and (iv) all directors and executive officers as a group.



|                                                             |  |                                                           |  |                               
|------------------------------------------------------------ |  | --------------------------------------------------------- |  | ------------------------------
|Name and Address of Beneficial Owner(1)                      |  | Amount and Nature of Beneficial Ownership of Common
Stock |  | Percentage ofSharesOutstanding
|Leslies Coinvestment, LLC(2)                                |  | 9,152,403                                                 |  | 22.9                          
|John M. Baumer(2)(3)                                         |  | 33,867,730                                                |  | 84.6                          
|John G. Danhakl(2)(3)                                        |  | 33,867,730                                                |  | 84.6                          
|GCP California Fund, L.P.(3)                                 |  | 24,715,327                                                |  | 61.7                          
|Michael J. Fourticq                                          |  | 732,270                                                   |  | 1.8                           
|Edward C. Agnew                                              |  |                                                          |  |                              
|Ted C. Nark                                                  |  |                                                          |  |                              
|Lawrence H. Hayward                                          |  | 3,000,000                                                 |  | 7.5                           
|Steven L. Ortega                                             |  | 200,000                                                   |  | 0.5                           
|Michael L. Hatch                                             |  | 375,000                                                   |  | 0.9                           
|Janet I. McDonald                                            |  | 215,000                                                   |  | 0.5                           
|Rick D. Carlson                                              |  | 250,000                                                   |  | 0.6                           
|All executive officers and directors as a group (10 persons) |  | 38,640,000                                                |  | 96.5                          

---

|(1) | The address of Messrs. Fourticq, Hayward, Ortega, Hatch and Carlson and Ms McDonald is 3925 E. Broadway Road, Suite 100, Phoenix, Arizona 85040. The address of LGP, GCP and Messrs.
Baumer and Danhakl is 11111 Santa Monica Boulevard, Suite 2000, Los Angeles, California 90025.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Leslies Coinvestment, LLC is a Delaware limited liability company managed by LGP. Each of Messrs. Jonathan D. Sokoloff, Peter J. Nolan, John D. Danhakl, Jonathan A. Seiffer,
John M. Baumer and Timothy J. Flynn, either directly (whether through ownership interest or position) or through one or more intermediaries, may be deemed to control LGP. Accordingly, for certain purposes, Messrs. Sokoloff, Nolan, Danhakl, Seiffer,
Baumer and Flynn may be deemed to be beneficial owners of the shares of the Companys common stock held or controlled by LGP. However, such individuals disclaim beneficial ownership of the securities held by LGP, except to the extent of their
respective pecuniary interests therein.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | GCP is a Delaware limited partnership managed by an affiliate of LGP, which is an affiliate of the general partner of GCP. Each of Messrs. Sokoloff, Nolan, Danhakl, Seiffer, Baumer
and Flynn either directly (whether through ownership interest or position) or through one or more intermediaries, may be deemed to control the affiliate of LGP and such general partner. The affiliate of LGP and such general partner may be deemed to
control the voting and disposition of the shares of the Companys common stock owned by GCP. Accordingly, for certain purposes, Messrs. Sokoloff, Nolan, Danhakl, Seiffer, Baumer and Flynn may be deemed to be beneficial owners of the shares of
the Companys common stock held by GCP. However, such individuals disclaim beneficial ownership of the securities held by GCP, except to the extent of their respective pecuniary interests therein.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Management Participation in the Recapitalization

The
Companys prior common stockholders and optionholders received approximately $124.9 million in cash and the Companys prior preferred stockholder, GEI, received approximately $64.5 million in cash in the Recapitalization, as discussed in
Note 11 OF THE Notes to the Consolidated Financial Statements. Of these amounts, the Companys five executive officers received approximately $16.3 million, GEI received approximately $160.4 million and Michael Fourticq received approximately
$4.4 million in cash. Two of the Companys executive officers, Lawrence Hayward and Donald Anderson, each used a part of their proceeds from the Recapitalization to repay the loans that had previously been extended to them by the Company. These
loans, each in the principal amount of $225,000 and bearing a 2.45% interest rate, have been repaid in full.

In the Recapitalization, GCP,
an additional affiliate of LGP and some of the Companys directors and management contributed to LPM Acquisition $29.1 million in value of shares of the Companys then existing common stock and $10.9 million of cash, and received an
aggregate of $40.0 million of the Companys new common stock. Of these amounts, the Companys executive officers contributed $3.7 million in common stock, GCP contributed $22.9 million in common stock and $1.8 million in cash, additional
affiliates of LGP contributed $9.1 million in cash and Michael Fourticq contributed $0.7 million in common stock in exchange for the number of shares set forth opposite their names in the second table under Security Ownership of Principal
Stockholders and Management.

We also issued $41.0 million of preferred stock in exchange for units issued for $40.1 million in cash
contributed to LPM Acquisition by GCP and additional affiliates of LGP and $0.9 million of shares of common stock contributed to LPM Acquisition by Michael Fourticq.

Some of the Companys directors, executive officers and other affiliates owned the 103/8% Senior Notes due 2008 that were repurchased in the Tender Offer. Accordingly, such individuals received cash for any notes they tendered. The following table sets forth such ownership:



|                    |  |   |          
|------------------- |  | - | ---------
|John M. Baumer      |  | $ | 50,000   
|John G. Danhakl     |  |   | 350,000  
|Michael J. Fourticq |  |   | 1,500,000
|Lawrence H. Hayward |  |   | 235,000  
|Peter Nolan         |  |   | 350,000  
|Jonathan Sokoloff   |  |   | 200,000  
|Jonathan Seiffer    |  |   | 50,000   
|                    |  |   |          
|                    |  | $ | 2,735,000
|                    |  |   |          



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Management Services Agreement

We entered into a Management Services Agreement with LGP concurrent with the consummation of the Recapitalization. The Management Services Agreement provides that we will pay LGP an annual fee of $1.0 million for
ongoing management, consulting and financial services. In addition, the Management Services Agreement provides that LGP may provide us with financial advisory or investment banking services in connection with major financial transactions, and LGP
will be paid a customary fee for such services. The Management Services Agreement will terminate on the earlier of (a) the tenth anniversary of its execution dated January 25, 2005; provided that the agreement will automatically extend for
one year periods thereafter unless either we or LGP gives the other three months prior notice of termination, (b) the consummation of a change of control, including the date that LGP affiliates hold 40% or less of the Companys shares and
(c) the consummation of a public offering of the Companys common stock in an aggregate offering amount of at least $50 million or as a result of which at least 15% of the Companys shares of common stock is publicly traded. In the
event of the Companys bankruptcy, liquidation, insolvency or winding-up, the payment of all accrued and unpaid fees pursuant to the Management Services Agreement is subordinated to the prior payment in full of all amounts due and owing under
the indenture governing the notes.

Stockholders Agreement

We entered into a Stockholders Agreement with GCP and each of the Companys other stockholders concurrent with the consummation of the Recapitalization. The Stockholders Agreement generally restricts the
transferability of the Companys stock and gives GCP and its affiliates a right of first refusal in the event any other stockholder seeks to transfer any of the Companys stock to a third party. In addition, GCP and its affiliates have
certain drag-along rights and if GCP and its affiliates desire to sell any of the Companys stock, other stockholders will have certain tag-along rights to participate in such sale. We and certain of the non-management
stockholders have certain rights to repurchase a portion of the stock held by management upon their ceasing to provide services to us. The Stockholders Agreement also grants demand registration rights to the non-management stockholders and piggyback
registration rights for all stockholders. Finally, Mr. Fourticq has certain rights to be elected as a director of Leslies.

On
October 25, 2005, certain provisions of the Stockholders Agreement were amended dealing with termination of employment.

Indemnification

We have agreed that we will indemnify all of the Companys current and former directors and officers after the consummation of the
Recapitalization for all costs and expenses incurred in proceedings arising out of or pertaining to the Recapitalization.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES



|                      |  |            |         |            |   |        
|--------------------- |  | ---------- | ------- | ---------- | - | -------
|                      |  | Fiscal2006 |         | Fiscal2005
|Audit Fees(1)         |  | $          | 297,000 |            | $ | 240,000
|Audit-Related Fees(2) |  |            | 30,000  |            |   | 159,000
|                      |  |            |         |            |   |        
|Total                 |  | $          | 327,000 |            | $ | 399,000

---

|(1) | Includes fees and expenses related to the fiscal year audit and interim reviews, notwithstanding when the fees and expenses were billed or when the services were
rendered.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Includes fees and expenses for various services rendered from October through September of the fiscal year, notwithstanding when the fees and expenses were billed.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------



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PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a)(1), (2) The following financial statements
and financial statement schedules are included herewith and are filed as part of this annual report.



|                                                                                                                     |  |   
|-------------------------------------------------------------------------------------------------------------------- |  | --
|Consolidated Balance SheetsSeptember 30, 2006 and October 1, 2005                                                   |  | 30
|Consolidated Statements of OperationsYears Ended September 30, 2006, October 1, 2005 and October 2, 2004            |  | 31
|Consolidated Statements of Stockholders DeficitYears Ended September 30, 2006, October 1, 2005 and October 2, 2004 |  | 32
|Consolidated Statements of Cash Flows Years Ended September 30, 2006, October 1, 2005, and October 2, 2004          |  | 33
|Notes to Consolidated Financial Statements                                                                           |  | 34
|Report of Independent Registered Public Accounting Firm                                                              |  | 29

(a)(3) The following exhibits set forth below are filed as part of this annual report or are
incorporated herein by reference.



|               |  |                                                                                                                                                                                                                                                                                                                                          
|-------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit Number |  | Description                                                                                                                                                                                                                                                                                                                              
|2.1*           |  | Agreement and Plan of Merger dated as of January 7, 2005 between the Company and LPM Acquisition LLC (previously filed as Exhibit 2.1 to the Current Report on Form 8-K filed on January 11,
2005)                                                                                                                                       
|               | 
|3.1*           |  | Amended and Restated Certificate of Incorporation filed with the Delaware Secretary of State on January 25, 2005 (previously filed as Exhibit 3.1 to the Registration Statement on Form S-4 filed
on April 22, 2005)                                                                                                                     
|               | 
|3.2*           |  | Bylaws of the Company (previously filed as Exhibit 3.5 to the Registration Statement on Form S-1 filed on June 27, 1997)                                                                                                                                                                                                                 
|               | 
|4.1*           |  | Indenture dated as of May 21, 2003 between the Company and The Bank of New York Trust Company, N.A. (previously filed as Exhibit 4.1 to the Registration Statement on Form S-4 filed on July 18,
2003)                                                                                                                                   
|               | 
|4.2*           |  | Supplemental Indenture dated as of January 11, 2005 between the Company and The Bank of New York Trust Company, N.A. (previously filed as Exhibit 10.01 to the Current Report on Form 8-K filed on
January 25, 2005)                                                                                                                     
|               | 
|4.3*           |  | Indenture dated as of January 25, 2005 between the Company and The Bank of New York Trust Company, N.A. (previously filed as Exhibit 10.2 to the Current Report on Form 8-K filed on January 28,
2005)                                                                                                                                   
|               | 
|10.1*          |  | Stockholders Agreement dated as of January 25, 2005 among the Company, GCP California Fund, L.P., Leslies Coinvestment, LLC and the stockholders identified on the signature pages thereto
(previously filed as Exhibit 10.1 to the Registration Statement on Form S-4 filed on April 22, 2005)                                         
|               | 
|10.2*          |  | Amendment dated as of October 25, 2005 to the Stockholders Agreement dated as of January 25, 2005 among the Company, GCP California Fund, L.P., Leslies Coinvestment, LLC and the
stockholders identified on the signature pages thereto (previously filed as Exhibit 10.3 to the Annual Report on Form 10-K filed on December 20, 2005)
|               | 
|10.3*          |  | Management Services Agreement dated as of January 25, 2005 between the Company and Leonard Green & Partners, L.P. (previously filed as Exhibit 10.2 to the Registration Statement on Form S-4
filed on April 22, 2005)                                                                                                                   
|               | 
|10.4*          |  | Lease Agreement dated as of August 30, 1990 by and between Adams Property Associates and the Company (previously filed as Exhibit 10.7 to the Registration Statement on Form S-1/A filed on July
21, 1997)                                                                                                                               
|               | 
|10.5*          |  | First Amendment dated as of June 21, 1996 to the Lease Agreement dated August 30, 1990 by and between Adams Property Associates and the Company (previously filed as Exhibit 10.4 to the
Registration Statement on Form S-4 filed on April 22, 2005)                                                                                     



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|               |  |                                                                                                                                                                                                                                                                  
|-------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit Number |  | Description                                                                                                                                                                                                                                                      
|10.6*          |  | Second Amendment dated as of September 30, 1999 to the Lease Agreement dated August 30, 1990 by and between Adams Property Associates and the Company (previously filed as Exhibit 10.5 to the
Registration Statement on Form S-4 filed on April 22, 2005)       
|               | 
|10.7*          |  | Third Amendment dated as of April 14, 2000 to the Lease Agreement dated August 30, 1990 by and between Adams Property Associates and the Company (previously filed as Exhibit 10.6 to the
Registration Statement on Form S-4 filed on April 22, 2005)            
|               | 
|10.8*          |  | Fourth Amendment dated as of November 1, 2004 to the Lease Agreement dated August 30, 1990 by and between Adams Property Associates and the Company (previously filed as Exhibit 10.9 to the
Annual Report on Form 10-K filed on December 20, 2005)              
|               | 
|10.9*          |  | Lease dated as of November 26, 1996 by and between Bedford Property Investors, Inc. and the Company (previously filed as Exhibit 10.8 to Registration Statement on Form S-1/A filed on July 21,
1997)                                                            
|               | 
|10.10*         |  | Addendum dated as of November 1996 to the Lease dated November 26, 1996 by and between Bedford Property Investors, Inc. and the Company (previously filed as Exhibit 10.8 to the Registration
Statement on Form S-4 filed on April 22, 2005)                     
|               | 
|10.11*         |  | Lease Agreement dated as of December 30, 1997 by and between Liberty Property Limited Partnership and the Company (previously filed as Exhibit 10.8 to the Registration Statement on Form S-1/A
filed on July 21, 1997)                                          
|               | 
|10.12*         |  | First Amendment dated as of June 3, 1999 to the Lease Agreement dated December 30, 1997 by and between Liberty Property Limited Partnership and the Company (previously filed as Exhibit 10.10 to
the Registration Statement on Form S-4 filed on April 22, 2005)
|               | 
|10.13*         |  | Lease dated as of April 30, 1998 by and between Paul Hemmer Development Co., III and the Company (previously filed as Exhibit 10.11 to the Registration Statement on Form S-4 filed on April 22,
2005)                                                           
|               | 
|10.14*         |  | First Addendum dated as of July 21, 1999 to the Lease dated April 30, 1998 by and between Paul Hemmer Development Co., III and the Company (previously filed as Exhibit 10.12 to the Registration
Statement on Form S-4 filed on April 22, 2005)                 
|               | 
|10.15*         |  | Lease Agreement dated as of March 30, 2004 between ProLogis and the Company (previously filed as Exhibit 10.13 to the Registration Statement on Form S-4 filed on April 22, 2005)                                                                                
|               | 
|10.16*         |  | Lease dated as of October 31, 2000 between Broadway Business Center LLC and the Company (previously filed as Exhibit 10.14 to the Registration Statement on Form S-4 filed on April 22,
2005)                                                                    
|               | 
|10.17*         |  | First Amendment dated as of November 30, 2000 to the Lease dated as of October 31, 2000 between Broadway Business Center LLC and the Company (previously filed as Exhibit 10.15 to the
Registration Statement on Form S-4 filed on April 22, 2005)               
|               | 
|10.18*         |  | Second Amendment dated as of June 26, 2001 to the Lease dated as of October 31, 2000 between Broadway Business Center LLC and the Company (previously filed as Exhibit 10.16 to the Registration
Statement on Form S-4 filed on April 22, 2005)                  
|               | 
|10.19*         |  | Third Amendment dated as of May 31, 2002 to the Lease dated as of October 31, 2000 between Broadway Business Center LLC and the Company (previously filed as Exhibit 10.17 to the Registration
Statement on Form S-4 filed on April 22, 2005)                    
|               | 
|10.20*         |  | Fourth Amendment dated as of April 9, 2004 to the Lease dated as of October 31, 2000 between Broadway Business Center LLC and the Company (previously filed as Exhibit 10.18 to the Registration
Statement on Form S-4 filed on April 22, 2005)                  
|               | 
|10.21*         |  | Form of Directors and Officers Indemnification Agreement dated as of January 1, 2000 between the Company and certain members of management (previously filed as Exhibit 10.19 to the
Registration Statement on Form S-4 filed on April 22, 2005)               
|               | 
|10.22*        |  | 2005 Stock Option Plan (previously filed as Exhibit 10.23 to the Annual Report on Form 10-K filed on December 20, 2005)                                                                                                                                          
|               | 
|10.23*        |  | Amended and Restated Employment Agreement dated as of November 21, 2003 between the Company and Lawrence H. Hayward (previously filed as Exhibit 10.13 to the Annual Report on Form 10-K filed on
December 12, 2003)                                             



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|               |  |                                                                                                                                                                                                                                                                                                
|-------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit Number |  | Description                                                                                                                                                                                                                                                                                    
|10.24*        |  | Amendment #1 dated as of January 24, 2005 to the Amended and Restated Employment Agreement dated November 21, 2003 between the Company and Lawrence H. Hayward (previously filed as
Exhibit 10.3 to the Current Report on Form 8-K filed on January 25, 2005)                                  
|               | 
|10.25*        |  | Executive Employment Agreement dated as of April 22, 2005 between the Company and Steven L. Ortega (previously filed as Exhibit 10.1 to the Current Report on Form 8-K filed on April 28,
2005)                                                                                                
|               | 
|10.26*        |  | Amendment #1 to the Executive Employment Agreement dated as of April 22, 2005 between the Company and Steven L. Ortega dated as of July 1, 2005 (previously filed as Exhibit 10.1 to the Quarterly
Report on Form 10-Q filed on August 12, 2005)                                               
|               | 
|10.27*         |  | Amended and Restated Loan and Security Agreement dated as of January 25, 2005 between the Company, LPM Manufacturing, Inc., Wells Fargo Retail Finance LLC and the other lenders parties thereto
(previously filed as Exhibit 10.3 to the Current Report on Form 8-K filed on January 28, 2005)
|               | 
|10.28*         |  | Registration Rights Agreement, dated as of January 25, 2005, between the Company and certain holders of the Companys 7.75% Senior Notes due 2013 (previously filed as Exhibit 10.01 to the
Current Report on Form 8-K filed on January 28, 2005)                                              
|               | 
|21.1*          |  | Subsidiaries (previously filed as Exhibit 21.1 to the Annual Report on Form 10-K405 filed on December 22, 1999)                                                                                                                                                                                
|               | 
|23.1           |  | Consent of Ernst & Young LLP, Independent Registered Accounting Firm                                                                                                                                                                                                                           
|               | 
|24.1           |  | Power of Attorney (included on signature page)                                                                                                                                                                                                                                                 
|               | 
|31.1           |  | Certification of Lawrence H. Hayward                                                                                                                                                                                                                                                           
|               | 
|31.2           |  | Certification of Steven L. Ortega                                                                                                                                                                                                                                                              
|               | 
|32.1           |  | Certification of Lawrence H. Hayward and Steven L. Ortega                                                                                                                                                                                                                                      

---

|* | Previously filed
|- | ----------------

| | Management contract or compensatory plan
|- | ----------------------------------------



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Leslies Poolmart, Inc.



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COPIES OF THIS FORM 10-K MAY BE OBTAINED WITHOUT CHARGE UPON WRITTEN

REQUEST TO THE COMPANY AT THE FOLLOWING ADDRESS:

LESLIES POOLMART, INC.

3925 E. BROADWAY RD., SUITE #100

PHOENIX, ARIZONA 85040

ATTN:
CORPORATE SECRETARY

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in
the City of Phoenix, State of Arizona, on December 21, 2006.



LESLIES POOLMART, INC. (Registrant)By:

/s/ STEVEN L. ORTEGASteven L. Ortega Chief Financial
Officer




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Leslies Poolmart, Inc.



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KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and
appoints Lawrence H. Hayward, Steven L. Ortega, and each of them, his true and lawful attorney or attorneys-in-fact and agent or agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including pre-or post-effective amendments) to this Report on Form 10-K, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agent, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the
registrant in the capacities and on the date indicated.



|                                            |  |                                                                    |  |                  
|------------------------------------------- |  | ------------------------------------------------------------------ |  | -----------------
|Signature                                   |  | Capacity                                                           |  | Date             
|/S/ LAWRENCE H. HAYWARD Lawrence H. Hayward |  | Chairman of the Board of Directors and Chief Executive Officer     |  | December 21, 2006
|                                            |  |                                                                   
|/S/ EDWARD C. AGNEW Edward C. Agnew         |  | Director                                                           |  | December 21, 2006
|                                            |  |                                                                   
|/S/ JOHN M. BAUMER John M. Baumer           |  | Director                                                           |  | December 21, 2006
|                                            |  |                                                                   
|/S/ JOHN G. DANHAKL John G. Danhakl         |  | Director                                                           |  | December 21, 2006
|                                            |  |                                                                   
|/S/ MICHAEL J. FOURTICQ Michael J. Fourticq |  | Director                                                           |  | December 21, 2006
|                                            |  |                                                                   
|/S/ MICHAEL L. HATCH Michael L. Hatch       |  | President, Chief Operating Officer andDirector                     |  | December 21, 2006
|                                            |  |                                                                   
|/S/ TED C. NARK Ted C. Nark                 |  | Director                                                           |  | December 21, 2006
|                                            |  |                                                                   
|/S/ STEVEN L. ORTEGA Steven L. Ortega       |  | Chief Financial Officer, Director and Principal Accounting Officer |  | December 21, 2006



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