**UNITED STATESSECURITIES AND EXCHANGE COMMISSION****Washington, D.C. 20549**

**Form 10-K**
| **(Mark One)**                                                                                                                                                                                                                                                 |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **x**                                                                                                                                                                                                                                                          | ** ** | **ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF  THE SECURITIES EXCHANGE ACT OF 1934** |
| ** **                                                                                                                                                                                                                                                     | ** ** | ** ** |
| **FOR THE  FISCAL YEAR ENDED FEBRUARY 4, 2007**                                                                                                                                                                                                                |
| ** **                                                                                                                                                                                                                                                     |
| **OR**                                                                                                                                                                                                                                                         |
| ** **                                                                                                                                                                                                                                                     |
| **o**                                                                                                                                                                                                                                                          | ** ** | **TRANSITION REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
| ** **                                                                                                                                                                                                                                                     | ** ** | ** ** |
| **FOR THE  TRANSITION PERIOD  FROM                  TO                  ** |

 

**Commission File No. 001-15007**

**Dave & Buster’s, Inc.**(Exact name of registrant asspecified in its charter)

| **MISSOURI**                     |   | **43-1532756**       |
|----------------------------------|--------|----------------------|
| (State or Other  Jurisdiction of |   | (I.R.S. Employer     |
| Incorporation or  Organization)  |   | Identification  No.) |

 

**2481Mañana Drive**

**Dallas,Texas 75220**

(Address of principal executive offices)

(ZipCode)

**(214)357-9588**

(Registrant’stelephone number, including area code)

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

Indicate by check mark if theregistrant is not required to file reports pursuant to Section 13 or Section15(d) of the Exchange Act.  Yes o   No x

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

Indicate by check mark if disclosure of delinquent filers pursuant toItem 405 of Regulation S-K is not contained herein, and will not becontained, to the best of registrant’s knowledge, in definitive proxy orinformation statements incorporated by reference in Part III of thisForm 10-K or any amendment to this Form 10-K. x

Indicate by check markwhether the registrant is a large accelerated filer, an accelerated filer, or anon-accelerated filer.  See definition of “accelerated filer and largeaccelerated filer” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer o |   | Accelerated filer o |   | Non-accelerated filer x |
|---------------------------|--------|---------------------|--------|-------------------------|

 

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

The aggregate market value of the voting and non-voting common equityheld by non-affiliates of the registrant was zero as of July 30, 2006.

The number of shares ofthe Issuer’s common stock, $0.01 par value, outstanding as of May 9, 2007, was100 shares.

 

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**DAVE & BUSTER’S, INC.**

**ANNUAL REPORT ON FORM 10-K**

**FOR FISCAL YEAR ENDED FEBRUARY 4,2007**

**TABLE OF CONTENTS**
|              | ** ** | ** **                                                                                                          | ** ** | ** ** |
|--------------|------------|---------------------------------------------------------------------------------------------------------------------|------------|------------|
| **PART I**   |
| ITEM  1.     |       | BUSINESS                                                                                                            |       |       |
| ITEM  1A.    |       | RISK  FACTORS                                                                                                       |       |       |
| ITEM 1B.     |       | UNRESOLVED STAFF  COMMENTS                                                                                          |       |       |
| ITEM  2.     |       | PROPERTIES                                                                                                          |       |       |
| ITEM 3.      |       | LEGAL PROCEEDINGS                                                                                                   |       |       |
| ITEM 4.      |       | SUBMISSION OF  MATTERS TO A VOTE OF SECURITY HOLDERS                                                                |       |       |
|         |       |                                                                                                                |       |       |
| **PART II**  |
|         |       |                                                                                                                |       |       |
| ITEM 5.      |       | MARKET FOR  REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES  OF EQUITY SECURITIES |       |       |
| ITEM 6.      |       | SELECTED FINANCIAL  DATA                                                                                            |       |       |
| ITEM 7.      |       | MANAGEMENT’S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS                         |       |       |
| ITEM 7A.     |       | QUANTITATIVE  AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                                         |       |       |
| ITEM 8.      |       | FINANCIAL  STATEMENTS AND SUPPLEMENTARY DATA                                                                        |       |       |
| ITEM 9.      |       | CHANGES IN AND  DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE                               |       |       |
| ITEM 9A.     |       | CONTROLS AND  PROCEDURES                                                                                            |       |       |
| ITEM 9B.     |       | OTHER INFORMATION                                                                                                   |       |       |
|         |       |                                                                                                                |       |       |
| **PART III** |
|         |       |                                                                                                                |       |       |
| ITEM 10.     |       | DIRECTORS,  EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE                                                             |       |       |
| ITEM 11.     |       | EXECUTIVE  COMPENSATION                                                                                             |       |       |
| ITEM 12.     |       | SECURITY  OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER  MATTERS                    |       |       |
| ITEM 13.     |       | CERTAIN  RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE                                          |       |       |
| ITEM 14.     |       | PRINCIPAL  ACCOUNTING FEES AND SERVICES                                                                             |       |       |
|         |       |                                                                                                                |       |       |
| **PART IV**  |
|         |       |                                                                                                                |       |       |
| ITEM 15.     |       | EXHIBITS AND  FINANCIAL STATEMENT SCHEDULES                                                                         |       |       |
|         |       |                                                                                                                |       |       |
|         |       | SIGNATURE  PAGE                                                                                                     |       |       |

 

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**PART I**

**ITEM 1.      BUSINESS**

*Company Overview*

Referencesto “Dave & Buster’s,” the “Company,” “we,” “us,” and “our” in this Form10-K are references to Dave & Buster’s, Inc. and its subsidiaries and anypredecessor companies.  We are North America’s largest operator of large-format,high-volume restaurant/entertainment complexes. Our complexes combine high-quality casual dining with an extensive arrayof entertainment attractions.  Our menuincludes a wide variety of moderately-priced food and beverage offerings,and our highly-trained staff provides attentive and friendly service forour guests.  Our complexes appeal to adiverse customer base by providing a distinctive entertainment and diningexperience in a high-energy, casual setting. Founded in 1982 with a single location, we have grown to become a leaderin the restaurant/entertainment industry, operating 48 restaurant/entertainmentcomplexes (a “Complex” or “Store”) in the United States and Canada under thenames “Dave & Buster’s,” “Dave & Buster’s Grand Sports Café” and “Jillian’s,”and franchising one complex under the name “Dave & Buster’s” located inMexico.

Our complexes cater primarily to adults aged 21 to 44 andoperate seven days a week, typically from 11:30 a.m. to midnight on weekdaysand 11:30 a.m. to 2:00 a.m. on weekends. Our average complex is approximately 51,000 square feet in size, but thesize of the complexes can range between 28,000 and 68,000 square feet,depending on the characteristics of the markets in which they are located.  The average size of our complexes opened infiscal years 2005 and 2006 were approximately 35,000 square feet.  We carefully select the appropriate size andlocation of our new complexes after thoroughly analyzing a variety of economic,demographic, and strategic considerations.

The layout of each complex is designed to maximize guestcrossover between its multiple entertainment and dining areas.  Each location provides full, sit-down foodservice not only in the restaurant areas, but also in various locations withinthe complex.  Our menu places specialemphasis on quality meals, including gourmet pastas, steaks, sandwiches,salads, and an outstanding selection of desserts.  We update our menus on a regular basis toreflect current trends and guest favorites. Each of our locations offers full bar service throughout the complex,including an extensive array of beers and a wide selection of wine, spirits,and non-alcoholic beverages.

Our amusement offerings include state-of-the-artsimulators, high-tech video games, traditional pocket billiards andshuffleboard, as well as a variety of redemption games, which dispense couponsthat can be redeemed for prizes in our Winner’s Circle.  The redemption games include basic games ofskill, such as skee-ball and basketball, and the prizes in the Winner’s Circlerange from small-ticket novelty items to high-end electronics, such asflatscreen televisions.

In addition, each location has multiple special eventfacilities that are used for hosting private parties, business functions andother corporate sponsored events.  Eachcomplex has a dedicated sales team responsible for selling large events tocorporate, as well as individual guests. We believe our special eventfacilities provide a highly attractive alternative to traditional restaurantsand hotels, which generally do not offer combined entertainment anddining.  In fiscal year 2006,approximately 16.6 percent of the Company’s revenues were from special eventsfunctions.

We believe that each location’s combination of high-qualityfood and beverages, multiple entertainment attractions, superior service andcommitment to casual fun for adults provides a unique dining and entertainmentexperience for our guests.

*Acquisitionof Certain Assets of Jillian’s Entertainment Holdings, Inc.*

OnNovember 1, 2004, we completed the acquisition of nine Jillian’s locations,related assets and equipment, and the Jillian’s trade name and relatedtrademarks, pursuant to an asset purchase agreement.  The nine Jillian complexes acquired were locatedin the metropolitan areas of Minneapolis, Minnesota; Philadelphia,Pennsylvania; Concord, North Carolina; Farmingdale, New York; Nashville,Tennessee; Houston, Texas; Hanover, Maryland; Scottsdale, Arizona and Westbury,New York.

OnAugust 28, 2005, a subsidiary closed the acquired Jillian’s complex located inBloomington, Minnesota due to continuing operating losses attributable to thiscomplex and unsuccessful efforts to renegotiate the terms of the relatedlease.  In fiscal 2005 and 2006, weconverted six of the acquired Jillian’s complexes to Dave & Buster’s.

InOctober 2005, we acquired the general partner interest in a limited partnershipwhich owns a Jillian’s complex in the Discover Mills Mall near Atlanta,Georgia.

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*Merger with WS Midway AcquisitionSub, Inc.*

Dave & Buster’s was acquired on March 8, 2006,by WS Midway Holdings, Inc. (“WS Midway”), a newly-formed Delawarecorporation, through the merger (the “Merger”) of WS Midway Acquisition Sub,Inc., a newly-formed Missouri corporation and a direct, wholly-ownedsubsidiary of WS Midway with and into Dave & Buster’s with Dave &Buster’s as the surviving corporation. Affiliates of Wellspring Capital Management LLC (“Wellspring”) and HBKInvestments L.P. (“HBK”) control approximately 82 percent and 18 percent,respectively, of the outstanding capital stock of WS Midway.  Although we continue as the same legal entityafter the merger, the accompanying consolidated statements ofoperations, stockholders’ equity, and cashflows present the results of operations and cash flows for us and ourwholly-owned subsidiaries for the periods preceding the Merger (“Predecessor”)and the period succeeding the Merger (“Successor”), respectively.  (See “Management’s Discussion andAnalysis of Financial Condition and Results of Operations – Merger with WSMidway Acquisitions Sub, Inc.”).

Wellspring is a New York-based private equity firm withmore than $2 billion in equity capital under management.  The firm takes controlling positions inpromising middle-market companies where it can realize substantial valueby contributing innovative operating and financing strategies and capital.  Wellspring’s limited partners include some ofthe largest and most respected institutional investors in the United States,Canada, and Europe.  The firmconsistently ranks among the top-performing private equity funds specializingin the middle market.

*Offerings*

We offer a unique combination of high-quality casualdining with an extensive array of entertainment attractions, such as pocket billiards,video games, interactive simulators, and traditional redemption-stylegames of skill.

*Food and Beverage*

Our menu places special emphasis on quality meals,including gourmet pastas, steaks, sandwiches, salads, and an outstandingselection of desserts.  We update ourmenus on a regular basis to reflect current trends and guest favorites.  Each of our locations offers full bar servicethroughout the complex, including a wide selection of beers and wine, spiritsand non-alcoholic beverages.  Wealso feature lunch specials with an emphasis on quality food prepared quicklyand an extensive offering of buffets for special events and privateparties.  We believe that each location’s combination of high-quality food andbeverages and attentive and friendly service provides a unique diningexperience for guests.  Approximately55.7 percent of total revenues were derived from food and beverage during the2006 fiscal year.

*Entertainment*

Our locations offer an extensive array of amusements andentertainment options including “Million Dollar Midway” games and “Traditional”games.  Furthermore, our complexes areequipped with multiple televisions and high-quality audio systems offering theguests an attractive venue for watching live sports matches and other televisedevents.  Approximately 42.1percent of total revenues were derived from amusements during the 2006 fiscalyear.

*Million Dollar Midway games.*  Thelargest area in each complex is the Million Dollar Midway, which is designed toprovide high-energy entertainment through a broad selection of electronic,skill and sports-oriented games. The Million Dollar Midway includes both classic midway gameentertainment and high-technology games.

·                  Classic midwaygame entertainment includes sports-oriented games of skill, redemption-stylegames, and Dave & Buster’s Downs, which is one of several multiple playerrace games offered in each complex.  Atthe Winner’s Circle, players can redeem coupons won from selected games ofskill for a wide variety of prizes, many of which display our logo.  The prizes include electronic equipment,sports memorabilia, stuffed animals, clothing and small novelty items.

·                  High-technologygame attractions vary among the complexes and may include large screeninteractive electronic games, such as the multiplayer Daytona USA racingsimulator and Derby Owners Club.

A Power Card activates most midway games and can berecharged for additional play.  The PowerCard enables our guests to activate games more easily and encourages extendedplay of games.  By replacingcoin-activation, the Power Card eliminates the technical difficulties andmaintenance issues associated with coin-activated equipment.  Furthermore, the Power Card increases theflexibility to adjust the pricing and promotion of the games.

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*Traditional games and entertainment.*  Inaddition to the attractions in the Million Dollar Midway, each of our locationsoffers a number of traditional entertainment options.  These traditional offerings include pocketbilliards, shuffleboard tables, and special event rooms, which are designed forhosting private social parties, business gatherings and sponsored events.

*Strategy*

The company intends to drive increase in sales andearnings by implementing the following strategies:

·      Increase our existing store sales throughimproved execution and marketing. The company will continue to employ nationalcable and local store marketing tactics to drive comparable store sales.

·                  Improve ouroperating margins by employing technology, refining the operating process andleveraging our economies of scale.

·                  Continue tofurther differentiate our product offering by introducing new food and beverageproducts, as well as the most current large format video entertainment games.

·                  Accelerate thedevelopment of new stores by signing leases for additional locations, refiningour prototypes and building the management infrastructure to open theseadditional units.

*Location and Development*

We believe that the location of the complexes is criticalto long-term success.  Significant timeand resources are devoted to strategically analyze each prospective market,trade area, and site.  We continuallyidentify, evaluate, and update our database of potential locations forexpansion.  In general, we targetsuper-regional sites within major metropolitan areas.  During the diligence process, we carefullyanalyze a variety of economic, psychographic, and demographic information suchas income levels, residential density, daytime density, and growth rates foreach prospective site.  In addition, wealso consider other factors, including the following:

·                  visibility;

·                  parking andaccessibility to regional highway systems;

·                  zoning;

·                  regulatoryrestrictions;

·                  proximity toshopping areas, office complexes, tourist attractions, theaters and otherhigh-traffic venues;

·                  competition; and

·                  regionaleconomic outlook.

The exterior and interior layout of our complexes isflexible and can be readily adapted to different types of buildings.  We evaluate new and existing buildings forconstruction and conversion; freestanding and inline opportunities areconsidered.  New stores are targeted torange in size from 30,000 to 40,000 square feet of enclosed space, and weconsider lease and purchase structure when evaluating expansionopportunities.  We currently lease 47 ofour 48 locations.  In November2006, we completed the sale and simultaneousleaseback of the land and buildings of three owned facilities located in thestates of Florida, Illinois, and Ohio.  

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The transaction was completed at a sale price of $29.6 million.

During2006, we opened one complex in New York City (Times Square) and one location inMaple Grove, Minnesota.  Subsequent tothe end of the fiscal year, we began construction of a new complex in Tempe,Arizona.  This complex is expected toopen in the third quarter of the 2007 fiscal year.

*Marketing, Advertising andPromotion*

Our corporate marketing department manages marketing,advertising, and promotional programs with the assistance of an externaladvertising agency and a national public relations firm.  In addition, our corporate marketingdepartment is also responsible for controlling media and production costs.  We spent approximately $20.4 million inmarketing efforts for fiscal year 2006 compared to approximately $16.2 millionin fiscal 2005.

In order to expand the guest base, we focus marketingefforts in three key areas:

·                  advertising andsystem-wide promotions;

·                  field marketingand local promotions; and

·                  special eventsfor corporate and group guests.

We conduct market research to better understand our brandand guests, and to develop engaging messages and promotional programs.  In addition, we develop marketing and mediaplans that are highly localized and designed to support individual marketopportunities and local store marketing initiatives.  We continue to utilize in-store promotions,emails, and customer communications to increase visit frequency and averagecheck size.

Our corporate and group sales programs are managed by oursales department, which provides direction, training, and support to thespecial events managers and their teams within each complex.  The primary focus for our special eventssales teams is to identify and contact corporations, associations,organizations, and community groups within the team’s marketplace for purposesof booking group events.  The specialevents sales teams pursue corporate and social group bookings through a varietyof sales initiatives including outside sales calls and cultivation of repeatbusiness.  We have developed andcontinually maintain a database of corporate and group bookings.  Each of our locations hosts events for manymulti-national, national, and regional businesses.  Many of our corporate and group guestsschedule repeat events.  A significantnumber of our guests are introduced to the Dave & Buster’s concept throughthese special events.

*Seasonality*

The fourth quarter of the fiscal year achieves ourhighest revenue and profitability, primarily as a result of the significantspecial events business during the period. This special events business is impacted by the number of holidayparties held during this time of the year. The third quarter is normally the lowest producing quarter in terms ofrevenue and profitability with the first and second quarters being somewhatsimilar in results.

*Competition*

The restaurant industry is highly competitive, andcompetition among major companies that own or operate restaurant chains isespecially intense.  Restaurants competeon the basis of name recognition and advertising; the price, quality, variety,and perceived value of their food offerings; the quality of their customerservice; and the convenience and attractiveness of their facilities.  In addition, despite recent changes ineconomic conditions, competition for qualified restaurant-level personnelremains high.

The out-of-home entertainment market is highlycompetitive.  There are a large number ofbusinesses that compete directly and indirectly with us.  Although we believe most of our competitioncomes from localized single attraction facilities that offer a limitedentertainment package, we may encounter increased competition in thefuture.  In addition, we may also faceincreased competition from home-based forms of entertainment such as internetgame play and home movie delivery.

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*Foreign Operations*

Weown and operate one complex outside of the United States in Toronto,Canada.  This complex generated revenue of $10.5 million in fiscal 2006,representing approximately 2.1 percent of our consolidated revenue.  As of February 4, 2007, we had less than 1.8percent of our long-lived assets located outside the United States.  Additionally, a franchisee of oursoperates one complex in Mexico City, Mexico under the terms of a franchiseagreement.  We receive a royalty payableon the revenues of this complex.

The foreign activities are subject to various risks ofdoing business in a foreign country, including currency fluctuations, changesin laws and regulations and economic and political stability.  We do not believe there is any material riskassociated with the Canadian or Mexican operations or any dependence by thedomestic business upon the Canadian or Mexican operations.

*Suppliers*

The principal goods used by us are games, prizes and foodand beverage products, which are available from a number of suppliers.  We have expanded our contacts with amusementmerchandise suppliers through the direct import program.  Federal and state mandated increases in theminimum wage could have the repercussion of increasing expenses, as suppliersmay be severely impacted by higher minimum wage standards.

*Intellectual Property*

We have registered the trademarks Dave & Buster’s®,Power Card®, Power Combo®, Eat Drink Play® and Jillian’s® with the UnitedStates Patent and Trademark Office and in various foreign countries.  We have also registered and/or applied forcertain additional trademarks with the United States Patent and TrademarkOffice and in various foreign countries. We consider our trade name and our signature “bulls-eye” logo to beimportant features of our operations and seek to actively monitor and protectour interest in this property in the various jurisdictions where we operate.

*Government Regulation*

We are subject to various federal, state, and local lawsaffecting our business.  Each complex issubject to licensing and regulation by a number of governmental authorities,which may include alcoholic beverage control, amusement, health and safety, andfire agencies in the state, county or municipality in which the complex islocated.  Each complex is required toobtain a license to sell alcoholic beverages on the premises from a stateauthority and, in certain locations, county and municipal authorities.  Typically, licenses must be renewed annuallyand may be revoked or suspended for cause at any time.  Alcoholic beverage control regulations relateto numerous aspects of the daily operations of each complex, including minimumage of patrons and employees, hours of operation, advertising, wholesalepurchasing, inventory control and handling, and storage and dispensing ofalcoholic beverages.  We have notencountered any material problems relating to alcoholic beverage licenses todate.  The failure to receive or retain aliquor license, or any other required permit or license, in a particularlocation, or to continue to qualify for, or renew licenses, could have amaterial adverse effect on operations and our ability to obtain such a licenseor permit in other locations.  Thefailure to comply with other applicable federal, state or local laws, such asfederal and state wage and hour laws, may also materially and adversely affectour business.

We are also subject to “dram-shop” statutes in certainstates in which complexes are located. These statutes generally provide a person injured by an intoxicatedperson the right to recover damages from an establishment that wrongfullyserved alcoholic beverages to the intoxicated individual.  We carry liquor liability coverage as part ofexisting comprehensive general liability insurance, which we believe isconsistent with coverage carried by other entities in the industry.  Although we are covered by insurance, ajudgment against us under a “dram-shop” statute in excess of the liabilitycoverage could have a material adverse effect on operations.

As a result of operating certain entertainment games andattractions, including operations that offer redemption prizes, we are subjectto amusement licensing and regulation by the states, counties, andmunicipalities in which there are complexes. Certain entertainment attractions are heavily regulated and suchregulations vary significantly between communities.  From time-to-time, existing complexes may berequired to modify certain games, alter the mix of games, or terminate the useof specific games as a result of the interpretation of regulations by state orlocal officials.

We are subject to federal, state, and local environmentallaws, regulations and other requirements, but these have not had a materialadverse effect on operations.  Morestringent and varied requirements of local and state governmental bodies withrespect to zoning, land use, and environmental factors could delay or preventdevelopment of new complexes in particular locations.  We are subject to the Fair Labor StandardsAct, which governs such matters as minimum wages, overtime, and other workingconditions, along with the Americans With Disabilities Act and various family-leavemandates.  

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Although we expect increases in payroll expenses as a result of federaland state mandated increases in the minimum wage, such increases are notexpected to be material.  However, we areuncertain of the repercussion, if any, of increased minimum wages on otherexpenses, as suppliers may be more severely impacted by higher minimum wagestandards.

*Employees*

As of February 4, 2007, we employed approximately 7,500persons, approximately 200 of whom served in administrative or executivecapacities, approximately 650 of whom served as management personnel, and theremainder of whom were hourly personnel.

None of our employees are covered by collectivebargaining agreements, and the Company has never experienced an organized workstoppage, strike, or labor dispute.  Webelieve working conditions and compensation packages are competitive with thoseoffered by competitors and consider relations with employees to be good.

# *Available Information*

Wemaintain an internet website with the address of http://www.daveandbusters.com.  You may obtain, free of charge, copies of ourreports filed with, or furnished to, the Securities and Exchange Commission(the “SEC”) on Forms 10-K, 10-Q, and 8-K, at our internet website.  These reports will be available as soon asreasonably practicable after filing such material with, or furnishing it to,the SEC.  In addition, you may view andobtain, free of charge, at our website, copies of our corporate governancematerials, including, Audit Committee Charter, Compensation Committee Charter,Code of Business Ethics, and Whistle Blower Policy.

**ITEM1A.   RISK FACTORS**

Wewish to caution you that our business and operations are subject to a number ofrisks and uncertainties.  The factorslisted below are important factors that could cause actual results to differmaterially from our historical results and from those projected inforward-looking statements contained in this report, in our other filings withthe SEC, in our news releases, written or electronic communications, and verbalstatements by our representatives.

Youshould be aware that forward-looking statements involve risks anduncertainties.  These risks anduncertainties may cause our or our industry’s actual results, performance orachievements to be materially different from any future results, performancesor achievements contained in or implied by these forward-lookingstatements.  Forward-looking statementsare generally accompanied by words like “believes,” “anticipates,” “estimates,”“predicts,” “expects,” and other similar expressions that convey uncertaintyabout future events or outcomes.

***Our level of indebtedness couldadversely affect our ability to raise additional capital to fund operations,limit our ability to react to changes in the economy or industry and prevent usfrom meeting our financial obligations.***

We are significantly leveraged and our total indebtednesswas approximately $254.4 million as of February 4, 2007.  Our substantial indebtedness could haveimportant consequences, including the following:

·                  ourability to obtain additional debt or equity financing for working capital,capital expenditures, product development, debt service requirements,acquisitions and general corporate or other purposes may be limited;

·                  asubstantial portion of our cash flows from operations will be dedicated to thepayment of principal and interest on the indebtedness and will not be availablefor other purposes, including operations, capital expenditures and futurebusiness opportunities;

·                  thedebt service requirements of our other indebtedness could make it moredifficult for us to satisfy other financial obligations;

·                  certainof our borrowings, including borrowings under our senior credit facility, areat variable rates of interest, exposing us to the risk of increased interestrates;

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·                  ourability to adjust to changing market conditions may be limited and may beplaced at a competitive disadvantage compared to less-leveraged competitors;and

·                  wemay be vulnerable in a downturn in general economic conditions or in business,or may be unable to carry on capital spending that is important to growth.

Subject to restrictions in the indenture governing thesenior notes and in our senior credit facility, we may incur additionalindebtedness, which could increase the risks associated with the alreadysubstantial indebtedness.  Subject tocertain limitations, including compliance with debt covenants, we have theability to borrow additional funds under the revolving credit facility.

***Results of operations are dependentupon discretionary spending by consumers.***

Results of operations are dependent upon discretionaryspending by consumers, particularly by consumers living in the communities inwhich our complexes are located.  Asignificant weakening in any of the local economies in which we operate maycause guests to curtail discretionary spending, which in turn could have amaterial adverse effect on profitability. The ongoing conflict in Iraq, potential for future terrorist attacks,the national and international responses thereto and other acts of war orhostility may create economic and political uncertainties that could have amaterial adverse effect on business, results of operations and financialcondition in ways we currently cannot predict. Furthermore, increases in gasoline and other energy costs could lead toa decline in discretionary spending and have a material adverse effect onprofitability.

***We operate a limited number ofcomplexes, and new complexes require significant investment.***

As of February 4, 2007, we operated 48 complexes.  The combination of the relatively limitednumber of locations and the significant investment associated with each newcomplex may cause operating results to fluctuate significantly.  Due to this relatively limited number oflocations, poor results of operations at any single complex could materiallyaffect profitability.  Historically, newcomplexes experience a drop in revenues after their first year of operation,and we do not expect that, in subsequent years, any increases in comparable revenueswill be meaningful.  Additionally,because of the substantial up-front financial requirements to open newcomplexes, the investment risk related to any single complex is much largerthan that associated with most other companies’ restaurant or entertainmentvenues.

***We may not be able to competefavorably in the highly competitive out-of-home and home-based entertainmentmarket.***

The out-of-home entertainment market is highlycompetitive.  There are a great number ofbusinesses that compete directly and indirectly with us.  Many of these entities are larger and havesignificantly greater financial resources and a greater number of units.  We compete for customers’discretionary entertainment dollars with theme parks as well as with providersof out-of-home entertainment, including localizing attraction facilities suchas movie theatres, bowling alleys, nightclubs, and restaurants.  We mayencounter increased competition in the future, which may have an adverse effecton profitability.  In addition, the legalizationof casino gambling in geographic areas near any current or future complex wouldcreate the possibility for entertainment alternatives, which could have amaterial adverse effect on our business and financial condition.  In addition, we may also face increasedcompetition from home-based forms of entertainment such as internet gaming andhome movie delivery.

***Our operations are subject to manygovernment laws, regulations and other requirements and if we fail to complywith them, the business and financial condition could be adversely affected.***

Various federal, state and local laws and permitting andlicense requirements affect the business, including those enforced by alcoholicbeverage control, and other amusement, environmental, health and safety andfire agencies in the state, county or municipality in which each complex islocated.  See “Business – GovernmentRegulation.”

***We may face difficulties inattracting and retaining qualified employees.***

The operation of the business requires qualified executives,managers, and skilled employees.  Fromtime-to-time, there may be a shortage of skilled labor in certain of thecommunities in which our complexes are located. Shortages of skilled labor may make it increasingly difficult andexpensive to attract, train, and retain the services of a satisfactory numberof qualified employees.  In addition, ourfuture success will continue to depend largely on the efforts and abilities ofsenior management.  The ability toattract and retain qualified employees or the loss of the services of membersof senior management for any reason could materially adversely affect ourbusiness, results of operations and financial condition.

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***Our growth depends upon our abilityto open new complexes.***

Our ability to expand depends upon obtaining sufficientcapital, locating and obtaining appropriate sites, hiring and trainingadditional management personnel and constructing or acquiring, at reasonablecost, the necessary improvements, and equipment for these complexes.  In particular, the capital resources requiredto develop each new complex are significant. There is no assurance that we will be able to expand or that newcomplexes, if developed, will perform in a manner consistent with the mostrecently opened complexes or make a positive contribution to operatingperformance.

***Local conditions, events, and naturaldisasters could adversely affect our business.***

Certain of the regions in which our complexes are locatedhave been, and may in the future be, subject to adverse local conditions,events, or natural disasters, such as earthquakes and hurricanes.  Depending upon its magnitude, a naturaldisaster could severely damage our complexes, which could adversely affect ourbusiness, financial condition, and operations. We currently maintain property and business interruption insurancethrough the aggregate property policy for each of the complexes.  However, there is no assurance that thecoverage will be sufficient if there is a major disaster.  In addition, upon the expiration of thecurrent policies, there is no assurance that adequate coverage will beavailable at economically justifiable rates, if at all.

***Our operations are susceptible tochanges in product costs, which could adversely affect operating results.***

Our profitability depends in part on our ability toanticipate and react to changes in product costs.  Various factors beyond our control, includingadverse weather conditions, governmental regulations, production, availability,and seasonality may affect food costs or cause a disruption in supply.  The availability of new amusement offerings,the cost, and availability of redemption items that appeal to guests and themarket demand for new games can adversely impact the cost to acquire andoperate new amusements.  We cannotpredict whether we will be able to anticipate and react to changing food,beverage, and amusements costs by adjusting purchasing practices, menu and gameprices, and a failure to do so could have a material adverse effect on ouroperating results.

***Complaints or litigation mayadversely affect the business.***

Occasionally, guests file complaints or lawsuits againstus alleging that we are responsible for some illness or injury they suffered ator after a visit to a complex.  We arealso subject to a variety of other claims in the ordinary course of business,including personal injury claims, lease and contract claims, andemployment-related claims.  Therestaurant industry has also been subject to a growing number of claims thatthe menus and actions of restaurant chains have led to the obesity of certainof their guests.  In addition, we aresubject to “dram shop” statutes and are currently the subject of certainlawsuits that allege violations of these statutes.  These statutes generally allow a person injuredby an intoxicated person to recover damages from an establishment thatwrongfully served alcoholic beverages to the intoxicated person.  Recent litigation against restaurant chainshas resulted in significant judgments and settlements under dram shop statutes.  Because these cases often seek punitivedamages, which may not be covered by insurance, such litigation could have anadverse impact on the financial condition and results of operations.  Regardless of whether any claims against usare valid or whether we are liable, claims may be expensive to defend and maydivert time and money away from operations and hurt performance.  A judgment significantly in excess of theinsurance coverage could have a material adverse effect on the financialcondition or results of operations. Further, adverse publicity resulting from these allegations maymaterially affect us and our complexes.

***We may not be able to renew realproperty leases on current favorable terms.***

Of the 48 complexes operated by us as of February 4,2007, 47 complexes are operated on leased premises.  Certain leases are long-term leases at rentswe believe to be below current market rates. Other such leases have rents fixed at a percentage of the revenuegenerated by the complexes on the leased premises.  We may choose not to renew, or may not beable to renew, certain of such existing leases if the capital investment thenrequired to maintain the complexes at the leased locations is not justified bythe return on the required investment. If we are not able to renew the leases at rents that allow suchcomplexes to remain profitable as their terms expire, the number of thecomplexes may decrease, resulting in lower revenue from operations, which mayimpact the ability to meet the financial goals.

10

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***Our success depends in part on theability to protect our intellectual property rights, but our intellectualproperty may be misappropriated or may be subject to infringement claims bythird parties.***

We currently rely on a combination of registered and unregisteredtrademarks, copyrights, patent rights, and domain names to protect certainaspects of the business.  While weattempt to ensure that the intellectual property and similar proprietary rightsare protected and that the third party rights needed are licensed to us whenentering into business relationships, there can be no assurance that any of theapplications for protection of the intellectual property rights will beapproved or that third parties will not take actions that could have a materialadverse effect on the rights or the value of the intellectual property, similarproprietary rights or reputation. Furthermore, we can give no assurance that claims or litigationasserting infringement of intellectual property rights will not be initiated bythird parties seeking damages, the payment of royalties or licensing fees orthat we would prevail in any litigation or be successful in preventing any suchjudgment.  In the future, we may alsorely on litigation to enforce the intellectual property rights and contractualrights, and, if not successful, we may not be able to protect the value of theintellectual property.  Any litigationcould be protracted and costly and could have a material adverse effect on ourbusiness and results of operations, regardless of its outcome.  Infringement claims against us could alsoresult in costly and burdensome litigation, require us to enter into royalty orother licensing agreements, require us to pay damages, harm our reputation,require us to redesign or rename the complexes and products, or prevent us fromdoing business using certain trade names. Although we believe that the intellectual property rights are sufficientto allow us to conduct business without incurring liability, our products mayinfringe on the intellectual property rights of third parties, and ourintellectual property rights may not have the value we believe them to have.

***Increases in labor costs could harmthe business.***

From time-to-time, the U.S. Congress and the statesconsider increases in the applicable minimum wage.  Several states in which we operate haverecently enacted increases in the minimum wage, which have taken or will takeeffect in 2007.  The out-of-homeentertainment industry is intensely competitive, and we may not be able to transferany resulting increase in operating costs to guests in the form of priceincreases, or to otherwise adjust to these increases, which could have amaterial adverse effect on our results of operations.

***Increases in energy costs could harmbusiness.***

Our success depends in part on the ability to absorbincreases in utility costs.  Most of thecomplexes have experienced increases in utility prices.  If these increases should continue, and if weare unable to transfer these cost increases to guests in the form of priceincreases, they will have an adverse effect on our profitability.

***Our financial results are subject toquarterly fluctuations and the seasonality of our business.***

Our operating results may fluctuate significantly fromperiod to period, and the results for one period may not be indicative ofresults for other periods.  The operatingresults may also fluctuate significantly because of several factors, includingthe frequency and popularity of sporting events and year-end holidays(including which day of the week the events occur), new complex openings andrelated expenses and weather conditions.

We expect seasonality will continue to be a factor in theresults of operations.  Historically,revenues have been substantially higher in the fourth quarter driven in part bythe increased number of holiday parties held during that time of year.  Our revenues and profitability have beenlower during the third quarter with the first and second quarter being somewhatsimilar in results, and we expect these trends to continue in the future.  (See “Management’s Discussion and Analysis ofFinancial Condition and Results of Operations—Overview—Quarterly fluctuations,seasonality and inflation.”)

The timing of new complex openings may also result insignificant fluctuations in quarterly performance.  We typically incur most startup costs for anew complex within the two months immediately preceding, and the month of, thecomplex’s opening.  In addition, thelabor and operating costs for a newly opened complex during the first three tosix months of operation, including startup costs, are materially greater thanwhat can be expected after that time, both in aggregate dollars and as apercentage of revenues.  Our growth,operating results and profitability will depend to a large degree on theability to increase the number of complexes.

**ITEM 1B.       UNRESOLVED STAFF COMMENTS**

Not applicable.

11

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**ITEM 2.          PROPERTIES**

Thefollowing table sets forth the number of complexes which we currently operatein each state/country.  Unless otherwiseindicated, each of the complexes listed below is leased.
| State or Country | ** ** | **Number of  Complexes** |
|------------------|------------|--------------------------|
| ** **       |       |                     |
| Arizona          |       | 1                        |
| California       |       | 6                        |
| Colorado         |       | 2                        |
| Florida          |       | 3                        |
| Georgia(a)       |       | 3                        |
| Hawaii           |       | 1                        |
| Illinois         |       | 2                        |
| Kansas           |       | 1                        |
| Maryland         |       | 2                        |
| Michigan         |       | 1                        |
| Minnesota        |       | 1                        |
| Missouri         |       | 1                        |
| Nebraska         |       | 1                        |
| New York         |       | 6                        |
| North Carolina   |       | 1                        |
| Ohio             |       | 3                        |
| Pennsylvania     |       | 3                        |
| Rhode Island     |       | 1                        |
| Tennessee        |       | 1                        |
| Texas(b)         |       | 7                        |
| Toronto, Canada  |       | 1                        |
| TOTAL            |       | 48                       |

 

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(a)                                  Includes one Jillian’s complex that operates underthe terms of a limited partnership agreement for which we serve as manager andgeneral partner.

(b)                                 One complex in the state is owned.

We also lease a 47,000 square foot office building and30,000 square foot warehouse facility in Dallas, Texas, for use as ourcorporate headquarters and distribution center. This lease expires in October 2021, with options to renew until October2041.  We also lease a 22,900 square footwarehouse facility in Dallas, Texas, for use as additional warehousespace.  This lease expires in January2009.

**ITEM 3.          LEGAL PROCEEDINGS**

We are subject to certain legal proceedings and claimsthat arise in the ordinary course of our business.  Two class action cases have been filedagainst us and one of our subsidiaries in the State of California alleging violationsof California regulations concerning mandatory meal breaks and restperiods.  We are working to have thesetwo cases consolidated and coordinated because the potential class members arevirtually identical.  Therefore,settlement of one case would resolve both cases.  Various factors, including our internalpolicies and evidence of compliance with State of California regulations, makeearly resolution of these cases a possibility.

Various actions have been filed against us and certainsubsidiaries based on disagreements with landlords related to the amounts ofrent related obligations.  InMarch 2007, we entered into a confidential settlement agreement and releasewith the owner of the Jillian’s complex located at the Mall of America inBloomington, Minnesota resolving all disputes arising out of our leases forspace and decision to close the acquired Jillian’s complex.

We have made the appropriate provision for settlement inthe above matters in our 2006 financial statements.  In the opinion of management, based uponconsultation with legal counsel, the amount of ultimate liability with respectto all other actions will not materially affect the consolidated results of ouroperations or our financial condition.

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

No matters were submitted to avote of the security holders during the quarter ended February 4, 2007.

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

 

There is no established public trading market for ourcapital stock.  One hundred percent ofour outstanding capital stock is owned by WS Midway.  There were no repurchases of our capitalstock in the fourth quarter of 2006.

**ITEM 6.****                             SELECTED FINANCIAL DATA**

The following selected financialdata is qualified in entirety by the consolidated financial statements (and therelated Notes thereto) contained in Item 8 and should be read in conjunctionwith “Management’s Discussion and Analysis of Financial Condition and Resultsof Operations” in Item 7.  We derived theselected financial data as of February 4, 2007 and January 29, 2006 and for the334-day period ended February 4, 2007, 37-day period ended March 7, 2006, andthe fiscal years ended January 29, 2006, and January 30, 2005, from the auditedconsolidated financial statements and related notes.  All references to 2006 relate to the combined53-week period ending on February 4, 2007 while the other years presentedconsist of 52-weeks of operations.
| ** **                                                                        | ** ** | **334-Day Period  from March 8,  2006 to  February 4, 2007** | ** ** | ** ** | **37-Day Period  From January  30, 2006 to  March 7, 2006** | ** ** | **Fiscal Year  Ended(1)  January 29, 2006** | ** ** | **Fiscal Year  Ended(2)  January 30, 2005** | ** ** | **Fiscal Year  Ended  February 1, 2004** | ** ** | **Fiscal Year  Ended  February 2, 2003** | ** ** |
|-----------------------------------------------------------------------------------|------------|--------------------------------------------------------------------------------------------|------------|------------|-------------------------------------------------------------------------------------------|------------|------------------------------------------------------------|------------|------------------------------------------------------------|------------|---------------------------------------------------------|------------|---------------------------------------------------------|------------|
| **(dollars in thousands)**                                              | ** ** | **(Successor)**                                                                            | ** ** | ** ** | **(Predecessor)**                                                                         | ** ** | **(Predecessor)**                                          | ** ** | **(Predecessor)**                                          | ** ** | **(Predecessor)**                                       | ** ** | **(Predecessor)**                                       | ** ** |
| **Statement  of Operations Data:**                                                | ** ** | ** **                                                                                 | ** ** | ** ** | ** **                                                                                | ** ** | ** **                                                 | ** ** | ** **                                                 | ** ** | ** **                                              | ** ** | ** **                                              | ** ** |
| Total revenues                                                                    |       | $                                                                                          | 459,792    |       |                                                                                      | $          | 50,409                                                     |       | $                                                          | 463,452    |                                                    | $          | 390,267                                                 |       | $ | 362,822 |   | $ | 373,752 |   |
| Operating income                                                                  |       | 6,409                                                                                      |       |       | 1,557                                                                                     |       | 12,999                                                     |       | 25,391                                                     |       | 23,466                                                  |       | 14,823                                                  |       |
| Cumulative effect  of a change in an accounting principle, net of income taxes(3) |       | —                                                                                     |       |       | —                                                                                    |       | —                                                     |       | —                                                     |       | —                                                  |       | (7,096                                                  | )          |
| Net income (loss)                                                                 |       | (12,063                                                                                    | )          |       | 486                                                                                       |       | 4,288                                                      |       | 12,880                                                     |       | 10,921                                                  |       | (2,008                                                  | )          |
| **Balance  sheet data (as of end of period):**                                    |       |                                                                                       |       |       |                                                                                      |       |                                                       |       |                                                       |       |                                                    |       |                                                    |       |
| Cash and cash  equivalents                                                        |       | 10,372                                                                                     |       |       |                                                                                      |       | 7,582                                                      |       | 11,387                                                     |       | 6,935                                                   |       | 2,530                                                   |       |
| Working capital  (deficit)                                                        |       | (31,430                                                                                    | )          |       |                                                                                      |       | (37,206                                                    | )          | (7,656                                                     | )          | (220                                                    | )          | (4,231                                                  | )          |
| Property and  equipment, net                                                      |       | 316,840                                                                                    |       |       |                                                                                      |       | 351,883                                                    |       | 331,478                                                    |       | 291,473                                                 |       | 296,770                                                 |       |
| Total assets                                                                      |       | 506,813                                                                                    |       |       |                                                                                      |       | 423,062                                                    |       | 401,171                                                    |       | 340,201                                                 |       | 338,531                                                 |       |
| Total debt                                                                        |       | 254,375                                                                                    |       |       |                                                                                      |       | 80,175                                                     |       | 88,143                                                     |       | 53,534                                                  |       | 67,794                                                  |       |
| Stockholders’  equity                                                        |       | 96,705                                                                                     |       |       |                                                                                      |       | 205,220                                                    |       | 196,945                                                    |       | 179,784                                                 |       | 166,585                                                 |       |
| **Other  data:**                                                                  |       |                                                                                       |       |       |                                                                                      |       |                                                       |       |                                                       |       |                                                    |       |                                                    |       |
| Capital  expenditures                                                             |       | $                                                                                          | 31,943     |       |                                                                                      | $          | 10,600                                                     |       | $                                                          | 62,066     |                                                    | $          | 34,234                                                  |       | $ | 24,292 |   | $ | 22,956 |   |
| Number of complexes at  end of period                                             |       | 48                                                                                         |       |       | 46                                                                                        |       | 46                                                         |       | 43                                                         |       | 33                                                      |       | 32                                                      |       |

 

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(1)                      On August 28,2005, a subsidiary closed the acquired Jillian’s complex. As a result of theclosing, we recorded a pre-tax charge of approximately $3,000 comprised ofapproximately $2,500 in non-cash charges for depreciation, amortization andasset impairment charges and approximately $500 related to severance and othercosts required to close the complex.

(2)                      On November 1, 2004,we completed the acquisition of nine Jillian’s locations, pursuant to an assetpurchase agreement, for cash and the assumption of certain liabilities.  The results of the acquired complexes areincluded in the consolidated results beginning on the date of acquisition.

(3)                      “Cumulative effect ofa change in accounting principle” reflects the adoption of Statement ofFinancial Accounting Standards 142, “Goodwill, and Other Intangible Assets” (“SFAS142”).  On February 4, 2002, we adoptedSFAS 142, which requires annual impairment analyses of intangible assets.  In connection with the adoption of thisstandard, an impairment analysis was performed resulting in the write-off ofgoodwill to expense in the amount of $7,096.

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**ITEM 7.****                            MANAGEMENT’S DISCUSSIONAND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**

The following discussion andanalysis of our financial condition and results of operations should be readtogether with the audited consolidated financial statements, and related notes.  Unless otherwise specified, the meanings ofall defined terms in Management’s Discussion and Analysis of FinancialCondition and Results of Operations (“MD&A”) are consistent with themeanings of such terms as defined in the Notes to Consolidated FinancialStatements.

**General**

Our fiscal year ends on theSunday after the Saturday closest to January 31.  All references to 2006 relate to the combined53-week period ending on February 4, 2007. As discussed further below, fiscal 2006 is comprised of the 334-dayperiod ended February 4, 2007 of the Successor and the 37-day period endedMarch 7, 2006 of the Predecessor, respectively. All references to 2005 and 2004 relate to the 52-week periods ending onJanuary 29, 2006 and January 30, 2005. All dollar amounts are presented in thousands, unless otherwise noted,except share and per share amounts.

**Merger with WS Midway Acquisition Sub, Inc.**

Dave & Buster’s was acquired on March 8, 2006, by WSMidway through the Merger.  Affiliates ofWellspring and HBK control approximately 82 percent and 18 percent,respectively, of the outstanding capital stock of WS Midway.  Although we continue as the same legal entityafter the Merger, the accompanying condensed consolidated statements ofoperations, stockholders’ equity, and cash flows present the results ofoperations and cash flows for us and our wholly-owned subsidiaries for theperiods preceding the Merger (“Predecessor”) and the period succeeding theMerger (“Successor”), respectively.

At the effective time of the Merger discussed above, thefollowing events occurred:

1.                                       All outstanding shares of our common stock(including those issued upon the conversion of our convertible subordinatednotes), other than shares held by WS Midway, were converted into the right toreceive $18.05 per share without interest, less any applicable withholdingtaxes;

2.                                       Holders of up to approximately 2.6 million sharesexercised dissenters’ rights and initiated proceedings under Section 351.455 ofthe General and Business Corporation Law of Missouri to demand fair value withrespect to their shares.

3.                                       All outstanding options or warrants to acquire ourcommon stock were converted into the right to receive an amount in cash equalto the difference between the per share exercise price and $18.05, withoutinterest, less any applicable withholding taxes; and

4.                                       To the extent not converted into shares of commonstock, we redeemed for cash the convertible subordinated notes due 2008 and theindenture governing the convertible notes ceased to have any effect.

On July 10, 2006, we reached anagreement with all dissenting shareholders which provided, among other things,for the permanent and irrevocable settlement of all claims among theparties.  The terms of the settlementincluded the payment of approximately $51,733 to the shareholders in accordancewith the terms of the settlement agreement. Payments of the settlement were funded from borrowings under the seniorcredit facility and available cash.

The Merger transactions resultedin a change in ownership of 100 percent of our outstanding common stockand is being accounted for in accordance with Statement of Financial AccountingStandards 141, “Business Combinations.” The purchase price paid in the Merger has been “pushed down” to ourfinancial statements and is allocated to record the acquired assets andliabilities assumed based on their fair value. The Merger and the allocation of the purchase price to the assets andliabilities as of March 8, 2006 have been recorded based on valuation studiesand management estimates of fair value. Adjustments to the purchase price allocation, if any, arising out of thefinalization of the allocation of the purchase price will not impact cash flowincluding cash interest and rent.

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The sources and uses of funds in connection with the Merger as ofFebruary 4, 2007 are summarized below:
| **Sources**                                                 | ** ** | ** ** | ** ** |
|-------------------------------------------------------------|------------|------------|------------|
| Revolving credit facility and cash on hand                  |       | $          | 17,628     |   |
| Senior credit facility(1)                                   |       | 100,000    |       |
| Senior notes                                                |       | 175,000    |       |
| Equity contribution                                         |       | 108,100    |       |
| Total sources                                               |       | $          | 400,728    |   |
|                                                        |       |       |       |
| **Uses**                                                    |       |       |       |
| Consideration  paid to stockholders                         |       | $          | 264,835    |   |
| Consideration  paid to convertible note and warrant holders |       | 44,390     |       |
| Consideration  paid to option holders                       |       | 9,279      |       |
| Payment of  existing debt                                   |       | 51,137     |       |
| Transaction costs  (2)                                      |       | 31,087     |       |
| Total uses                                                  |       | $          | 400,728    |   |

 

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(1)          As of the date of the Merger, March 8, 2006,$50,000 of the senior credit facility was available and $50,000 was availableon a delayed draw basis and was borrowed on August 15, 2006.

(2)          Transaction costs assumed in connection with theMerger include approximately $12,739 related to the exercise of Change inControl agreements by certain executives.

**Acquisitions andDisposals**

On November 15, 2006, wecompleted the sale andsimultaneous leaseback of the land and buildings of three owned facilitieslocated in the states of Florida, Illinois, and Ohio.  The gross proceeds of $29,600 approximatedthe carrying value of the assets.  Netproceeds from the transaction were used to pay down outstanding balances on theCompany’s senior credit and revolving credit facilities after a $5,000 holdback for reinvestment.

We agreed toleaseback these facilities from National Retail Properties, Inc. under variousoperating lease agreements, which have an initial term of 17.5 years.  The leases require us to make monthly rentalpayments, which aggregate to $2,453 on an annual basis.  Rental payments under the leases are subjectto adjustment based on defined changes in the Consumer Price Index.  In addition to the rental payments describedabove, we are required to pay the property taxes and certain maintenancecharges related to the properties.

In October 2005, we acquired the general partnerinterest in a limited partnership which owns a Jillian’s complex in theDiscover Mills Mall near Atlanta, Georgia. The limited partner currently earns a preferred return on its remaininginvested capital.  We currently have a50.1 percent interest in the income or losses of the partnership.  After deducting the preferred return to thelimited partner, our interest in the income or losses of the partnership is notexpected to be significant to the results of operations unless the limitedpartner receives a full return of its invested capital and preferred returnwhich is not expected to occur in the foreseeable future.  We also manage the complex under a managementagreement and receive a fee of 4.0 percent of operating revenuesannually.  We account for the generalpartner interest using the equity method due to the substantive participativerights of the limited partner in the operations of the partnership.

On November 1, 2004, we completedthe acquisition of nine Jillian’s entertainment complexes located in majormetropolitan areas in the states of Arizona, Maryland, Minnesota, NorthCarolina, New York, Pennsylvania, Tennessee, and Texas.  The acquisition was completed pursuant to anasset purchase agreement for $45,747 in cash. In addition, we incurred $2,369 in costs related to thetransaction.  The results of theoperations of the acquired complexes have been included in the consolidatedresults beginning on the date of acquisition. The historical results of operations of the acquired complexes were notsignificant compared to the historical consolidated results of operations.

On August 28, 2005, a subsidiaryof ours closed the acquired Jillian’s complex located at the Mall of America inBloomington, Minnesota due to continuing operating losses attributable to thiscomplex and the unsuccessful efforts to renegotiate the terms of the related leases.  As a result of the closing, we recorded totalpre-tax charges of approximately $3,000 in fiscal 2005, comprised ofapproximately $2,500 in non-cash charges for depreciation, amortization andasset impairment charges and approximately $500 related to severance and othercosts required to close the complex.

15

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We have converted six of the former Jillian’s locationsto the “Dave & Buster’s Grand Sports Café” brand.  We believe this conversion has enhancedefforts to improve the operating economics of the Dave & Buster’s brandthroughout the system.  We beganconverting the stores in September 2005, and converted five of the storesin fiscal 2005.  One additional store wasconverted in the first quarter of 2006.  Weplan to convert two of the remaining Jillian’s locations to Dave & Buster’sduring the 2007 fiscal year.

**Overview**

We monitor and analyze a numberof key performance measures and indicators in order to manage our business andevaluate financial and operating performance. Those indicators include:

*Revenues.*  We derive revenues primarily from food,beverage, and amusement sales.  For thefiscal year ended February 4, 2007, we derived 36.7 percent of our totalrevenue from food sales, 19.0 percent from beverage sales, 42.1 percent fromamusement sales, and 2.2 percent from other sources.  We continually monitor the success of currentfood and beverage items, the availability of new menu offerings, the menu pricestructure, and our ability to adjust prices where competitivelyappropriate.  In the beverage component,we operate fully licensed facilities, which means we offer full beverageservice, including alcoholic beverages throughout the complex.  Our complexes also offer an extensive arrayof amusements, including state-of-the-art simulators, high-tech video games,traditional pocket billiards and shuffleboard, as well as a variety ofredemption games, which dispense coupons that can be redeemed for prizes in theWinner’s Circle.  Our redemption gamesinclude basic games of skill, such as skee-ball and basketball.  The prizes in the Winner’s Circle range fromsmall-ticket novelty items to high-end electronics, such as flatscreentelevisions.  We review the game play onexisting amusements in an effort to match amusements availability with guestpreferences.  We will continue to investin new games as they become available and prove to be attractive toguests.  Exclusive of new store openings,we invested approximately $5,900 in new games during 2006.  We currently anticipate spendingapproximately $8,000 on new games during fiscal 2007.

We believe that special eventsbusiness is a very important component of our revenue, because a significantpercentage of our guests attending a special event are in a Dave &Buster’s for the first time.  This is avery advantageous way to introduce the concept to new guests.  Accordingly, a considerable emphasis isplaced on this area through the in-store sales teams.

*Cost of products.*  Cost of products includes thecost of food, beverages, and Winner’s Circle amusement items.  During fiscal 2006, the cost of food productsaveraged 25.2 percent of food revenue and the cost of beverage productsaveraged 25.3 percent of beverage revenue. The amusement cost of products averaged 12.7 percent of amusementrevenues.  The cost of products is drivenby product mix and pricing movements from third party suppliers.  We continually strive to gain efficiencies inboth the acquisition and use of products while maintaining high standards ofproduct quality.

*Operating payroll and benefits.*  Operatingpayroll and benefits consist of wages, employer taxes, and benefits for storepersonnel.  We continually review theopportunity for efficiencies principally through scheduling refinements.

*Other store operating expenses.*  Otherstore operating expenses consist of store-related occupancy, restaurantexpenses, utilities, repair and maintenance and marketing costs.

*Liquidity and cash flows.*  Theprimary source of cash flow is from our operating activities and availabilityunder the revolving credit facility.

*Quarterly fluctuations, seasonality, and inflation.*  As aresult of the substantial revenues associated with each new complex, the timingof new complex openings will result in significant fluctuations in quarterlyresults.  We also expect seasonality tobe a factor in the operation or results of the business in the future withanticipated lower third quarter revenues and higher fourth quarter revenuesassociated with the year-end holidays. Additionally, we expect that volatile energy costs will continue toexert pressure on both supplier pricing and consumer spending related toentertainment and dining alternatives. Although, there is no assurance that our cost of products will remainstable or that the federal or state minimum wage rate will not increase, theeffects of any supplier price increases or minimum wage rate increases areexpected to be partially offset by selected menu price increases wherecompetitively appropriate.  We expectthat its historically higher revenues during the fourth quarter due to thewinter holiday season will continue to make the financial results susceptibleto the impact of severe weather on customer traffic and sales during thatperiod.

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**Results ofOperations**

The following table sets forthselected data in thousands of dollars and as a percentage of total revenues(unless otherwise noted) for the periods indicated.  All information is derived from theconsolidated statements of operations included in this Form 10-K.
| **(dollars in thousands)**                                                | ** ** | **334-Day Period from  March 8, 2006 to  February 4, 2007** | ** ** | **37-Day Period from  January 30, 2006 to  March 7, 2006** | ** ** | **Fiscal Year  Ended  February 4, 2007** | ** ** | **Fiscal Year  Ended  January 29, 2006** | ** ** | **Fiscal Year  Ended  January 30, 2005** | ** ** |
|-------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------|------------|---------------------------------------------------------|------------|---------------------------------------------------------|------------|---------------------------------------------------------|------------|
| ** **                                                                          | ** ** | **(Successor)**                                                                                | ** ** | **(Predecessor)**                                                                             | ** ** | **(Combined)**                                          | ** ** | **(Predecessor)**                                       | ** ** | **(Predecessor)**                                       | ** ** |
|                                                                                |       |                                                                                           |       |                                                                                          |       |                                                    |       |                                                    |       |                                                    |       |   |   |   |   |   |   |   |   |   |   |   |
| Food and beverage  revenues                                                         |       | $                                                                                              | 256,616    |                                                                                          | 55.8       | %                                                       |       | $                                                       | 27,562     |                                                    | 54.7       | % | $ | 284,178 |   | 55.7 | % | $ | 253,996 |   | 54.8 | % | $ | 209,689 |   | 53.7 | % |
| Amusement and other  revenues                                                       |       | 203,176                                                                                        |       | 44.2                                                                                          |       |                                                    | 22,847     |                                                    | 45.3       |                                                    | 226,023    |   | 44.3 |   | 209,456 |   | 45.2 |   | 180,578 |   | 46.3 |   |
| Total revenues                                                                      |       | 459,792                                                                                        |       | 100.0                                                                                         |       |                                                    | 50,409     |                                                    | 100.0      |                                                    | 510,201    |   | 100.0 |   | 463,452 |   | 100.0 |   | 390,267 |   | 100.0 |   |
| Cost of food and  beverage (as a percentage of food and beverage revenues)          |       | 64,549                                                                                         |       | 25.2                                                                                          |       |                                                    | 7,111      |                                                    | 25.8       |                                                    | 71,660     |   | 25.2 |   | 65,405 |   | 25.8 |   | 53,890 |   | 25.7 |   |
| Cost of amusements and  other (as a percentage of amusement and other revenues) (1) |       | 28,999                                                                                         |       | 14.3                                                                                          |       |                                                    | 3,268      |                                                    | 14.3       |                                                    | 32,267     |   | 14.3 |   | 28,723 |   | 13.7 |   | 24,344 |   | 13.5 |   |
| Total cost of products                                                              |       | 93,548                                                                                         |       | 20.4                                                                                          |       |                                                    | 10,379     |                                                    | 20.6       |                                                    | 103,927    |   | 20.4 |   | 94,128 |   | 20.3 |   | 78,234 |   | 20.0 |   |
| Operating payroll and  benefits (1)                                                 |       | 130,123                                                                                        |       | 28.3                                                                                          |       |                                                    | 14,113     |                                                    | 28.0       |                                                    | 144,236    |   | 28.3 |   | 130,367 |   | 28.2 |   | 109,062 |   | 27.9 |   |
| Other store operating  expenses (1)                                                 |       | 147,295                                                                                        |       | 32.0                                                                                          |       |                                                    | 15,323     |                                                    | 30.4       |                                                    | 162,618    |   | 31.9 |   | 144,066 |   | 31.1 |   | 113,810 |   | 29.2 |   |
| General and  administrative expenses(1)                                             |       | 35,055                                                                                         |       | 7.6                                                                                           |       |                                                    | 3,829      |                                                    | 7.6        |                                                    | 38,884     |   | 7.6 |   | 33,951 |   | 7.3 |   | 28,237 |   | 7.2 |   |
| Depreciation and  amortization expense                                              |       | 43,892                                                                                         |       | 9.5                                                                                           |       |                                                    | 4,328      |                                                    | 8.6        |                                                    | 48,220     |   | 9.4 |   | 42,616 |   | 9.2 |   | 34,238 |   | 8.8 |   |
| Startup costs                                                                       |       | 3,470                                                                                          |       | 0.8                                                                                           |       |                                                    | 880        |                                                    | 1.7        |                                                    | 4,350      |   | 0.8 |   | 5,325 |   | 1.1 |   | 1,295 |   | 0.3 |   |
| Total operating costs                                                               |       | 453,383                                                                                        |       | 98.6                                                                                          |       |                                                    | 48,852     |                                                    | 96.9       |                                                    | 502,235    |   | 98.4 |   | 450,453 |   | 97.2 |   | 364,876 |   | 93.4 |   |
| Operating income                                                                    |       | 6,409                                                                                          |       | 1.4                                                                                           |       |                                                    | 1,557      |                                                    | 3.1        |                                                    | 7,966      |   | 1.6 |   | 12,999 |   | 2.8 |   | 25,391 |   | 6.6 |   |
| Interest expense, net                                                               |       | 27,064                                                                                         |       | 5.9                                                                                           |       |                                                    | 649        |                                                    | 1.3        |                                                    | 27,713     |   | 5.4 |   | 6,695 |   | 1.4 |   | 5,586 |   | 1.4 |   |
| Income (loss) before  provisions for income taxes                                   |       | (20,655                                                                                        | )          | (4.5                                                                                          | )          |                                                    | 908        |                                                    | 1.8        |                                                    | (19,747    | ) | (3.8 | ) | 6,304 |   | 1.4 |   | 19,805 |   | 5.2 |   |
| Provision (benefit) for  income taxes                                               |       | (8,592                                                                                         | )          | (1.9                                                                                          | )          |                                                    | 422        |                                                    | 0.8        |                                                    | (8,170     | ) | (1.5 | ) | 2,016 |   | 0.4 |   | 6,925 |   | 1.8 |   |
| Net income (loss)                                                                   |       | $                                                                                              | (12,063    | )                                                                                             | (2.6       | )%                                                      |       | $                                                       | 486        |                                                    | 1.0        | % | $ | (11,577 | ) | (2.3 | )% | $ | 4,288 |   | 1.0 | % | $ | 12,880 |   | 3.4 | % |
| Cash provided by (used  in):                                                        |       |                                                                                           |       |                                                                                          |       |                                                    |       |                                                    |       |                                                    |       |   |   |   |   |   |   |   |   |   |   |   |
| Operating activities                                                                |       | $                                                                                              | 43,678     |                                                                                          |       |                                                    |       | $                                                       | 10,741     |                                                    |       |   | $ | 54,419 |   |   |   | $ | 65,423 |   |   |   | $ | 49,064 |   |   |   |
| Investing activities                                                                |       | (341,104                                                                                       | )          |                                                                                          |       |                                                    | (10,600    | )                                                       |       |                                                    | (351,704   | ) |   |   | (63,271 | ) |   |   | (81,772 | ) |   |   |
| Financing activities                                                                |       | 299,986                                                                                        |       |                                                                                          |       |                                                    | 89         |                                                    |       |                                                    | 300,075    |   |   |   | (5,957 | ) |   |   | 37,160 |   |   |   |
|                                                                                |       |                                                                                           |       |                                                                                          |       |                                                    |       |                                                    |       |                                                    |       |   |   |   |   |   |   |   |   |   |   |   |
| Change in comparable  store sales(2)                                                |       |                                                                                           |       |                                                                                          |       |                                                    |       |                                                    |       |                                                    |       |   | 5.5 | % |   |   | 1.5 | % |   |   | (0.2 | )% |
| Stores open at end of  period(3)                                                    |       | 48                                                                                             |       |                                                                                          |       |                                                    | 46         |                                                    |       |                                                    | 48         |   |   |   | 46 |   |   |   | 43 |   |   |   |
| Comparable stores open at end of period                                             |       | 33                                                                                             |       |                                                                                          |       |                                                    | 33         |                                                    |       |                                                    | 33         |   |   |   | 33 |   |   |   | 32 |   |   |   |

 

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(1)                   Certain prior period balanceshave been reclassified to conform to the current period presentation and toreflect successor management’s view of store level operations, as shown below:

a)                     Costs associated withmulti-unit operations personnel have been reclassified from operating expensesto general and administrative expenses.

b)                    Certaincosts associated with special events revenue have been reclassified from otherstore operating to cost of amusements and other.

c)                     Certaincosts associated with cost of goods sold have been reclassed from other storeoperating to cost of food and beverage and cost of amusements and other.

Amount of increase (decrease) inpreviously reported costs:
|                                      | ** ** | **334-Day Period  from March 8,  2006 to  February 4, 2007** | ** ** | **37-Day Period  From January  30, 2006 to  March 7, 2006** | ** **        | **Fiscal Year  Ended  February 4, 2007** | ** **     | **Fiscal Year  Ended  January 29, 2006** | ** **        | **Fiscal Year  Ended  January 30, 2005** | ** **        |
|--------------------------------------|------------|--------------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------------------------|-------------------|---------------------------------------------------------|----------------|---------------------------------------------------------|-------------------|---------------------------------------------------------|-------------------|
| **(dollars in thousands)** | ** ** | **(Successor)**                                                                            | ** ** | ** **                                                                                | **(Predecessor)** | ** **                                              | **(Combined)** | ** **                                              | **(Predecessor)** | ** **                                              | **(Predecessor)** | ** ** |
| ** **                           | ** ** | ** **                                                                                 | ** ** | ** **                                                                                | ** **        | ** **                                              | ** **     | ** **                                              | ** **        | ** **                                              | ** **        | ** ** |
| Cost of food and  beverage           |       | $                                                                                          | —     |                                                                                      |              | $                                                       | —         |                                                    | $                 | —                                                  |              | $ | 3,587 |   | $ | 2,523 |   |
| Cost of  amusements and other        |       | —                                                                                     |       |                                                                                      | 85                |                                                    | 85             |                                                    | 3,248             |                                                    | 2,640             |   |
| Operating  payroll and benefits      |       | —                                                                                     |       |                                                                                      | (252              | )                                                       | (252           | )                                                       | (2,017            | )                                                       | (1,480            | ) |
| Other store  operating               |       | —                                                                                     |       |                                                                                      | (182              | )                                                       | (182           | )                                                       | (7,611            | )                                                       | (5,699            | ) |
| General and  administrative expenses |       | —                                                                                     |       |                                                                                      | 349               |                                                    | 349            |                                                    | 2,793             |                                                    | 2,016             |   |
| Total operating  costs               |       | $                                                                                          | —     |                                                                                      |              | $                                                       | —         |                                                    | $                 | —                                                  |              | $ | — |   | $ | — |   |

 

(2)                   “Comparable store sales”(year-over-year comparison of complexes open at least 18 months as of thebeginning of each of the fiscal years) is a key performance indicator usedwithin the industry and is indicative of acceptance of our initiatives as wellas local economic and consumer trends.

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(3)                   The number of stores open atFebruary 4, 2007 includes the openings of complexes in New York Times Square onApril 5, 2006, and Maple Grove, Minnesota on November 13, 2006, and theopenings of complexes in Omaha, Buffalo and Kansas City in the second, thirdand fourth quarters of 2005, respectively.

***Fiscal 2006 Compared toFiscal 2005***

***Revenues***

Fiscal 2006 consisted of 53-weekscompared to 52-weeks in fiscal 2005. Where appropriate for comparative purposes, we have estimated thechanges in fiscal 2006 operating results versus an estimated 53-week period forfiscal 2005.

Total revenues increased 10.1percent, or $46,749, for the 53-weeks of 2006 compared to the 52-weeks offiscal 2005.  We have estimated therevenues during the 53rd week of fiscal 2006 to be $9,018.  The revenue growth provided by the additionalweek of sales in fiscal 2006 was partially offset by a $2,367 non-cashreduction in revenue related to the deferral of amusement revenue during the334-day period from the Merger date to February 4, 2007.  The revenue deferral represents our estimateof the amount of amusement and other revenues during the current fiscal year thatwill be fulfilled by customer game play in subsequent periods, and has noimpact on our business or cash flow. However, the deferral of this revenue reduced our GAAP (“GenerallyAccepted Accounting Principles”) amusement revenue during the current fiscalyear.

We have estimated that the increasesin revenues were derived from the following sources:
| ** **                                     | ** ** | **Impact of**     | ** ** | ** **           | ** ** |
|------------------------------------------------|------------|------------------------|------------|----------------------|------------|
| ** **                                     | ** ** | **Additional**         | ** ** | **Deferral of** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                     | ** ** | **Week in**       | ** ** | **Amusement**        | ** ** | **Ongoing** | ** ** | ** ** | ** ** |
| **(dollars in thousands)**           | ** ** | **Fiscal Period** | ** ** | **Revenue**          | ** ** | **Operations** | ** ** | **Total** | ** ** |
| ** **                                     | ** ** | ** **             | ** ** | ** **           | ** ** | ** ** | ** ** | ** ** | ** ** |
| Comparable  stores                             |       | $                      | 6,646      |                 | $          | (1,834 | ) | $ | 15,493 |   | $ | 20,305 |   |
| Non-comparable  stores:                        |       |                   |       |                 |       |   |   |   |   |
| Stores opened or acquired prior to fiscal 2005 |       | 1,588                  |       | (357                 | )          | 4,426 |   | 5,657 |   |
| Stores opened in 2005                          |       | 316                    |       | (117                 | )          | 11,980 |   | 12,179 |   |
| Stores opened in 2006                          |       | 468                    |       | (59                  | )          | 13,652 |   | 14,061 |   |
| Closed stores  and other                       |       | —                 |       | —               |       | (5,453 | ) | (5,453 | ) |
| Total                                          |       | $                      | 9,018      |                 | $          | (2,367 | ) | $ | 40,098 |   | $ | 46,749 |   |

 

Comparable store sales, excludingthe impact of the revenue deferral described above, increased by approximately4.1 percent in fiscal 2006 compared to an estimated 53-week fiscal 2005.  Comparable special events revenues accountedfor 17.3 percent of consolidated comparable store revenue for fiscal 2006, upfrom 17.2 percent in fiscal 2005.

Food sales at comparable storesincreased by 7.0 percent over fiscal 2005 (5.2 percent increase compared to anestimated 53-week fiscal 2005).  Ourrevenues were supported by 19-weeks of advertising on cable television in allof the markets and supplemental spot radio advertising in selected markets.  Our marketing efforts in 2006 focused onnational cable and spot radio, which has proven more effective than the radioand print used in 2005.  The increase infood sales was accomplished in part by the continued success of the “PowerCombo” promotion.  Beverage sales atcomparable stores increased by 6.9 percent over fiscal 2005 (4.8 percentincrease compared to an estimated 53-week fiscal 2005) as we experiencedcontinued positive results of promotional activity around the beveragecomponent of our business.  Comparablestore amusements and other revenue in fiscal 2006 increased by 3.6 percentversus 2005.  Comparable store amusementand other revenue, excluding the impact of the revenue deferral describedabove, increased 2.9 percent in fiscal 2006 compared to an estimated53-week fiscal 2005.

Our revenue mix was 55.7 percent for food and beverageand 44.3 percent for amusements and other for fiscal 2006.  This compares to 54.8 percent and 45.2percent for fiscal 2005.  The shift inthe revenue mix was operationally influenced by the success of two promotionalefforts launched in the middle of the second quarter of 2005, the “Power Combo”promotion, and the “Super Charge” promotion. The “Power Combo” promotion provides guests with a value offering thatincludes selected entrees and a game card at a fixed price.  The “Super Charge” promotion allows guests toincreased purchased game play on certain Power Cards by twenty-five percent fora discounted amount.  The deferral ofamusement revenue discussed above during the 2006 Successor operating periodexaggerated the impact of the operating initiatives on our sales mix.  Our revenue mix, excluding the impact of thecurrent year revenue deferral was 55.4 percent food and beverage, 44.6 percentamusements and other.

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***Cost of Products***

Cost of food and beverage products declined 60 basispoints to 25.2 percent of revenue for fiscal 2006 compared to 25.8 percentfor fiscal 2005.  Decreases in dairy,meat, grocery, liquor and wine costs were offset by slight increases in thecost of beer compared to fiscal 2005.

The costs of amusements and other, as a percentage ofamusements and other revenues increased 60 basis points to 14.3 percent forfiscal 2006 compared to 13.7 percent for 2005. This increase is primarily a result of the revenue mix changes describedabove and increased freight charges.

***Operating Payroll and Benefits***

Operating payroll and benefits slightly increased as apercent of revenue at 28.3 percent for fiscal 2006 compared to 28.2 percent forfiscal 2005.

***Other Store Operating Expenses***

Other store operating expenses increased to 31.9 percentfrom 31.1 percent for fiscal 2006 compared to fiscal 2005.  The increase in other operating expenses isprimarily associated with a $3,100 non-cash charge, attributable to a change inthe estimate related to liabilities for general liability and workerscompensation claims.  Our revisedestimates were derived from an actuarial study completed in the fourth quarterof fiscal 2006.  The additional expenserecorded as a result of the change in estimate is primarily attributable toopen policy years prior to fiscal 2006. We do not believe that the adjustments recorded in the fourth quarter offiscal 2006 reflect a material difference in the historic trends of ourbusiness nor will they adversely affect our business outlook.

***General and Administrative Expenses***

General and administrative expenses consist primarily ofpersonnel, facilities, and professional expenses for the various departments ofour corporate headquarters.  General andadministrative expenses increased 30 basis points for fiscal 2006 compared tofiscal 2005.  Reductions in costsincurred for audit services were offset by expenses associated with the Mergertransactions, including employment agreement costs triggered by the Mergertransaction, litigation expenses, and provision for estimated incentivecompensation programs.

***Depreciation and Amortization Expense***

Depreciation and amortization expense increased $5,604primarily due to 53-weeks of depreciation in 2006 compared to 52-weeks in 2005,new store openings in 2006 and 2005, and the conversion of six of the Jillian’slocations acquired in fiscal 2004 to Dave & Buster’s Grand Sports Cafébrand in 2006 and 2005.  Depreciation andamortization expense in fiscal 2005 also included a $2,500 charge in the secondquarter of 2005 related to the closing of the Jillian’s entertainment complexlocated at the Mall of America in Bloomington, Minnesota.  The $2,500 charge consisted of additionaldepreciation, amortization, and impairment of the assets which were abandonedand whose carrying value was not recoverable.

***Startup Costs***

Startup costs include costs associated with the openingand organizing of new complexes or conversion of existing complexes, includingthe cost of feasibility studies, staff training and recruiting, and travelcosts for employees engaged in such startup activities.  All startup costs are expensed asincurred.  The decrease in startup costsis primarily attributable to the opening of the Times Square and Maple Grovelocations in the first and fourth quarters of 2006, respectively, compared tothe opening of the Omaha, Buffalo and Kansas City locations in the second,third and fourth quarters of 2005, respectively.  Startup costs were also impacted in the firstquarter of 2006 due to the conversion of one of the Jillian’s locations to Dave& Buster’s Grand Sports Café brand. We converted five of the Jillian’s stores in the third and fourthquarters of 2005.

***Interest Expense***

The increase in interest expense is attributed toborrowings of $79,375 under the senior credit facility and the privateplacement of $175,000 aggregate principal amount of senior notes that wereissued in connection with the Merger.

***Provision for Income Taxes***

Our effective tax rate differs from the statutory rateprimarily due to the impact of certain expenses that are not deductible for taxpurposes, the deduction for FICA tip credits and state income taxes.

19

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***Fiscal 2005Compared to Fiscal 2004***

***Revenues***

Total revenues increased 18.8percent, or $73,185, for fiscal 2005 compared to fiscal 2004.  Comparable stores revenue increased 1.5percent, or $5,311 for fiscal 2005 compared to fiscal 2004.

Theincreases were derived from the following sources:
| Acquired Jillian’s branded  stores                                 |   | $      | 48,643 |   |
|-------------------------------------------------------------------------|--------|--------|--------|--------|
| Dave &  Buster’s branded stores opened in fiscal 2004 and 2005 |   | 18,030 |   |
| Comparable Dave  & Buster’s branded stores                     |   | 5,311  |   |
| Other                                                                   |   | 1,201  |   |
| Total increase                                                          |   | $      | 73,185 |   |

 

Our revenue mix was54.8 percent for food and beverage and 45.2 percent for amusementsand other.  This compares to53.7 percent and 46.3 percent, respectively, for the comparableperiod in 2004.  The shift in the revenuemix was influenced by the success of the “Power Combo” and “Super Charge”promotions at our stores, partially offset by the operations of the Jillian’sbranded stores, which traditionally have a larger percentage of revenueattributable to amusements.

Food sales at our comparablestores increased by 5.7 percent over sales levels achieved in the sameperiod of 2004.  This increase in foodsales was accomplished primarily by the success of the “Power Combo”promotion.  Beverage sales at thecomparable stores increased by 4.3 percent over fiscal 2004 as weexperienced continued success of the “Late Night Happy Hour” and otherpromotional activity around the beverage component of the business.  Comparable store amusements revenue in fiscal2005 declined by 2.6 percent versus the same period of 2004, due in partto the discounted game play resulting from promotional activities.

Comparable special eventsrevenues accounted for 16.4 percent of consolidated revenue for fiscal 2005, upfrom 16.1 percent in the comparable 2004 period.

***Cost ofProducts***

Cost of food and beverage products increased 10 basispoints to 25.8 percent of revenue for fiscal 2005, compared to25.7 percent for fiscal 2004.  Forcomparable locations, food and beverage costs as a percentage of revenuedecreased 50 basis points to 24.3 percent, compared to 24.8 percent for fiscal2004.  These decreased costs were offsetby higher food and beverage costs at the Jillian’s locations, which were26.4 percent of revenue.  Higherfood and beverage costs at our Jillian’s locations were due in part to costsassociated with the implementation of new menu items.

The costs of amusements and other, as a percentage ofamusements and other revenue, increased 20 basis points to 13.7 percentfor fiscal 2005 compared to 13.5 percent for fiscal 2004.  Margin improvements achieved by purchasingamusement redemption items directly from Asia were offset by the impact of therevenue mix changes described above.

***Operating Payroll and Benefits***

Operating payroll and benefits increased 30 basis pointsto 28.2 percent of revenue for fiscal 2005, compared to 27.9 percent for fiscal2004.  This increase was primarily drivenby additional management training costs and $400 in severance costs required toclose the acquired Jillian’s complex located at the Mall of America.

***Other Store Operating Expenses***

Other store operating expenses increased 190 basis pointsto 31.1 percent for fiscal 2005, compared to 29.2 percent for the same periodof 2004.  Occupancy costs as a percentageof total revenues increased 80 basis points as a result of Jillian’s higherrent and tax costs compared to their sales volumes.  Increases in utility costs (50 basis points)and restaurant expense (70 basis points) also contributed to the overallincrease.

***General and Administrative Expenses***

General and administrative expenses consist primarily ofpersonnel, facilities, and professional expenses for the various departments ofcorporate headquarters.  General andadministrative expenses, as a percentage of revenues, remained relatively flatfor fiscal 2005, compared to 2004.

20

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The increase in absolute dollars of approximately $5,700 was primarilyattributable to increases in personnel costs and services in support of theacquired Jillian’s locations and new store growth.

***Depreciation and Amortization Expense***

Depreciation and amortization expense increased primarilydue to ongoing expense associated with the Jillian’s locations acquired inNovember 2004 and the charge related to the August 28, 2005 closureof the Jillian’s complex located at the Mall of America.  We closed the complex due to continuingoperating losses and unsuccessful efforts to renegotiate the terms of therelated leases.  As a result of theclosing, we recorded a pre-tax charge of approximately $2,500 in the secondquarter of 2005.  The charge consisted ofadditional depreciation, amortization, and impairment of the assets which wereabandoned and whose carrying value was not recoverable as of July 31,2005.

***Startup Costs***

Startup costs include costs associated with the openingand organizing of new complexes or conversion of existing complexes, includingthe cost of feasibility studies, staff-training, and recruiting andtravel costs for employees engaged in such startup activities.  All startup costs are expensed asincurred.  Through October 30, 2005,rent incurred between the time construction is substantially completed and thetime the complex opens was included in startup costs.  Beginning October 31, 2005, all rentincurred during the construction period is expensed and included in startupcosts.  The increase in startup costs asa percentage of revenues is primarily attributed to the opening of the Omaha,Buffalo, and Kansas City locations in the second, third, and fourth quarters of2005 compared to the opening of the Santa Anita location in the third quarterof 2004.  Startup costs were alsoimpacted in fiscal 2005 due to the conversion of five Jillian’s locations toour “Dave & Buster’s Grand Sports Café” brand.

***Interest Expense***

Interest expense as a percentage of revenues remainedflat as a percentage of revenues, however increased in absolute dollarsapproximately $1,100.  The increase inabsolute dollars is attributed to the increased borrowings under the debtfacility as a result of the Jillian’s acquisition.  During fiscal year 2005, we reduced ouroutstanding debt by approximately $8,000.

***Provision for Income Taxes***

Our effective tax rate differs from the statutory rateprimarily due to the deduction for FICA tip credits and state income taxes.

**Liquidity andCapital Resources**

Total cash requirements of the Merger of approximately$400,728 were used to (i) purchase common stock, outstanding options andwarrants, and shares issued upon the conversion of convertible subordinatednotes; (ii) redeem the convertible subordinated notes if not previouslyconverted; (iii) repay in full all funds borrowed under the existingcredit facility, and terminate such facility; and (iv) to pay certainfees, costs and expenses related to the Merger. These financing requirements were financed through a cash equitycontribution of $108,100 by affiliates of Wellspring and HBK, proceeds from a new$160,000 senior secured credit facility, and proceeds from the issuance of$175,000 in senior notes and cash on hand.

In connection with the Merger, we terminated the existingcredit facility and entered into a senior credit facility (the “senior creditfacility”) that provides a $100,000 term loan facility ($50,000 of the termloan facility was available as of the date of the Merger, March 8, 2006, and$50,000 was available on a delayed-draw basis and was borrowed on August 15,2006) with a maturity of seven years from the closing date of the Merger andprovides a $60,000 revolving credit facility with a maturity of five years fromthe closing date of the Merger.  The$60,000 revolving credit facility includes (i) a $20,000 letter of creditsub-facility, (ii) a $5,000 swingline sub-facility and (iii) a $5,000(in US Dollar equivalent) sub-facility available in Canadian dollars to theCanadian subsidiary.  The revolvingcredit facility will be used to provide financing for working capital andgeneral corporate purposes.  As ofFebruary 4, 2007, borrowings under the revolving credit facility and term loanfacility were $0 and $79,375, respectively, and we had $6,956 in letters ofcredit outstanding.

The senior credit facility is secured by all of ourassets.  Borrowings on the senior creditfacility bear interest at a floating rate based upon the bank’s prime interestrate of 8.25 percent at February 4, 2007 or, at our option, the applicableEurodollar rate of 5.35 percent at February 4, 2007, plus a margin, in eithercase, based upon financial performance, as prescribed in the senior creditfacility.  Effective June 30, 2006,we entered into two interest rate swap agreements that expire in 2011, tochange a substantial portion of the variable rate debt to fixed rate debt.  Pursuant to the swap agreements, the interestrate on notional amounts is fixed at 5.31 percent.

21

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Interest rates on borrowings under the senior creditfacility vary based on the movement of prescribed indexes and applicable marginpercentages.  On the last day of eachcalendar quarter, we are required to pay a commitment fee of 0.5 percent on anyunused commitments under the revolving credit facilities or the term loanfacility.  The senior credit facilityrequires scheduled quarterly payments of principal on the term loans at the endof each of the fiscal quarters beginning June 2006 in aggregate annualamounts equal to 1.0 percent of the original aggregate principal amount of theterm loan with the balance payable ratably over the final four quarters.  Our indebtedness increased to $254,375 as ofFebruary 4, 2007 compared to $80,175 as of January 29, 2006, as a result, theannual interest expense increased materially.

The senior credit facility and the indenture governingthe senior notes contain restrictive covenants that, among other things, limitour ability and the ability of our subsidiaries to, among other things: incuradditional indebtedness, make loans or advances to subsidiaries and otherentities, make capital expenditures, declare dividends, acquire otherbusinesses or sell assets.  In addition,under the senior credit facility, we are required to meet certain financialcovenants, ratios, and tests, including a minimum fixed charge coverage ratioand a maximum leverage ratio.  The indentureunder which the senior notes are to be issued also contains customary covenantsand events of defaults.

We believe that cash flow from operations, together withborrowings under the senior credit facility, will be sufficient to coverworking capital, capital expenditures, and debt service needs in theforeseeable future.  Our ability to makescheduled payments of principal or interest on, or to refinance, theindebtedness, or to fund planned capital expenditures, will depend on futureperformance, which is subject to general economic conditions, competitiveenvironment and other factors as described under “Risk Factors” in this Form10-K.

***Historical CashFlows***

***Fiscal 2006Compared to Fiscal 2005***

As of February 4, 2007, we had cash and cash equivalentsof $10,372 and available borrowing capacity of $53,044 under the revolvingcredit facility of the senior credit facility.

Cash flow from operations was $54,419 for fiscal 2006compared to $65,423 for fiscal 2005.  Thedecrease in cash flow from operations from 2005 is primarily due to an increasein the cash paid for interest of approximately $12,900.

Cash used in investing activities was $351,704 for fiscal2006 compared to $63,271 for fiscal 2005. The year-to-date investing activities include approximately $338,239 inMerger-related payments for the following: $264,835 consideration paid tostockholders, $44,390 consideration paid to convertible note and warrantholders, $9,279 consideration paid to option holders, and $19,735 intransaction costs.  Year-to-date 2006capital expenditures totaled $42,543 which was comprised of approximately$5,900 in games, $21,700 for new store development and construction (primarilyconstruction costs for the 2006 store openings in Times Square, New York andMaple Grove, Minnesota), normal capital expenditures at existing stores andconversion costs for one of the Jillian’s complexes to the “Dave &Buster’s Grand Sports Café” brand. During the fourth quarter of 2006, we entered into the sale andleaseback agreements related to three properties we owned.  These transactions generated $28,357 in netproceeds.  The investing activities forfiscal 2005 included capital expenditures of $62,066 which was comprised of$8,900 in games, approximately $30,700 for new store development andconstruction (primarily construction costs for the 2005 store openings inOmaha, Nebraska, Buffalo, New York and Kansas City, Kansas) and normal capitalexpenditures at existing stores.

We plan on financing future growth through operating cashflows, debt facilities, and tenant improvement allowances from landlords.  We expect to spend approximately $38,000($35,000 net of tenant improvement allowances) in capital expenditures duringfiscal year 2007.  The 2007 expenditureswill include approximately $15,700 ($12,700 net of tenant improvementallowance) for new store construction, and $22,300 in maintenance capital andnew games.

Cash provided from financing activities was $300,075 forfiscal 2006 compared to cash used in financing activities of $5,957 in fiscal2005.  Proceeds from debt incurred inconnection with the Merger aggregated $292,628 and cash equity contributionsreceived in connection with the Merger aggregated $108,100.  These proceeds were used to acquire commonstock of the Predecessor and to repay in full all obligations related to fundsborrowed under our existing credit facility, and terminate such facility.

Holders of approximately 2.6 million shares exerciseddissenters’ rights and initiated proceedings under Section 351.455 of theGeneral and Business Corporation Law of Missouri to demand fair value withrespect to their shares.  On July 10,2006, we and all dissenting shareholders reached an agreement, which provided,among other things, for the permanent and irrevocable settlement of all claimsbetween the parties associated with the Merger or the dissenting action.  We paid approximately $51,733 to theshareholders in accordance with the terms of the settlement agreement.  Payments of the settlement have been fundedfrom borrowings under the senior credit facility.

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OnNovember 15, 2006, we completed the sale and simultaneous leaseback of the land and buildings of threeowned facilities located in the states of Florida, Illinois, and Ohio.  The transaction was completed at a sale priceof $29,600.  Net proceeds from thetransaction were used to pay down outstanding balances on our senior credit andrevolving credit facilities after a $5,000 hold back for reinvestment.

Weagreed to leaseback these facilities under various operating lease agreements,which have an initial term of 17.5 years. The leases require us to make monthly rental payments, which aggregateto $2,453 on an annual basis.  Rentalpayments under the leases are subject to adjustment based on defined changes inthe Consumer Price Index.  In addition tothe rental payments described above we are required to pay the property taxesand certain maintenance charges related to the properties.

***Fiscal 2005Compared to Fiscal 2004***

Cash flow from operations was$65,423 for fiscal 2005 compared to $49,064 for fiscal 2004.  The increase in cash flow from operations waspartially offset by $4,082 in required payments for income taxes and $4,183 inrequired interest payments during 2005.

Cash used in investing activitieswas $63,271 for 2005 compared to $81,772 for 2004.  The investing activities for 2005 includedapproximately $8,900 to purchase games, approximately $30,700 for new storedevelopment and construction (primarily construction costs for the new stores,which opened in Omaha, Nebraska, Buffalo, New York and Kansas City, Kansas inJuly, October and November 2005, respectively) and normal capitalexpenditures at previously existing stores. The addition of three new complexes represents the largest new storeconstruction effort since 2001.  We spentapproximately $3,500 in capital expenditures during fiscal 2005 to convert fiveJillian’s stores to our “Dave & Buster’s Grand Sports Café” brand.  The majority of the re-branding expenditureswere incurred in the fourth quarter of fiscal 2005.  The investing activities for 2004 includedcash of $47,876 for the acquisition of the nine Jillian’s locations.

In October 2005, we acquired thegeneral partner interest in a limited partnership, which owns a Jillian’scomplex in the Discover Mills Mall near Atlanta, Georgia.  The cost for this interest, acquired pursuantto an auction held by the bankruptcy court was $1,169.  The current agreement provides for payment ofa preferred return to the limited partners and a management fee to us prior todistributions of other net operating income or losses.

Cash used from financingactivities was $5,957 for fiscal 2005 and was used to reduce outstanding debtbalances.  The 2004 cash provided byfinancing activities of $37,160 was the result of increased debt used to fundthe Jillian’s acquisition.

***ContractualObligations and Commercial Commitments***

The following tables set forththe contractual obligations and commercial commitments as of February 4, 2007(excluding interest):

**Payment due by period**
| ** **                   | ** ** | **Total**               | ** ** | **1 Year  or Less** | ** ** | **2-3 Years** | ** ** | **4-5 Years** | ** ** | **After 5   Years** | ** ** |
|------------------------------|------------|-------------------------|------------|-------------------------------|------------|--------------------|------------|--------------------|------------|-------------------------------|------------|
| ** **                   | ** ** | **(in thousands)** | ** ** |
| Senior credit  facility(1)   |       | $                       | 79,375     |                          | $          | 1,000              |       | $                  | 2,000      |                          | $          | 2,000 |   | $ | 74,375 |   |
| Senior notes                 |       | 175,000                 |       | —                        |       | —             |       | —             |       | 175,000                       |       |
| Operating  leases(2)         |       | 565,259                 |       | 42,457                        |       | 84,544             |       | 84,554             |       | 353,704                       |       |
| Other – capital  leases |       | 663                     |       | 368                           |       | 295                |       | —             |       | —                        |       |
| Total                        |       | $                       | 820,297    |                          | $          | 43,825             |       | $                  | 86,839     |                          | $          | 86,554 |   | $ | 603,079 |   |

 

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(1)                                  The senior credit facility includes a $100,000term loan facility and $60,000 revolving credit facility, with a $20,000 letterof credit sub-facility and a Canadian $5,000 revolving sub-facility.  As of February 4, 2007, borrowings under therevolving credit facility were $0; we had drawn approximately $79,375 under theterm loan facility and had $6,956 in letters of credit outstanding.

(2)                                  We have an operating lease agreement for a futuresite located near Tempe, Arizona.  Ourcommitment under the Tempe, Arizona agreement is included in the table above.

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**AccountingPolicies**

We believe that the following critical accountingpolicies, among others, represent more significant judgments and estimates usedin the preparation of the consolidated financial statements.

*Purchase accounting* – We have accounted for the Merger in accordancewith Statement of Financial Accounting Standards 141, “Business Combinations,”whereby the purchase price paid is allocated to record the acquired assets andliabilities assumed at fair value on the closing date of the Merger.  The Merger and the allocation of the purchaseprice have been recorded as of March 8, 2006.  In connection with the purchase priceallocation, we have made estimates of the fair values of the long-lived andintangible assets based upon assumptions that are reasonable related todiscount rates and asset lives utilizing currently available information, andin some cases, valuation results from independent valuation specialists.  As of February 4, 2007, we recorded purchaseaccounting adjustments to the carrying value of property and equipment, toestablish intangible assets for trade names and trademarks and to revalue rentliability, among other matters.  Theadjustments, if any, arising out of the finalization of the allocation of thepurchase price will not impact cash flow including cash interest and rent.

*Property and equipment* - Expenditures that substantially increase theuseful lives of the property and equipment are capitalized, whereas costsincurred to maintain the appearance and functionality of such assets arecharged to repair and maintenance expense. Interest costs incurred during construction are capitalized anddepreciated based on the estimated useful life of the underlying asset.  These costs are depreciated over variousmethods based on an estimate of the depreciable life, resulting in a charge tothe operating results.  Our actualresults may differ from these estimates under different assumptions orconditions.

Reviews are performed regularly to determine whetherfacts or circumstances exist that indicate the carrying values of property andequipment are impaired.  We assess therecoverability of property and equipment by comparing the projected futureundiscounted net cash flows associated with these assets to their respectivecarrying amounts.  Impairment, if any, isbased on the excess of the carrying amount over the estimated fair market valueof the assets.  Changes in the estimatedfuture cash flows could have a material impact on the assessment of impairment.

*Income taxes* – We use the liability method for recordingincome taxes which recognizes the amount of current and deferred taxes payableor refundable at the date of the financial statements as a result of all eventsthat are recognized in the financial statements and as measured by theprovisions of enacted tax laws.

The calculation of tax liabilities involves significantjudgment and evaluation of uncertainties in the interpretation of complex taxregulations.  As a result, we haveestablished reserves for taxes that may become payable in future years as aresult of audits by tax authorities.  Taxreserves are reviewed regularly pursuant to Statement of Financial AccountingStandard 5 “Accounting for Contingencies.” Tax reserves are adjusted as events occur that affect the potentialliability for additional taxes, such as the expiration of statutes oflimitations, conclusion of tax audits, identification of additional exposurebased on current calculations, identification of new issues, or the issuance ofstatutory or administrative guidance or rendering of a court decision affectinga particular issue.  Accordingly, we mayexperience significant changes in tax reserves in the future, if or when, suchevents occur.

*Accounting for amusement operations* – The majority of our amusement revenue isderived from the customer purchase of game play credits which allow our gueststo play the video and redemption games in our midways.  We have recognized a liability for estimatedamount of unused game play credits which we believe our guests will utilize inthe future.  Certain midway games allowguests to earn coupons, which may be redeemed for prizes.  The cost of these prizes is included in thecost of amusement products and is generally recorded when coupons are utilizedby the customer by either redeeming the coupons for a prize in our Winner’sCircle or storing the coupon value on a Power Card for future redemption.  We have accrued a liability for the estimatedamount of outstanding coupons that will be redeemed in subsequent periods.

*Accounting for smallware supplies* - Prior to the Merger, smallware suppliesinventories, consisting of china, glassware and kitchen utensils werecapitalized at the store opening date, or when the smallwares inventory isincreased due to changes in the menu, and are reviewed periodically forvaluation.  Smallware replacements areexpensed as incurred.  Through thepurchase price allocation, smallwares inventory was reclassified to propertyand equipment.  Smallwares are nowrecorded as fixed assets and amortized over the estimated useful life of7 years.

*Insurance reserves* – We use a combination of insurance andself-insurance mechanisms to provide for potential liabilities for workers’compensation, healthcare benefits, general liability, property insurance,director and officers’ liability insurance and vehicle liability.  Liabilities associated with the risks thatare retained by us are not discounted and are estimated, in part, byconsidering historical claims experience, demographic factors, severity factorsand other actuarial assumptions.  Theestimated accruals for these liabilities, portions of which are calculated bythird party actuarial firms, could be significantly affected if futureoccurrences and claims differ from these assumptions and historical trends.

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*Loss contingencies* – We maintain accrued liabilities and reservesrelating to the resolution of certain contingent obligations.  Significant contingencies include thoserelated to litigation.  We account forcontingent obligations in accordance with SFAS 5, “Accounting forContingencies,” as interpreted by FASB Interpretation 14 which requires that weassess each contingency to determine estimates of the degree of probability andrange of possible settlement. Contingencies which are deemed probable and where the amount of suchsettlement is reasonably estimable are accrued in our financialstatements.  If only a range of loss canbe determined, we accrue to the best estimate within that range; if none of theestimates within that range is better than another, we accrue to the low end ofthe range.

The assessment of loss contingencies is a highlysubjective process that requires judgments about future events.  Contingencies are reviewed at least quarterlyto determine the adequacy of the accruals and related financial statementdisclosure.  The ultimate settlement ofloss contingencies may differ significantly from amounts we have accrued in thefinancial statements.

**Recent Accounting Pronouncements**

In March 2006, the EmergingIssues Task Force (“EITF”) issued EITF Issue 06-03, “How Taxes Collected fromCustomers and Remitted to Governmental Authorities Should Be Presented in theIncome Statement” (That Is, Gross Versus Net Presentation).  A consensus was reached that entities mayadopt a policy of presenting sales taxes in the income statement on either agross or net basis.  If taxes aresignificant, an entity should disclose its policy of presenting taxes and theamounts of taxes.  The guidance iseffective for periods beginning after December 15, 2006.  We present revenues net of sales taxes.  This issue will not impact the method forpresenting these sales taxes in the consolidated financial statements.

InJune 2006, the Financial Accounting Standards Board (“FASB”) issued FASBInterpretation 48, “Accounting for Uncertainty in Income Taxes – aninterpretation of FASB Statement 109” (“FIN 48”).  FIN 48 requires companies to determinewhether it is more likely than not that, a tax position will be sustained uponexamination by the appropriate taxing authorities before any part of thebenefit can be recorded in the financial statements.  This interpretation also provides guidance onderecognition, classification, accounting in interim periods, and expandeddisclosure requirements.  FIN 48 iseffective for fiscal years beginning after December 15, 2006.  We do not believe that the implementation ofFIN 48 will have a material effect on our consolidated financial statements.

InSeptember 2006, the FASB issued Statement of Financial Accounting Standards157, “Fair Value Measurements” (“SFAS 157”). SFAS 157 clarifies the definition of fair value, describes methods usedto appropriately measure fair value, and expands fair value disclosurerequirements.  This statement iseffective for fiscal years beginning after November 15, 2007.  We are currently in the process of assessingthe impact that SFAS 157 will have on our consolidated financial statements.

In February 2007, the FASB issued Statement ofFinancial Accounting Standards 159, “The Fair Value Option for Financial Assetsand Liabilities” (“SFAS 159”).  Thisstatement permits entities to choose to measure many financial instruments andcertain other items at fair value.  Ifthe fair value option is elected, unrealized gains and losses will berecognized in earnings at each subsequent reporting date.  SFAS 159 is effective for fiscal years beginningafter November 15, 2007.  We arecurrently evaluating the impact of this adoption on our consolidated financialstatements.

**ITEM 7A.       QUANTITATIVEAND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**

We have market risk relating to changes in the generallevel of interest rates.  Earnings areaffected by changes in interest rates due to the impact of those changes oninterest expense from variable rate debt. Effective June 30, 2006, we entered into two interest rate swapagreements that expire in 2011, to change a substantial portion of the variablerate debt to fixed rate debt.  Pursuantto the swap agreements, the interest rate on notional amounts is fixed at 5.31percent.  Agreements to fix a portion ofthe variable rate debt mitigate the interest rate risk.

We have market risk associated with foreignoperations.  Our market risk associatedwith foreign operations arises from one unit that we operate in Canada and oneunit that is operated by a franchisee in Mexico.  Management considers the currency riskassociated with these operations to be immaterial to our portfolio of operatingrestaurant/entertainment complexes.  Theresult of an immediate 10.0 percent devaluation of the U.S. dollar in 2007 fromFebruary 4, 2007 levels relative to foreign currency translation would resultin a decrease in the U.S. dollar-equivalent of foreign currency denominated netincome and would be insignificant.

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**ITEM 8.****                             FINANCIALSTATEMENTS AND SUPPLEMENTARY DATA**

The consolidatedfinancial statements of the Company and supplementary data are included aspages F-1 through F-21 in this Annual Report on Form 10-K.
| **ITEM 9.** | ** ** | **CHANGES  IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE** |
|-------------|------------|-------------------------------------------------------------------------------------------|

 
|  | ** ** | Not applicable. |
|--|------------|-----------------|

 

**ITEM 9A.****                    CONTROLSAND PROCEDURES**

**Disclosure Controls and Procedures**

Basedon their evaluation of our disclosure controls and procedures as defined inRules 13a-15 and 15d-15 under the Securities Exchange Act of 1934, as of theend of the period covered by this Annual Report on Form 10-K, our principalexecutive officer and principal financial officer have concluded that ourdisclosure controls and procedures are effective.

# **Internal Control Over Financial Reporting**

Therewere no changes in our internal controls over financial reporting during ourfourth quarter ended February 4, 2007, that had materially affected or arereasonably likely to materially affect, our internal control over financialreporting.

**ITEM 9B.****                    OTHERINFORMATION**

Not applicable

**PART III**

**ITEM 10.****                      DIRECTORS,EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE**

**Directors and Executive Officers**

Each of our directors and officers holds office until asuccessor is elected or qualified or until his earlier death, resignation, orremoval.  Pursuant to a shareholdersagreement, Wellspring has the right to designate all but one of the directors,and HBK has the right to designate, at its option, one observer or onedirector, in each case reasonably acceptable to Wellspring, to observe orserve, as applicable, on our board of directors for so long as HBK owns 50percent of the common stock of WS Midway Holdings, Inc. to which itinitially subscribed.  In addition,Wellspring and HBK have the right to remove any or all of the directors thatthey appointed.  As two of themembers of the Board of Directors (Mr. King and Ms. Johnson) are employees ofthe Company and as the remaining members of the Board of Directors areemployees of an affiliate of the owner of the majority interest in WS Midway,none of the directors are “independent” as such term is defined by the listingstandards of the New York Stock Exchange and the rules of the SEC.

Set forth below is biographical information regarding thedirectors and executive officers:

***Mike Flesch***, 43, has served as Senior Vice Presidentof Operations since September 2006. After joining the Company in 1999, Mr. Flesch served in variousoperating positions of increasing responsibilities including RegionalOperations Director from February 2002 until June 2003 and Vice President ofOperations from June 2003 until September 2006.

***Brian A. Jenkins,***45, joinedthe Company in December 2006, as Senior Vice President and Chief FinancialOfficer.  From 1996 until August of 2006,he served in various capacities (most recently as Senior Vice President –Finance) with Six Flags, Inc.

***Starlette Johnson***, 44, has served as President, Chief OperatingOfficer, and Director of the Company since April 2007.  From June 2006 until April 2007, Ms. Johnsonserved as Senior Vice President and Chief Strategic Officer of the Company.  From 2004 to June 2006, she was anindependent consultant to restaurant, retail, and retail servicescompanies.  

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From 1995 to 2004, she served in various capacities (most recently asExecutive Vice President and Chief Strategic Officer) of BrinkerInternational, Inc.

***Stephen M. King,*** 49, has served as Chief Executive Officer andDirector of the Company since September 2006. From March 2006 until September 2006, Mr. King served as Senior VicePresident and Chief Financial Officer of the Company.  From 1984 to 2006, he served in variouscapacities for Carlson Restaurants Worldwide, including Chief FinancialOfficer, Chief Administrative Officer, Chief Operating Officer and most recentlyas President and Chief Operating Officer of International.

***Margo Manning,***42, has served as Senior Vice President of Training and Special Eventssince September 2006.  Prior to that, sheserved as Vice President of Training and Sales from June 2005 until September2006 and as Vice President of Management Development from September 2001 untilJune 2005.  From December 1999 toSeptember 2001, she served as Assistant Vice President of TeamDevelopment and from 1991 to December 1999, she served in various positions ofincreasing responsibility for us and our predecessors.

***Michael J.Metzinger***, 50, hasserved as Vice President—Accounting and Controller since January 2005.  From 1986 until January 2005, Mr. Metzingerserved in various capacities (most recently as Executive Director—FinancialReporting) with Carlson Restaurants Worldwide, Inc.

***Maria M. Miller***, 50, has served as Senior Vice President and Chief Marketing Officer sinceMay 2003.  From 2000 to 2003, shewas principal and co-founder of a marketing consulting firm and engaged with aninternet start-up company.

***J.Michael Plunkett,***56, has served as Senior Vice President of Purchasing and InternationalOperations since September 2006. Previously, he served as Senior Vice President—Food, Beverage andPurchasing/Operations Strategy from June 2003 until June 2004 and from January2006 until September 2006.  Mr. Plunkettalso served as Senior Vice President of Operations for Jillian’s fromJune 2004 to January 2006, as Vice President of Kitchen Operationsfrom November 2000 to June 2003, as Vice President of InformationSystems from November 1996 to November 2000, as Vice President andDirector of Training from November 1994 until November 1996.  From 1982 to November 1994, he served inoperating positions of increasing responsibility for us and our predecessors.

***Jay L. Tobin***, 49, has served as Senior Vice President andGeneral Counsel since May 2006. From 1988 to 2005, he served in various capacities (most recently asSenior Vice President and Deputy General Counsel) of Brinker International, Inc.

***Jeffrey C. Wood***, 44, has served as Senior Vice President andChief Development Officer since June 2006. Mr. Wood previously served as Vice President of Restaurant Leasingfor Simon Property Group from April 2005 until June 2006 and invarious capacities (including Vice President of Development—Emerging Conceptsand Vice President of Real Estate and Property Development) with BrinkerInternational from 1993 until November 2004.

***Greg S. Feldman***, 50, became a Director and Chairman of the Boardof Directors upon consummation of the Merger in March 2006.  Mr. Feldman is a Partner of Wellspring,which he co-founded in January 1995.

***Daniel Y. Han,***29, became a Director of theCompany on November 15, 2006.  He hasserved as a Vice President of Wellspring Capital Management, LLC since May 2006and prior to that date he served in various other capacities with Wellspringfrom September 2002.  From July 2000until September 2002, Mr. Han was an Analyst in the Mergers and AcquisitionsGroup of J.P. Morgan Securities, Inc.

***Carl M. Stanton***, 39, became a Director upon consummation of theMerger.  Mr. Stanton is a Partner atWellspring, which he joined in 1998.

**Corporate Governance**

The Board of Directors met four times in fiscal 2006,including regular and special meetings. During this period, no individual director attended fewer than 75percent of the aggregate of (1) the total number of meetings of the Boardof Directors and (2) the total number of meetings held by all committeeson which such director served.  With theexception of one pre-Merger director who did not attend one meeting of theBoard of Directors, as a group, our directors attended 100 percent of the totalnumber of meetings of the Board of Directors and committees on which theyserved while they were members during fiscal 2006.

Members of the post-Merger Board of Directors do notget compensated for service on the Board of Directors.

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**Code of Business Ethics and Whistle Blower Policy**

In April 2006, the Board of Directors adopted a Codeof Business Ethics that applies to its directors, officers (including its chiefexecutive officer, chief financial officer, controller and other personsperforming similar functions), and management employees generally.  The Code of Business Ethics is available onour website at www.daveandbusters.com/about/codeofbusinessethics.aspx.  In addition, our Whistle Blower Policy isavailable on our website at www.daveandbusters.com/about/whistleblowerpolicy.aspx.

## **Communicationswith the Board of Directors**

Ifyou wish to communicate with the Board of Directors or with an individualdirector, you may direct such communications in care of the General Counsel,2481 Mañana Drive, Dallas, Texas75220.  The communication must be clearlyaddressed to the Board of Directors or to a specific director.  The Board of Directors has instructed theGeneral Counsel to review and forward any such correspondence to theappropriate person or persons for response.

**Committees of the Board of Directors**

TheBoard of Directors has an Audit Committee and Compensation Committee.  The charters for each of these committees areposted on our website atwww.daveandbusters.com/about/corporategovernance.aspx.  The Board of Directors does not have aNominating Committee or committee performing similar functions.  As all of our Common Stock is owned by WSMidway, the Board of Directors has determined that it is not necessary for usto have a Nominating Committee.  TheBoard of Directors does not have a policy with regard to the consideration ofany director candidates recommended by our debt holders or other parties.

The Audit Committee, comprised of Messrs. Feldman, Hanand Stanton, and chaired by Mr. Han, recommends to the Board of Directors theappointment of the Company’s independent auditors, reviews and approves thescope of the annual audits of the Company’s financial statements and internalcontrol over financial reporting, reviews and approves any non-audit servicesperformed by the independent auditors, reviews the findings and recommendationsof the internal and independent auditors and periodically reviews and approvesmajor accounting policies and significant internal accounting controlprocedures.  It operates pursuant to acharter that was amended and restated in December 2006.  The Audit Committee met two times duringfiscal 2006.

In addition, the Board of Directors has determinedthat each of the members of the Audit Committee is qualified as a “financialexpert” under the provisions of the Sarbanes-Oxley Act of 2002 and the rulesand regulations of the SEC.

The Compensation Committee comprised of Messrs.Feldman, Han and Stanton and chaired by Mr. Feldman, reviews the Company’scompensation philosophy and strategy, administers incentive compensation andstock option plans, reviews the CEO’s performance and compensation, reviewsrecommendations on compensation of other executive officers, and reviews otherspecial compensation matters, such as executive employment agreements.  It operates pursuant to a charter that wasamended and restated in December 2006. The Compensation Committee met one time during fiscal 2006.

**ITEM 11.       EXECUTIVECOMPENSATION**

**Compensation Discussion and Analysis**

This section describesour compensation program for executive officers.  The following discussion focuses on theprogram and decisions for 2006 and we address why we believe the program isright for our Company.  All dollaramounts are presented in whole dollars, unless otherwise noted.

***Compensation Philosophy andOverall Objectives of Executive Compensation Programs***

It is our philosophy to link executive compensation tocorporate performance and to create incentives for management to enhance thevalue of the Company.  The followingobjectives have been adopted by the Compensation Committee as guidelines forcompensation decisions:

·                  Providea competitive total executive compensation package that enables us to attract,motivate, and retain key executives.

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·                  Integrateall pay programs with our annual and long-term business objectives andstrategy, and focus executives on the fulfillment of these objectives.

·                  Providevariable compensation opportunities that are directly linked with our financialand strategic performance.

***Cash Compensation***

Cash compensation includes base salary and annualincentive plan awards.  The base salaryof each of our executive officers is determined by an evaluation of theresponsibilities of that position and by comparison to the level of salariespaid in the competitive market in which we compete for comparable executiveability and experience.  Annually, theperformance of each Named Executive Officer is reviewed by the CompensationCommittee using information and evaluations provided by the Chief ExecutiveOfficer and the President taking into account our operating and financialresults for the year, a subjective assessment of the contribution of eachexecutive officer to such results, the achievement of strategic and otherindividual goals established for each such executive officer at the beginningof each year, and competitive salary levels for persons in those positions inthe markets in which we compete.

Ourannual bonus plan (the “Bonus Plan”) is designed to recognize and reward ouremployees for contributing towards the achievement of our annual businessplan.  The Compensation Committee believesthe Bonus Plan serves as a valuable short-term incentive program for providingcash bonus opportunities for the Company’s employees upon achievement oftargeted operating results as determined by the Compensation Committee and theBoard of Directors.  The fiscal 2006Bonus Plan was based on our targeted earnings before interest, taxes,depreciation, and amortization (“EBITDA”) for the year.  For 2007, the Bonus Plan has been modifiedfor certain of our Executive Officers. Most employees will continue to receive a bonus based on achievement oftargeted EBITDA for the year.  However,substantially all of the Executive Officers will receive a bonus based on anachievement of various corporate objectives (including items such as EBITDA,total sales, comparable store sales, and similar measures) and other individualperformance objectives unique to an individual executive officer’s role, asdetermined by the Compensation Committee prior to the beginning of the 2007fiscal year.  The Compensation Committeewill continue to review and modify the performance goals for the Bonus Plan asnecessary to ensure reasonableness, achievability, and consistency with ouroverall objectives.

In 2006, annual base salary increases and incentivecompensation awards for all of the Named Executive Officers were approved bythe Compensation Committee and reported to the Board of Directors.

The Compensation Committee believes the recommendedsalary levels and incentive awards were warranted and consistent with theperformance of such executives during fiscal year 2006 based on theCompensation Committee’s evaluation of each individual’s overall contributionto accomplishing our fiscal year 2006 corporate goals and of each individual’sachievement of strategic and individual performance goals during the year.

In reviewing fiscal year 2006 Bonus Plan results, theCompensation Committee recognized that the Company exceeded the EBITDA targetfor financial performance, which resulted in an award above target levelperformance for all employees, including the Named Executive Officers.  Overall, employees were paid on average 110percent of their target bonus opportunity for fiscal 2006 performance.

***Long-Term Incentives***

The Compensation Committee believes that it isessential to align the interests of the executives and other key managementpersonnel responsible for our growth with the interests of ourstockholder.  The Compensation Committeehas also identified the need to retain tenured, high performingexecutives.  The Compensation Committeebelieves that these objectives are accomplished through the provision ofstock-based incentives that align the interests of management personnel withthe objectives of enhancing our value, as set forth in the WS Midway StockOption Plan.

TheCommittee awarded stock options to the Named Executive Officers during fiscal2006.  The WS Midway Stock Option Planwas established, generally, to compensate option recipients for working toincrease our value.  A portion of thestock options granted have time-based vesting. However, the majority of the stock options granted have aperformance-based vesting feature.  Theoptions do not have any value to the recipient until the sale of the Company byWS Midway (or other defined liquidity event). The options with performance-based vesting require an increase in thevalue of the Company above a stipulated internal rate of return before there isany benefit to the recipient.  Alloptions to be granted under the WS Midway Stock Option Plan have beengranted.  The only option grants that canbe made in the future would be the re-allocation of options forfeited by aparticipant.  After taking into accountthe value of these awards, the Named Executive Officers’ actual long-termincentive compensation generally continues to fall below comparable markettotal direct compensation.

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The CompensationCommittee will continue to review long-term incentives and makerecommendations, where it deems appropriate, to the Company’s Board ofDirectors, from time-to-time, to assure that our executive officers and otherkey employees are appropriately motivated and rewarded based on our long-termfinancial success.

***Deductibility of ExecutiveCompensation***

Section 162(m) ofthe Internal Revenue Code under the Omnibus Budget Reconciliation Act of 1993limits the deductibility of compensation over $1 million paid by a companyto an executive officer.  TheCompensation Committee will take action to qualify most compensation approachesto ensure deductibility, except in those limited cases in which theCompensation Committee believes stockholder interests are best served byretaining flexibility.  In such cases,the Compensation Committee will consider various alternatives to preserving thedeductibility of compensation payments and benefits to the extent reasonablypracticable and to the extent consistent with its compensation objectives.

***Summary***

As a result of pay-for-performance conceptsincorporated in our executive compensation program, the Compensation Committeebelieves that the total compensation program for executive officers iscompetitive with the compensation programs provided by other companies withwhich we compete and emulates programs of high-performing companies.  The Compensation Committee also believes thisprogram will provide opportunities to participants that are consistent with theexpectations of the Board of Directors and our debt holders.

## **CompensationCommittee Report**

The CompensationCommittee of the Board of Directors has furnished the following report:

The Committee hasreviewed and discussed the Compensation Discussion and Analysis (“CD&A”)with the management of the Company. Based on that review and discussion, the Committee has recommended tothe Board of Directors that the CD&A be included in this Annual Report onForm 10-K for 2006.
| Greg S. Feldman, Chair |   | Daniel Y. Han |   | Carl M. Stanton |
|------------------------|--------|---------------|--------|-----------------|

 

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**2006SUMMARY COMPENSATION TABLE**

The following table sets forth information concerning allcompensation paid or accrued by the Company during fiscal 2006 to or for eachperson serving as our Chief Executive Officer and Chief Financial Officer in2006, each of the three most highly compensated executive officersserving at the end of 2006, and two additional persons serving as executiveofficers during the year for whom disclosure would be required but for the factthat such persons were not serving as executive officers at the end of 2006 (collectively the “Named Executive Officers”).
| Name and Principal Position           | ** ** | **Year** | ** ** | **Salary ($)** | ** ** | **Bonus ($)** | ** ** | **Option  Awards  ($)** | ** ** | **Non-Equity  Incentive Plan  Compensation  ($)** | ** ** | **Change in  Pension  Value and  Nonqualified  Deferred  Compensation  Earnings  ($)** | ** ** | **All Other  Compensation(7)  ($)** | ** ** | **Total  ($)** | ** ** |
|------------------------------------------------------|------------|----------|------------|---------------------|------------|--------------------|------------|-------------------------|------------|--------------------------------------------------------|------------|--------------------------------------------------------------------------------------------------|------------|------------------------------------------|------------|----------------|------------|
|                                                 |       |     |       |                |       |               |       |                    |       |                                                   |       |                                                                                             |       |                                     |       |           |       |
| James W. Corley(1)  (CEO & COO)                  |       | 2006     |       | 370,193             |       | —             |       | —                  |       | —                                                 |       | —                                                                                           |       | 6,123,980                                |       | 6,494,173      |       |
|                                                 |       |     |       |                |       |               |       |                    |       |                                                   |       |                                                                                             |       |                                     |       |           |       |
| Stephen M. King  (CEO, CFO)                          |       | 2006     |       | 338,462             |       | —             |       | 102,072                 |       | 220,000                                                |       | 2,784                                                                                            |       | 24,768                                   |       | 688,086        |       |
|                                                 |       |     |       |                |       |               |       |                    |       |                                                   |       |                                                                                             |       |                                     |       |           |       |
| William C. Hammett, Jr.(2)                           |       |     |       |                |       |               |       |                    |       |                                                   |       |                                                                                             |       |                                     |       |           |       |
| (Senior Vice President and Chief Financial  Officer) |       | 2006     |       | 50,192              |       | —             |       | —                  |       | —                                                 |       | —                                                                                           |       | 1,419,091                                |       | 1,469,283      |       |
|                                                 |       |     |       |                |       |               |       |                    |       |                                                   |       |                                                                                             |       |                                     |       |           |       |
| Brian A. Jenkins                                     |       |     |       |                |       |               |       |                    |       |                                                   |       |                                                                                             |       |                                     |       |           |       |
| (Senior Vice President and Chief Financial  Officer) |       | 2006     |       | 42,308              |       | —             |       | 39,745                  |       | 22,377                                                 |       | 4                                                                                                |       | 2,970                                    |       | 107,404        |       |
|                                                 |       |     |       |                |       |               |       |                    |       |                                                   |       |                                                                                             |       |                                     |       |           |       |
| David O. Corriveau(3)                                |       |     |       |                |       |               |       |                    |       |                                                   |       |                                                                                             |       |                                     |       |           |       |
| (President)                                          |       | 2006     |       | 560,577             |       | 875,000            |       | —                  |       | —                                                 |       | —                                                                                           |       | 1,449,803                                |       | 2,885,380      |       |
|                                                 |       |     |       |                |       |               |       |                    |       |                                                   |       |                                                                                             |       |                                     |       |           |       |
| Starlette Johnson                                    |       |     |       |                |       |               |       |                    |       |                                                   |       |                                                                                             |       |                                     |       |           |       |
| (President and Chief Operating Officer)              |       | 2006     |       | 246,634             |       | —             |       | 87,491                  |       | 206,250                                                |       | 585                                                                                              |       | 17,472                                   |       | 558,432        |       |
|                                                 |       |     |       |                |       |               |       |                    |       |                                                   |       |                                                                                             |       |                                     |       |           |       |
| Sterling R. Smith(4)                                 |       |     |       |                |       |               |       |                    |       |                                                   |       |                                                                                             |       |                                     |       |           |       |
| (Senior Vice President,                              |       |     |       |                |       |               |       |                    |       |                                                   |       |                                                                                             |       |                                     |       |           |       |
| Operations)                                          |       | 2006     |       | 236,461             |       | 174,000            |       | —                  |       | —                                                 |       | 2,004                                                                                            |       | 1,145,041                                |       | 1,557,506      |       |
|                                                 |       |     |       |                |       |               |       |                    |       |                                                   |       |                                                                                             |       |                                     |       |           |       |
| Nancy Litzler(5)                                     |       |     |       |                |       |               |       |                    |       |                                                   |       |                                                                                             |       |                                     |       |           |       |
| (Senior Vice President, Human Resources)             |       | 2006     |       | 131,924             |       | —             |       | —                  |       | —                                                 |       | (1,088                                                                                           | )          | 1,057,898                                |       | 1,188,734      |       |
|                                                 |       |     |       |                |       |               |       |                    |       |                                                   |       |                                                                                             |       |                                     |       |           |       |
| Bryan L. Spain(6)                                    |       |     |       |                |       |               |       |                    |       |                                                   |       |                                                                                             |       |                                     |       |           |       |
| (Senior Vice President,                              |       |     |       |                |       |               |       |                    |       |                                                   |       |                                                                                             |       |                                     |       |           |       |
| Real Estate Development)                             |       | 2006     |       | 47,250              |       | —             |       | —                  |       | —                                                 |       | (640                                                                                             | )          | 1,144,699                                |       | 1,191,309      |       |

 

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(1)        Mr. Corley departed from the Company inSeptember 2006.  Pursuant to an ExecutiveRetention Agreement, dated April 3, 2000, between Mr. Corley and the Company,Mr. Corley received termination pay equal to (a) two times the sum of hisannual salary and maximum bonus payable under our bonus plan, (b) a specialbonus equal to the sum of his annual salary and the maximum bonus payable underour bonus plan, (c) accrued and unpaid vacation pay, (d) a prorated annualbonus (calculated at the maximum rate payable under our bonus plan) for the2006 fiscal year, and (e) a continuation of certain employee benefits untilFebruary 2009.

(2)        Mr. Hammettdeparted from the Company in March 2006 following theconsummation of the Merger and received severance payments equal to (a)two times the sum of his annual salary and maximum bonus payable under ourbonus plan, (b) a prorated annual bonus payable under our bonus plan for the2006 fiscal year, and (c) a continuation of certain employee benefits throughFebruary 2010.

(3)        Mr. Corriveau departed from the Company onMarch 16, 2007, subsequent to the end of our 2006 fiscal year.  Pursuant to the Employment Agreement andExecutive Retention Agreement, each dated April 3, 2000, by and between Mr. Corriveauand the Company, Mr. Corriveau received subsequent to the end of our 2006fiscal year, a special bonus equal to the sum of annual salary and the maximumbonus payable under our bonus plan for the 2006 fiscal year which has beenincluded under “All Other Compensation.”

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              In addition, Mr.Corriveau received termination pay subsequent to the end of our 2006 fiscalyear.  These payments includedtermination pay equal to (a) two times the sum of his annual salary and maximumbonus payable under our bonus plan, (b) a prorated annual bonus (calculated atthe maximum rate payable under our bonus plan) for the 2007 fiscal year, and (c)the value of certain employee benefits for the period commencing on March 16,2007 and ending March 2009.  Thesepayments are not reported in the table and will be disclosed as compensation inthe 2007 fiscal year Summary Compensation Table.

(4)        Mr. Smith’s employment with the Companywas terminated in February 2007. Pursuant to the Executive Retention Agreement, dated June 11, 2001, byand between Mr. Smith and the Company, Mr. Smith received certain paymentssubsequent to the end of our 2006 fiscal year. These payments are included under “All Other Compensation,” and includedtermination pay equal to (a) two times the sum of his annual salary and maximumbonus payable under our bonus plan, (b) accrued and unpaid vacation, (c) aprorated annual bonus (calculated at the maximum rate payable under our bonusplan) for the 2007 fiscal year, and (d) the continuation of certain otheremployee benefits until February 2010.

(5)        Ms. Litzler’s employment with the Companywas terminated in June 2006.  Pursuant tothe Executive Retention Agreement, dated as of June 6, 2001, by and between Ms.Litzler and the Company, Ms. Litzler received severance payments equal to (a)two times the sum of her annual salary and maximum bonus payable under ourbonus plan, (b) accrued and unpaid vacation, (c) a prorated annual bonus(calculated at the maximum rate payable under our bonus plan) for the 2006fiscal year, and (d) the continuation of certain employee benefits untilFebruary 2010.

(6)        Mr. Spain’s employment with the Companywas terminated in April 2006.  Pursuantto the Executive Retention Agreement, dated as of June 8, 2001, between Mr.Spain and the Company, Mr. Spain received severance payments equal to (a) twotimes the sum of his annual salary and maximum bonus payable under our bonusplan, (b) accrued and unpaid vacation, (c) a prorated annual bonus (calculatedat the maximum rate payable under our bonus plan) for the 2006 fiscal year, and(d) the continuation of certain employee benefits until February 2010.

(7)        The following table sets forth thecomponents of All Other Compensation:
| **Name**           | ** ** | **Year** | ** ** | **Car  Allowance($)** | ** ** | **Financial  Planning/  Legal  Fees($)** | ** ** | **Club  Dues($)** | ** ** | **Supplemental  Medical($)** | ** ** | **Demutualization  Payment($)** | ** ** | **Insurance  Premiums($)** | ** ** | **Company  Contributions  to Retirement  & 401(K)  Plans($)** | ** ** | **Severance  Payments/  Accruals($)** | ** ** | **Total ($)** | ** ** |
|--------------------|------------|----------|------------|-----------------------|------------|------------------------------------------|------------|-------------------|------------|------------------------------|------------|---------------------------------|------------|----------------------------|------------|-----------------------------------------------------------------------------|------------|---------------------------------------|------------|--------------------|------------|
|               |       |     |       |                  |       |                                     |       |              |       |                         |       |                            |       |                       |       |                                                                        |       |                                  |       |               |       |
| James W. Corley    |       | 2006     |       | 6,731                 |       | —                                   |       | 3,366             |       | 13,051                       |       | 922                             |       | 9,617                      |       | —                                                                      |       | 6,090,293                             |       | 6,123,980          |       |
|               |       |     |       |                  |       |                                     |       |              |       |                         |       |                            |       |                       |       |                                                                        |       |                                  |       |               |       |
| Stephen M. King    |       | 2006     |       | 8,462                 |       | —                                   |       | 2,640             |       | 3,512                        |       | —                          |       | —                     |       | 10,154                                                                      |       | —                                |       | 24,768             |       |
|               |       |     |       |                  |       |                                     |       |              |       |                         |       |                            |       |                       |       |                                                                        |       |                                  |       |               |       |
| W. C. Hammett, Jr. |       | 2006     |       | 1,731                 |       | —                                   |       | 917               |       | 1,692                        |       | —                          |       | —                     |       | —                                                                      |       | 1,414,751                             |       | 1,419,091          |       |
|               |       |     |       |                  |       |                                     |       |              |       |                         |       |                            |       |                       |       |                                                                        |       |                                  |       |               |       |
| Brian A. Jenkins   |       | 2006     |       | 1,538                 |       | —                                   |       | 480               |       | —                       |       | —                          |       | —                     |       | 952                                                                         |       | —                                |       | 2,970              |       |
|               |       |     |       |                  |       |                                     |       |              |       |                         |       |                            |       |                       |       |                                                                        |       |                                  |       |               |       |
| David O. Corriveau |       | 2006     |       | 10,193                |       | 189                                      |       | 5,096             |       | 1,357                        |       | —                          |       | 7,968                      |       | —                                                                      |       | 1,425,000                             |       | 1,449,803          |       |
|               |       |     |       |                  |       |                                     |       |              |       |                         |       |                            |       |                       |       |                                                                        |       |                                  |       |               |       |
| Starlette Johnson  |       | 2006     |       | 6,577                 |       | 2,953                                    |       | 2,052             |       | 2,862                        |       | —                          |       | —                     |       | 3,028                                                                       |       | —                                |       | 17,472             |       |
|               |       |     |       |                  |       |                                     |       |              |       |                         |       |                            |       |                       |       |                                                                        |       |                                  |       |               |       |
| Sterling R. Smith  |       | 2006     |       | 10,193                |       | 3,000                                    |       | 3,180             |       | 8,997                        |       | —                          |       | —                     |       | 7,750                                                                       |       | 1,111,921                             |       | 1,145,041          |       |
|               |       |     |       |                  |       |                                     |       |              |       |                         |       |                            |       |                       |       |                                                                        |       |                                  |       |               |       |
| Nancy Litzler      |       | 2006     |       | 6,731                 |       | 3,000                                    |       | 2,100             |       | 17,425                       |       | 1,140                           |       | —                     |       | 5,009                                                                       |       | 1,022,493                             |       | 1,057,898          |       |
|               |       |     |       |                  |       |                                     |       |              |       |                         |       |                            |       |                       |       |                                                                        |       |                                  |       |               |       |
| Bryan L. Spain     |       | 2006     |       | 2,500                 |       | —                                   |       | 780               |       | 1,273                        |       | 2,742                           |       | —                     |       | 1,653                                                                       |       | 1,135,751                             |       | 1,144,699          |       |

 

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**GRANTS OF PLAN-BASED AWARDS IN 2006**

The following table shows the grants of plan-basedawards to the named executive officers in 2006.
| ** **              | ** ** | ** ** | ** ** | ** **   | ** ** | **Estimated Future Payouts Under**      | ** ** | **Estimated Future Payments Under** | ** ** | **Exercise or Base** | ** ** | **Grant Date Fair  Value of Stock** | ** ** |
|-------------------------|------------|------------|------------|--------------|------------|--------------------------------------------------------|------------|----------------------------------------------------|------------|--------------------------------|------------|---------------------------------------------------------|------------|
| ** **              | ** ** | **Grant**  | ** ** | **Approval** | ** ** | **Non-Equity Incentive Plan Awards(1)** | ** ** | **Equity Incentive Plan Awards(2)** | ** ** | **Price of Option**  | ** ** | **and Option**                                     | ** ** |
| **Name**                | ** ** | **Date**   | ** ** | **Date**     | ** ** | **Threshold ($)**                                 | ** ** | **Target ($)**                                | ** ** | **Maximum ($)**           | ** ** | **Target (#)**                                     | ** ** | **Awards(3) ($/Sh)** | ** ** | **Awards(4) ($)** | ** ** |
|                    |       |       |       |         |       |                                                   |       |                                               |       |                           |       |                                                    |       |   |   |   |   |
| James W. Corley         |       | —     |       | —       |       | —                                                 |       | —                                             |       | —                         |       | —                                                  |       | — |   | — |   |
|                    |       |       |       |         |       |                                                   |       |                                               |       |                           |       |                                                    |       |   |   |   |   |
| Stephen M. King         |       | 03/24/06   |       | 03/24/06     |       | 100,000                                                |       | 200,000                                            |       | 300,000                        |       | —                                                  |       | — |   | — |   |
|                    |       |       |       |         |       |                                                   |       |                                               |       |                           |       |                                                    |       |   |   |   |   |
| Stephen M. King         |       | 12/11/06   |       | 12/11/06     |       | —                                                 |       | —                                             |       | —                         |       | 4,574.80                                                |       | 1,000 |   | 1,211,270 |   |
|                    |       |       |       |         |       |                                                   |       |                                               |       |                           |       |                                                    |       |   |   |   |   |
| William C. Hammett, Jr. |       | —     |       | —       |       | —                                                 |       | —                                             |       | —                         |       | —                                                  |       | — |   | — |   |
|                    |       |       |       |         |       |                                                   |       |                                               |       |                           |       |                                                    |       |   |   |   |   |
| Brian A. Jenkins        |       | 12/11/06   |       | 12/11/06     |       | 10,171                                                 |       | 20,342                                             |       | 30,513                         |       | —                                                  |       | — |   | — |   |
|                    |       |       |       |         |       |                                                   |       |                                               |       |                           |       |                                                    |       |   |   |   |   |
| Brian A. Jenkins        |       | 12/11/06   |       | 12/11/06     |       | —                                                 |       | —                                             |       | —                         |       | 1,254.10                                                |       | 1,000 |   | 379,930 |   |
|                    |       |       |       |         |       |                                                   |       |                                               |       |                           |       |                                                    |       |   |   |   |   |
| David O. Corriveau      |       | —     |       | —       |       | —                                                 |       | —                                             |       | —                         |       | —                                                  |       | — |   | — |   |
|                    |       |       |       |         |       |                                                   |       |                                               |       |                           |       |                                                    |       |   |   |   |   |
| Starlette Johnson       |       | 06/09/06   |       | 06/09/06     |       | 93,750                                                 |       | 187,500                                            |       | 281,250                        |       | —                                                  |       | — |   | — |   |
|                    |       |       |       |         |       |                                                   |       |                                               |       |                           |       |                                                    |       |   |   |   |   |
| Starlette Johnson       |       | 12/11/06   |       | 12/11/06     |       | —                                                 |       | —                                             |       | —                         |       | 3,921.28                                                |       | 1,000 |   | 1,038,238 |   |
|                    |       |       |       |         |       |                                                   |       |                                               |       |                           |       |                                                    |       |   |   |   |   |
| Sterling R. Smith       |       | —     |       | —       |       | —                                                 |       | —                                             |       | —                         |       | —                                                  |       | — |   | — |   |
|                    |       |       |       |         |       |                                                   |       |                                               |       |                           |       |                                                    |       |   |   |   |   |
| Nancy Litzler           |       | —     |       | —       |       | —                                                 |       | —                                             |       | —                         |       | —                                                  |       | — |   | — |   |
|                    |       |       |       |         |       |                                                   |       |                                               |       |                           |       |                                                    |       |   |   |   |   |
| Bryan L. Spain          |       | —     |       | —       |       | —                                                 |       | —                                             |       | —                         |       | —                                                  |       | — |   | — |   |

 

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(1)             Allsuch payouts are pursuant to our fiscal 2006 Bonus Plan, as more particularlydescribed under “Executive Compensation – Compensation Discussion and Analysis –Cash Compensation” above and actual payouts are recorded under “Non-Equity IncentivePlan Compensation” in the 2006 Summary Compensation Table.

(2)             Thelisted equity incentive plan awards are grants of stock options under the WSMidway Stock Option Plan as more particularly described under “ExecutiveCompensation – Compensation Discussion and Analysis – Long-Term Incentives”above.  The options include both thosewith performance-based vesting and those with time-based vesting.

(3)             Thereis no market for the shares of WS Midway. The exercise price was established by the Board of Directors of theCompany and supported by an independent valuation.

(4)             Shown is the aggregate grant datefair value computed in accordance with SFAS 123R for option awards in 2006.

33

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**OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END 2006**
|                          | ** ** | **Number of  Securities Underlying  Unexercised Options  (#)** | ** ** | **Option  Exercise** | ** ** | **Option  Expiration** | ** ** |
|--------------------------|------------|-------------------------------------------------------------------------------|------------|----------------------|------------|------------------------|------------|
| **Name**                 | ** ** | **Unexercisable(1)**                                                          | ** ** | **Price ($)**   | ** ** | **Date**               | ** ** |
|                     |       |                                                                          |       |                 |       |                   |       |
| James W. Corley          |       | —                                                                        |       | —               |       | —                 |       |
|                     |       |                                                                          |       |                 |       |                   |       |
| Stephen M. King          |       | 4,574.80                                                                      |       | 1,000                |       | 03/08/2016             |       |
|                     |       |                                                                          |       |                 |       |                   |       |
| William C.  Hammett, Jr. |       | —                                                                        |       | —               |       | —                 |       |
|                     |       |                                                                          |       |                 |       |                   |       |
| Brian A. Jenkins         |       | 1,254.10                                                                      |       | 1,000                |       | 03/08/2016             |       |
|                     |       |                                                                          |       |                 |       |                   |       |
| David O.  Corriveau      |       | —                                                                        |       | —               |       | —                 |       |
|                     |       |                                                                          |       |                 |       |                   |       |
| Starlette  Johnson       |       | 3,921.30                                                                      |       | 1,000                |       | 03/08/2016             |       |
|                     |       |                                                                          |       |                 |       |                   |       |
| Sterling R.  Smith       |       | —                                                                        |       | —               |       | —                 |       |
|                     |       |                                                                          |       |                 |       |                   |       |
| Nancy Litzler            |       | —                                                                        |       | —               |       | —                 |       |
|                     |       |                                                                          |       |                 |       |                   |       |
| Bryan L. Spain           |       | —                                                                        |       | —               |       | —                 |       |

 

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(1)                      The listedoptions were granted under the WS Midway Stock Option Plan.  Of the time-based portions of such options,20 percent vested on March 8, 2007, and an additional 20 percent vest on eachof March 8, 2008, March 8, 2009, March 8, 2010, and March 8, 2011.

**2006 OPTION EXERCISES AND STOCK VESTED**

The following table lists the number of sharesacquired and the value realized as a result of option exercises by the NamedExecutive Officers in 2006 and the value of any restricted stock awards thatvested in 2006 by virtue of the Merger. All of the stock options and shares of restricted stock were grantedunder the Dave & Buster’s 1995 Stock Incentive Plan, as amended.
| ** **              | ** ** | **Option Awards**                                               | ** ** | **Stock Awards**                          | ** ** |
|-------------------------|------------|----------------------------------------------------------------------|------------|------------------------------------------------|------------|
| **Name**                | ** ** | **Number of Shares  Acquired on Exercise(1)**(#) | ** ** | **Value Realized  on Exercise  ($)** | ** ** | **Number of Shares  Acquired on Vesting(2)**(#) | ** ** | **Value Realized  on Vesting  ($)** | ** ** |
| ** **              | ** ** | ** **                                                           | ** ** | ** **                                     | ** ** | ** ** | ** ** | ** ** | ** ** |
| James W. Corley         |       | 240,000                                                              |       | 2,127,100                                      |       | 100,000 |   | 1,805,000 |   |
|                    |       |                                                                 |       |                                           |       |   |   |   |   |
| Stephen M. King         |       | —                                                               |       | —                                         |       | — |   | — |   |
|                    |       |                                                                 |       |                                           |       |   |   |   |   |
| William C. Hammett, Jr. |       | 75,000                                                               |       | 870,000                                        |       | 47,500 |   | 857,375 |   |
|                    |       |                                                                 |       |                                           |       |   |   |   |   |
| Brian A Jenkins         |       | —                                                               |       | —                                         |       | — |   | — |   |
|                    |       |                                                                 |       |                                           |       |   |   |   |   |
| David O. Corriveau      |       | 155,000                                                              |       | 1,151,600                                      |       | 100,000 |   | 1,805,000 |   |
|                    |       |                                                                 |       |                                           |       |   |   |   |   |
| Starlette Johnson       |       | —                                                               |       | —                                         |       | — |   | — |   |
|                    |       |                                                                 |       |                                           |       |   |   |   |   |
| Sterling R. Smith       |       | 46,667                                                               |       | 495,771                                        |       | 30,000 |   | 541,500 |   |
|                    |       |                                                                 |       |                                           |       |   |   |   |   |
| Nancy Litzler           |       | 30,000                                                               |       | 347,000                                        |       | 25,000 |   | 451,250 |   |
|                    |       |                                                                 |       |                                           |       |   |   |   |   |
| Bryan L. Spain          |       | 7,500                                                                |       | 29,775                                         |       | 22,500 |   | 406,125 |   |

 

 

34

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----

(1)                      Uponconsummation of the Merger, each outstanding option to purchase our commonstock, whether or not vested, was canceled and exchanged for the right toreceive, for each share subject to such option, a cash payment equal to theamount by which $18.05 per share merger consideration exceeded the per shareexercise price of the option without interest, less any applicable withholdingtaxes.

(2)                      Uponconsummation of the Merger, all the restricted stock that had been granted tothe employees was vested, all restrictions on those shares immediately lapsed,and holders of those shares of previously restricted stock became entitled toreceive the merger consideration of $18.05 less any applicable withholdingtaxes, for each share of previously restricted stock.

**2006 NONQUALIFIED DEFERRED COMPENSATION**

The following table shows contributions to each NamedExecutive Officer’s deferred compensation account in 2006 and the aggregateamount of such officer’s deferred compensation as of February 4, 2007.
| **Name**                | ** ** | **Executive Contributions  in Last Fiscal Year(1)  ($)** | ** ** | **Registrant  Contributions in Last  Fiscal Year(2)  ($)** | ** ** | **Aggregate Earnings  in Last Fiscal Year  ($)** | ** ** | **Aggregate  Withdrawals /  Distributions  ($)** | ** ** | **Aggregate Balance at  Last Fiscal Year-End  ($)** | ** ** |
|-------------------------|------------|------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------|------------|----------------------------------------------------------------------|------------|-------------------------------------------------------|------------|-------------------------------------------------------------------------|------------|
|                    |       |                                                                         |       |                                                                      |       |                                                                 |       |                                                  |       |                                                                    |       |
| James W. Corley         |       | —                                                                       |       | —                                                                    |       | —                                                               |       | —                                                |       | —                                                                  |       |
|                    |       |                                                                         |       |                                                                      |       |                                                                 |       |                                                  |       |                                                                    |       |
| Stephen M. King         |       | 20,308                                                                       |       | 10,154                                                                    |       | 2,784                                                                |       | —                                                |       | 33,246                                                                  |       |
|                    |       |                                                                         |       |                                                                      |       |                                                                 |       |                                                  |       |                                                                    |       |
| William C. Hammett, Jr. |       | —                                                                       |       | —                                                                    |       | —                                                               |       | —                                                |       | —                                                                  |       |
|                    |       |                                                                         |       |                                                                      |       |                                                                 |       |                                                  |       |                                                                    |       |
| Brian A. Jenkins        |       | 1,904                                                                        |       | 952                                                                       |       | 4                                                                    |       | —                                                |       | 2,860                                                                   |       |
|                    |       |                                                                         |       |                                                                      |       |                                                                 |       |                                                  |       |                                                                    |       |
| David O. Corriveau      |       | —                                                                       |       | —                                                                    |       | —                                                               |       | —                                                |       | —                                                                  |       |
|                    |       |                                                                         |       |                                                                      |       |                                                                 |       |                                                  |       |                                                                    |       |
| Starlette Johnson       |       | 5,625                                                                        |       | 2,812                                                                     |       | 585                                                                  |       | —                                                |       | 9,022                                                                   |       |
|                    |       |                                                                         |       |                                                                      |       |                                                                 |       |                                                  |       |                                                                    |       |
| Sterling R. Smith       |       | 37,834                                                                       |       | 7,094                                                                     |       | 2,004                                                                |       | 127,313                                               |       | 44,017                                                                  |       |
|                    |       |                                                                         |       |                                                                      |       |                                                                 |       |                                                  |       |                                                                    |       |
| Nancy Litzler           |       | 7,916                                                                        |       | 3,958                                                                     |       | (1,088                                                               | )          | 119,680                                               |       | —                                                                  |       |
|                    |       |                                                                         |       |                                                                      |       |                                                                 |       |                                                  |       |                                                                    |       |
| Bryan L. Spain          |       | 2,835                                                                        |       | 1,418                                                                     |       | (640                                                                 | )          | 302,384                                               |       | —                                                                  |       |

 

----

(1)                Amounts areincluded in the Salary column of the Summary Compensation Table.

(2)                Amounts shown arematching contributions pursuant to the deferred compensation plan.  These amounts are included in the All OtherCompensation column of the Summary Compensation Table.

**Employment Agreements**

Duringthe 2006 fiscal year, we entered into employment agreements with each officerof the Company (the “Employment Agreements”). Under the terms of the Employment Agreements, officers are entitled to aminimum base salary and an annual performance evaluation including a salaryincrease commensurate with such officer’s performance during the year andsalary increases given to other officer’s receiving similar performanceevaluations.  Officers are also entitledto participate in our Bonus Plan and in any profit sharing, qualified andnon-qualified retirement plans, and any health, life, accident, disabilityinsurance, sick leave, supplemental medical reimbursement insurance, or benefitplans or programs as we may choose to make available now or in the future.  Officers are entitled to receive anautomobile allowance, an allowance for country club membership, paid vacation,and, in most cases, receive an equity grant under the WS Midway Stock OptionPlan.  In addition, the EmploymentAgreements contain provisions providing for severance payments and continuationof benefits under certain circumstances including termination by us withoutcause.

**Potential Payments UponTermination Or Change In Control**

Thefollowing is a discussion of the rights of the Named Executive Officers underthe WS Midway Stock Option Plan and the Employment Agreements following atermination of employment or change in control.

35

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*WSMidway Stock Option Plan*

  Pursuant to the WS Midway Stock Option Plan,an executive officer who dies, becomes disabled, or leaves the Company for anyreason will be eligible to retain all vested stock options (or such optionsshall be passed to such employee’s estate or personal representative).  Any unvested stock options shall beterminated.  Upon a sale of the Companyor liquidity event as more particularly described in the WS Midway Stock OptionPlan, all time-based stock options shall become vested and immediatelyexercisable and all performance-based stock options shall become vested and,subject to certain other performance requirements set forth in the WS MidwayStock Option Plan, immediately exercisable

*EmploymentAgreements*

*Deferred Compensation.*  All contributions made by an executiveofficer to a deferred compensation account, and all vested portions of ourcontributions to such deferred compensation account, shall be disbursed to theexecutive officer upon termination of employment for any reason.

*Resignation. *If an executive officer resigns from the Company, suchofficer is not eligible for any further payments of salary, bonus, or benefitsand such officer shall only be entitled to receive that compensation which hasbeen earned by the officer through the date of termination.

*Involuntary Termination Not for Cause. *In the event of involuntarytermination of employment other than for cause, an executive officer would beentitled to twelve months of severance pay at such officer’s then-current basesalary, the prorata portion of the annual bonus, if any, earned by the officerfor the then-current fiscal year, twelve months continuation of such officer’sautomobile allowance, and monthly payments for a period of six months equal tothe monthly premium required by such officers to maintain health insurancebenefits provided by our group health insurance plan, in accordance with therequirements of the Consolidated Omnibus Budget Reconciliation Act of 1985.

*Termination for Cause. *In the event of terminationfor Cause, the officer is not eligible for any further payments of salary,bonus, or benefits and shall be only entitled to receive that compensationwhich has been earned by the officer through the date of termination.

*Termination for Good Reason. *In the event the employeechooses to terminate his or her employment for reasons such as material breachof the Employment Agreement by us, relocation of the office where the officerperforms his or her duties, assignment to the officer of any duties, authority,or responsibilities that are materially inconsistent with such officer’sposition, authority, duties, or responsibilities or other similar actions, suchofficer shall be entitled to the same benefits described above underInvoluntary Termination Not for Cause.

*Death or Disability*.  The benefits to which an officer (or suchofficer’s estate or representative) would be entitled in the event of death ordisability are as described under Involuntary Termination Not for Causeabove.  However, the amount of salarypaid to any such disabled officer shall be reduced by any income replacementbenefits received from Company-provided disability insurance.

36

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Information concerning the potential payments upon atermination of employment or change in control is set forth in tabular formbelow for only those Named Executive Officers employed by the Company as ofApril 1, 2007.  Information is providedas if the termination, death, disability, or change in control had occurred asFebruary 4, 2007.

 
| Name              | ** ** | **Benefit**            | ** ** | **Resignation** | ** ** | **Termination  W/Out Cause** | ** ** | **Termination  With Cause** | ** ** | **Termination  With Good Reason** | ** ** | **Death/  Disability** | ** ** |
|-------------------|------------|------------------------|------------|-----------------|------------|-----------------------------------|------------|----------------------------------|------------|---------------------------------------------|------------|------------------------|------------|
|              |       |                   |       |            |       |                              |       |                             |       |                                        |       |                   |       |
| Stephen M. King   |       | Salary                 |       | $               | —     |                              | $          | 400,000                          |       | $                                           | —     |                   | $          | 400,000 |   | $ | 400,000 |   |
|                   |       | Bonus(1)               |       | —          |       | 220,000                           |       | —                           |       | 220,000                                     |       | 220,000                |       |
|                   |       | Car                    |       | —          |       | 10,000                            |       | —                           |       | 10,000                                      |       | 10,000                 |       |
|                   |       | H  & W Benefits    |       | —          |       | 8,751                             |       | —                           |       | 8,751                                       |       | 8,751                  |       |
|                   |       | Vacation               |       | —          |       | 30,769                            |       | —                           |       | 30,769                                      |       | 30,769                 |       |
|                   |       | Deferred  Compensation |       | 21,244          |       | 21,244                            |       | 21,244                           |       | 21,244                                      |       | 21,244                 |       |
|              |       |                   |       |            |       |                              |       |                             |       |                                        |       |                   |       |
| Starlette Johnson |       | Salary                 |       | $               | —     |                              | $          | 375,000                          |       | —                                      |       | $                      | 375,000    |   | $ | 375,000 |   |
|                   |       | Bonus(1)               |       | —          |       | 206,250                           |       | —                           |       | 206,250                                     |       | 206,250                |       |
|                   |       | Car                    |       | —          |       | 10,000                            |       | —                           |       | 10,000                                      |       | 10,000                 |       |
|                   |       | H  & W Benefits    |       | —          |       | 2,815                             |       | —                           |       | 2,815                                       |       | 2,815                  |       |
|                   |       | Vacation               |       | —          |       | 28,846                            |       | —                           |       | 28,846                                      |       | 28,846                 |       |
|                   |       | Deferred  Compensation |       | 6,015           |       | 6,015                             |       | 6,015                            |       | 6,015                                       |       | 6,015                  |       |
|              |       |                   |       |            |       |                              |       |                             |       |                                        |       |                   |       |
| Brian A. Jenkins  |       | Salary                 |       | $               | —     |                              | 275,000    |                             | —     |                                        | 275,000    |                   | 275,000    |   |
|                   |       | Bonus(1)               |       | —          |       | 22,377                            |       | —                           |       | 22,377                                      |       | 22,377                 |       |
|                   |       | Car                    |       | —          |       | 10,000                            |       | —                           |       | 10,000                                      |       | 10,000                 |       |
|                   |       | H  & W Benefits    |       | —          |       | —                            |       | —                           |       | —                                      |       | —                 |       |
|                   |       | Vacation               |       | —          |       | 21,154                            |       | —                           |       | 21,154                                      |       | 21,154                 |       |
|                   |       | Deferred Compensation  |       | 1,272           |       | 1,272                             |       | 1,272                            |       | 1,272                                       |       | 1,272                  |       |
|                   |            |                        |            |                 |            |                                   |            |                                  |            |                                             |            |                        |            |  |  |  |  |  |

 

----

(1)           Accrued and unpaid non-equityincentive compensation payable pursuant to our 2006 Bonus Plan.

**ITEM 12.       SECURITYOWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDERMATTERS**

Asof February 4, 2007, 100 shares of our common stock were outstanding.  All of our common stock is owned by WSMidway.  Affiliates of Wellspring and HBKcontrol approximately 82 percent and 18 percent, respectively, of theoutstanding stock of WS Midway.

**Equity Compensation PlanInformation**

The followingtable sets forth information concerning the shares of common stock that may beissued upon exercise of options under the WS Midway Stock Option Plan as ofFebruary 4, 2007:
| Plan Category                                          | **Number of Securities to  be Issued Upon Exercise  of Outstanding Options,  Warrants and Rights** | **Weighted-Average  Exercise Price of  Outstanding Options,  Warrants and Rights** | **Number of Securities  Remaining Available for  Future Issuance Under Equity  Compensation Plans** | ** ** |
|-------------------------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------|-------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------|------------|
| Equity Compensation  Plans Approved by Security Holders     | 18,815.05                                                                                                                                            | $ 1000.00                                                                                              | 261.42                                                                                                                                      |       |
| Equity Compensation  Plans Not Approved by Security Holders | —                                                                                                                                               | —                                                                                                      | —                                                                                                                                      |       |
| Total                                                       | 18,815.05                                                                                                                                            | $ 1000.00                                                                                              | 261.42                                                                                                                                      |       |

 

**ITEM 13.       CERTAINRELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE**

**Expense Reimbursement Agreement**

We have entered into an expense reimbursement agreement with anaffiliate of Wellspring, pursuant to which the Wellspring affiliate providesgeneral advice to us in connection with long-term strategic plans, financialmanagement, strategic transactions and other business matters.  The expense reimbursement agreement providesfor an annual expense reimbursement of up to $750 to the Wellspringaffiliate.  The initial term of theexpense reimbursement agreement will expire in March 2011, and after thatdate, such agreement will renew automatically on a year-to-year basis unlessone party gives at least 30 days’ prior notice of its intention not to renew.  During fiscal 2006, we paid the Wellspringaffiliate $679 under the terms of the expense reimbursement agreement.

37

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**ITEM 14.               PRINCIPAL ACCOUNTING FEES ANDSERVICES**

It is currently anticipated that the services providedto the Company by Ernst & Young, LLP (“Ernst & Young”) in fiscal 2007will include performing the audit of our annual financial statements, thereviews of our interim financial statements, the reviews of federal and statetax returns, and consultation on various accounting, financial reporting, tax,and related matters.

Ernst & Young has no direct or indirect interestin the Company.  Ernst & Younghas been the Company’s independent registered public accounting firm since1995.  The following table sets forth thefees for professional audit services provided by Ernst & Young for thefiscal years ended February 4, 2007 and January 29, 2006:
|                         | ** ** | **Fiscal 2006** | ** ** | **Fiscal 2005** | ** ** |
|-------------------------|------------|----------------------|------------|----------------------|------------|
|                    |       |                 |       |                 |       |
| Audit Fees (a)          |       | $                    | 742,345    |                 | $          | 538,865 |   |
| Audit-Related  Fees (b) |       | 100,000              |       | 50,000               |       |
| Tax Fees (c)            |       | 64,469               |       | 24,767               |       |
| All Other Fees          |       | —               |       | 2,500                |       |
|                    |       |                 |       |                 |       |
| Total                   |       | $                    | 906,814    |                 | $          | 616,132 |   |

 

----

| (a)    |   | Includes fees for services for the audit of our  annual financial statements, the reviews of our interim financial statements  and assistance with SEC filings.             |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                        |
| (b)    |   | Includes fees for services related to transaction  due diligence and various accounting consultations.                                                                      |
|   |   |                                                                                                                                                                        |
| (c)    |   | Includes fees for services related to tax compliance,  preparation and planning services (including U.S. federal, state and local  returns) and tax examination assistance. |

 

The Audit Committee hasestablished a policy whereby the outside auditors are required to seekpre-approval on an annual basis of all audit, audit-related, tax and otherservices by providing a prior description of the services to be performed and aspecific fee estimate for each such service. Individual engagements anticipated to exceed the pre-approved thresholdsmust be separately approved by the Audit Committee.  For Fiscal 2006, 100 percent of allaudit-related services, tax services and other services were pre-approved bythe Audit Committee, which concluded that the provision of such services byErnst & Young were compatible with the firm’s independence and the conductof its auditing function.

**REPORT OF THE AUDIT COMMITTEE**

Wehave reviewed and discussed with management and Ernst & Young, theindependent registered public accounting firm, our audited financial statementsas of and for the year ended February 4, 2007. We have also discussed with Ernst & Young the matters required to bediscussed by Statement on Auditing Standards 61, Communications with AuditCommittees, as amended, by the Auditing Standards Board of the AmericanInstitute of Certified Public Accounts.

Wehave received and reviewed the written disclosures and the letter from Ernst& Young required by Independence Standards Board Standard 1, IndependenceDiscussions with the Audit Committee, as amended, have considered thecompatibility of non-audit services with the firm’s independence, and havediscussed with the auditors the firm’s independence.

Basedon the reviews and discussions referred to above, we have recommended to theBoard of Directors that the financial statements referred to above be includedin our Annual Report on Form 10-K for the year ended February 4, 2007.
| Daniel Y. Han, Chairman |   | Greg S. Feldman |   | Carl M. Stanton |
|-------------------------|--------|-----------------|--------|-----------------|

38

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**PART IV**
| **ITEM 15.** | **EXHIBITS AND FINANCIAL  STATEMENT SCHEDULES** |
|--------------|-------------------------------------------------|
|         |                                            |   |
|         | (a) (1)                                         | Financial Statements |
|         |                                            | See Pages F-1 to F-21 of this Annual Report on Form  10-K. |
|         |                                            |   |
|         | (a) (2)                                         | Financial Statement Schedules |
|         |                                            |   |
|         |                                            | None. |
|         |                                            |   |
|         | (a) (3)                                         | See the Index to Exhibits attached hereto on Page  E-1 for a list of all exhibits filed as part of this document. |
|              |                                                 |  |  |

 

39

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**SIGNATURES**

Pursuantto the requirements of Section 13 or 15(d) of the Securities Exchange Act of1934, the registrant has duly caused this report to be signed on its behalf bythe undersigned, thereunto duly authorized.
|                   | DAVE & BUSTER’S, INC., |
|-------------------|---------------------------------|
|              | a Missouri Corporation          |
|              |                            |   |
|              |                            |   |
| Date:May 14, 2007 |   By:                 | /s/ Brian A. Jenkins |
|              |                            | Brian A. Jenkins |
|              |                            | Senior Vice President and Chief Financial Officer |

 

Pursuantto the requirements of the Securities Exchange Act of 1934, we have signed inour indicated capacities on May 14, 2007.
| Signature | ** **             | **Title** |
|-----------|------------------------|-----------|
|      |                   |      |
| By:       | /s/ Stephen M.  King   |      | Chief Executive Officer and Director |
|      | Stephen M. King        |      | (Principal Executive Officer) |
|      |                   |      |   |
| By:       | /s/ Brian A.  Jenkins  |      | Senior Vice President and Chief Financial Officer |
|      | Brian A. Jenkins       |      | (Principal Financial and Accounting Officer) |
|      |                   |      |   |
| By:       | /s/ Starlette  Johnson |      | President, Chief Operating Officer and Director |
|      | Starlette  Johnson     |      |   |
|      |                   |      |   |
| By:       | /s/ Greg S.  Feldman   |      | Chairman of the Board |
|      | Greg S. Feldman        |      |   |
|      |                   |      |   |
| By:       | /s/ Daniel Y.  Han     |      | Director |
|      | Daniel Y. Ham          |      |   |
|      |                   |      |   |
| By:       | /s/ Carl M.  Stanton   |      | Director |
|      | Carl M. Stanton        |      |   |

 

40

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**Report ofIndependent Registered Public Accounting Firm**

The Board of Directors

Dave & Busters, Inc.

We have auditedthe accompanying consolidated balance sheets of Dave & Busters, Inc. andsubsidiaries for the fiscal years ended February 4, 2007 and January 29, 2006,and the related consolidated statements of operations, shareholders’ equity,and cash flows for the 334 days in the period from March 8, 2006 to February 4,2007 (successor), the 37 days in the period from January 30, 2006 to March 7,2006 (predecessor) and the fiscal years ended January 29, 2006 (predecessor)and January 30, 2005 (predecessor). These financial statements are the responsibility of the Company’smanagement.  Our responsibility is toexpress an opinion on these financial statements based on our audits.

We conducted ouraudits in accordance with the standards of the Public Company AccountingOversight Board (United States).  Thosestandards require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of materialmisstatement.  We were not engaged toperform an audit of the Company’s internal control over financialreporting.  Our audits includedconsideration of internal control over financial reporting as a basis for designingaudit procedures  that are appropriate inthe circumstances, but not for the purpose of expressing an opinion on theeffectiveness of the Company’s internal control over financial reporting.  Accordingly, we express no such opinion.  An audit also includes examining, on a testbasis, evidence supporting the amounts and disclosures in the financialstatements, assessing the accounting principles used and significant estimatesmade by management, and evaluating the overall financial statement presentation.  We believe that our audits provide areasonable basis for our opinion.

In our opinion,the consolidated financial statements referred to above present fairly, in allmaterial respects, the consolidated financial position of Dave & Busters,Inc. and subsidiaries for the fiscal years ended February 4, 2007 and January29, 2006, and the consolidated results of their operations and their cash flowsfor the 334 days in the period from March 8, 2006 to February 4, 2007(successor), the 37 days in the period from January 30, 2006 to March 7, 2006(predecessor) and the fiscal years ended January 29, 2006 (predecessor) andJanuary 30, 2005 (predecessor), in conformity with U.S. generally acceptedaccounting principles.

As discussed inNote 1 to the consolidated financial statements, effective January 30, 2006,the Company adopted Statement of Financial Accounting Standards No. 123(Revised 2004), *Share-Based Payments*.

Dallas Texas

May 8, 2007

F-1

----

**DAVE& BUSTER’S, INC.**

**CONSOLIDATED BALANCE SHEETS**

(in thousands)
| ** **                                                                                                      | ** **   | **February 4,  2007** | ** **   | **January 29,  2006** | ** **        |
|-----------------------------------------------------------------------------------------------------------------|--------------|----------------------------|--------------|----------------------------|-------------------|
| ** **                                                                                                      | ** **   | **(Successor)**            | ** **   | ** **                 | **(Predecessor)** | ** ** |
| **ASSETS**                                                                                                      |         |                       |         |                       |              |   |
| Current assets:                                                                                                 |         |                       |         |                       |              |   |
| Cash and cash equivalents                                                                                       |         | $                          | 10,372       |                       |              | $ | 7,582 |   |
| Inventories                                                                                                     |         | 13,148                     |         |                       | 12,469            |   |
| Prepaid expenses                                                                                                |         | 6,806                      |         |                       | 2,985             |   |
| Deferred income taxes                                                                                           |         | 5,478                      |         |                       | —            |   |
| Other current assets                                                                                            |         | 2,906                      |         |                       | 4,194             |   |
| Total current assets                                                                                            |         | 38,710                     |         |                       | 27,230            |   |
| Property and  equipment, net                                                                                    |         | 316,840                    |         |                       | 351,883           |   |
| Tradename                                                                                                       |         | 63,000                     |         |                       | 7,482             |   |
| Goodwill                                                                                                        |         | 65,857                     |         |                       | —            |   |
| Assets held for  sale                                                                                           |         | —                     |         |                       | 22,733            |   |
| Other assets and  deferred charges                                                                              |         | 22,406                     |         |                       | 13,734            |   |
| Total assets                                                                                                    |         | $                          | 506,813      |                       |              | $ | 423,062 |   |
|                                                                                                            |         |                       |         |                       |              |   |
| **LIABILITIES AND STOCKHOLDERS’ EQUITY**                                                                   |         |                       |         |                       |              |   |
| Current  liabilities:                                                                                           |         |                       |         |                       |              |   |
| Current installments of long-term debt (Note 6)                                                                 |         | $                          | 1,000        |                       |              | $ | 9,625 |   |
| Accounts payable                                                                                                |         | 19,196                     |         |                       | 25,069            |   |
| Accrued liabilities                                                                                             |         | 45,893                     |         |                       | 21,294            |   |
| Income taxes payable                                                                                            |         | 4,051                      |         |                       | 2,669             |   |
| Deferred income taxes                                                                                           |         | —                     |         |                       | 5,779             |   |
| Total current liabilities                                                                                       |         | 70,140                     |         |                       | 64,436            |   |
| Deferred income  taxes                                                                                          |         | 27,429                     |         |                       | 5,401             |   |
| Deferred  occupancy costs                                                                                       |         | 50,022                     |         |                       | 74,583            |   |
| Other  liabilities                                                                                              |         | 9,142                      |         |                       | 2,872             |   |
| Long-term debt,  less current installments (Note 6)                                                             |         | 253,375                    |         |                       | 70,550            |   |
| Commitment and  contingencies (Note 11)                                                                         |         |                       |         |                       |              |   |
| Stockholders’  equity (Note 1):                                                                            |         |                       |         |                       |              |   |
| Common Stock                                                                                                    |         |                       |         |                       |              |   |
| ***Predecessor:***                                                                                              | *** *** | *** ***               | *** *** | *** ***               | *** ***      | *** *** |
| Common stock, $0.01 par value, 50,000,000  authorized; 13,722,750 issued and outstanding as of January 29, 2006 |         | —                     |         |                       | 137               |   |
| Less treasury stock, at cost (175,000 shares)                                                                   |         | —                     |         |                       | (1,846            | ) |
| ***Successor:***                                                                                                | *** *** | *** ***               | *** *** | *** ***               | *** ***      | *** *** |
| Common stock, $0.01 par value, 1,000 authorized; 100  issued and outstanding as of February 4, 2007             |         | —                     |         |                       | —            |   |
| Preferred stock, 10,000,000 authorized; none issued                                                             |         | —                     |         |                       | —            |   |
| Restricted stock awards                                                                                         |         | —                     |         |                       | 2,180             |   |
| Paid-in capital                                                                                                 |         | 108,952                    |         |                       | 125,312           |   |
| Accumulated comprehensive income (loss)                                                                         |         | (184                       | )            |                       | 345               |   |
| Retained earnings (deficit)                                                                                     |         | (12,063                    | )            |                       | 79,092            |   |
| Total stockholders’ equity                                                                                 |         | 96,705                     |         |                       | 205,220           |   |
| Total  liabilities and stockholders’ equity                                                                |         | $                          | 506,813      |                       |              | $ | 423,062 |   |

 

See accompanyingnotes to consolidated financial statements.

F-2

----

**DAVE& BUSTER’S, INC.**

**CONSOLIDATED STATEMENTS OFOPERATIONS**

(in thousands)
| ** **                                      | ** ** | **For the 334-Day  Period from  March 8, 2006 to  February 4, 2007** | ** ** | **For the 37-Day  Period from  January 30, 2006  to March 7, 2006** | ** **        | **January 29, 2006** | ** **        | **January 30, 2005** | ** **        |
|-------------------------------------------------|------------|--------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------------------------------------------|-------------------|--------------------------------|-------------------|--------------------------------|-------------------|
| ** **                                      | ** ** | **(Successor)**                                                                                              | ** ** | ** **                                                                                                  | **(Predecessor)** | ** **                     | **(Predecessor)** | ** **                     | **(Predecessor)** | ** ** |
| ** **                                      | ** ** | ** **                                                                                                   | ** ** | ** **                                                                                                  | ** **        | ** **                     | ** **        | ** **                     | ** **        | ** ** |
| Food and  beverage revenues                     |       | $                                                                                                            | 256,616    |                                                                                                        |              | $                              | 27,562            |                           | $                 | 253,996 |   | $ | 209,689 |   |
| Amusement and  other revenues                   |       | 203,176                                                                                                      |       |                                                                                                        | 22,847            |                           | 209,456           |                           | 180,578           |   |
| Total revenues                                  |       | 459,792                                                                                                      |       |                                                                                                        | 50,409            |                           | 463,452           |                           | 390,267           |   |
| Cost of food and  beverage                      |       | 64,549                                                                                                       |       |                                                                                                        | 7,111             |                           | 65,405            |                           | 53,890            |   |
| Cost of  amusement and other                    |       | 28,999                                                                                                       |       |                                                                                                        | 3,268             |                           | 28,723            |                           | 24,344            |   |
| Total cost of products                          |       | 93,548                                                                                                       |       |                                                                                                        | 10,379            |                           | 94,128            |                           | 78,234            |   |
| Operating  payroll and benefits                 |       | 130,123                                                                                                      |       |                                                                                                        | 14,113            |                           | 130,367           |                           | 109,062           |   |
| Other store  operating expenses                 |       | 147,295                                                                                                      |       |                                                                                                        | 15,323            |                           | 144,066           |                           | 113,810           |   |
| General and  administrative expenses            |       | 35,055                                                                                                       |       |                                                                                                        | 3,829             |                           | 33,951            |                           | 28,237            |   |
| Depreciation and  amortization expense          |       | 43,892                                                                                                       |       |                                                                                                        | 4,328             |                           | 42,616            |                           | 34,238            |   |
| Startup costs                                   |       | 3,470                                                                                                        |       |                                                                                                        | 880               |                           | 5,325             |                           | 1,295             |   |
| Total operating costs                           |       | 453,383                                                                                                      |       |                                                                                                        | 48,852            |                           | 450,453           |                           | 364,876           |   |
| Operating income                                |       | 6,409                                                                                                        |       |                                                                                                        | 1,557             |                           | 12,999            |                           | 25,391            |   |
| Interest expense,  net                          |       | 27,064                                                                                                       |       |                                                                                                        | 649               |                           | 6,695             |                           | 5,586             |   |
| Income (loss) before provision for income taxes |       | (20,655                                                                                                      | )          |                                                                                                        | 908               |                           | 6,304             |                           | 19,805            |   |
| Benefit  (provision) for income taxes           |       | (8,592                                                                                                       | )          |                                                                                                        | 422               |                           | 2,016             |                           | 6,925             |   |
| Net income  (loss)                              |       | $                                                                                                            | (12,063    | )                                                                                                           |              | $                              | 486               |                           | $                 | 4,288 |   | $ | 12,880 |   |

 

F-3

----

**DAVE& BUSTER’S, Inc.**

**CONSOLIDATED STATEMENTS OFSTOCKHOLDERS’ EQUITY**

(in thousands,except share amounts)
| ** **                                                            | ** ** | ** **            | ** ** | ** **  | ** ** | ** **   | ** ** | ** **     | ** ** | ** **        | ** ** | **Accumulated** | ** ** | ** **    | ** ** | ** ** | ** ** |
|-----------------------------------------------------------------------|------------|-----------------------|------------|-------------|------------|--------------|------------|----------------|------------|-------------------|------------|-----------------|------------|---------------|------------|------------|------------|
| ** **                                                            | ** ** | ** **            | ** ** | ** **  | ** ** | ** **   | ** ** | ** **     | ** ** | ** **        | ** ** | **Other**       | ** ** | **Retained**  | ** ** | ** ** | ** ** |
| ** **                                                            | ** ** | **Common Stock** | ** ** | **Paid-In** | ** ** | **Treasury** | ** ** | **Restricted** | ** ** | **Comprehensive** | ** ** | **Earnings**    | ** ** | ** **    | ** ** |
| ** **                                                            | ** ** | **Shares**            | ** ** | **Amount**  | ** ** | **Capital**  | ** ** | **Stock**      | ** ** | **Stock**         | ** ** | **Income**      | ** ** | **(Deficit)** | ** ** | **Total**  | ** ** |
| **Balance,  February 1, 2004**                                        |       | 13,181,284            |       | $           | 132        |         | $          | 118,669        |       | $                 | (1,846     | )               | $          | 905           |       | $          | —     |   | $ | 61,924 |   | $ | 179,784 |   |
| Net earnings                                                          |       | —                |       | —      |       | —       |       | —         |       | —            |       | —          |       | 12,880        |       | 12,880     |       |
| Unrealized  foreign currency translation gain (net of tax)            |       | —                |       | —      |       | —       |       | —         |       | —            |       | 225             |       | —        |       | 225        |       |
| Comprehensive  income                                                 |       | —                |       | —      |       | —       |       | —         |       | —            |       | —          |       | —        |       | 13,105     |       |
| Stock option  exercises                                               |       | 270,983               |       | 3           |       | 2,799        |       | —         |       | —            |       | —          |       | —        |       | 2,802      |       |
| Tax benefit  related to stock option exercises                        |       | —                |       | —      |       | 705          |       | —         |       | —            |       | —          |       | —        |       | 705        |       |
| Amortization of  restricted stock awards                              |       | —                |       | —      |       | —       |       | —         |       | 549               |       | —          |       | —        |       | 549        |       |
| **Balance,  January 30, 2005**                                        |       | 13,452,267            |       | 135         |       | 122,173      |       | (1,846         | )          | 1,454             |       | 225             |       | 74,804        |       | 196,945    |       |
| Net earnings                                                          |       | —                |       | —      |       | —       |       | —         |       | —            |       | —          |       | 4,288         |       | 4,288      |       |
| Unrealized  foreign currency translation gain(net of tax)             |       | —                |       | —      |       | —       |       | —         |       | —            |       | 120             |       | —        |       | 120        |       |
| Comprehensive  income                                                 |       | —                |       | —      |       | —       |       | —         |       | —            |       | —          |       | —        |       | 4,408      |       |
| Stock option  exercises                                               |       | 270,483               |       | 2           |       | 2,268        |       | —         |       | —            |       | —          |       | —        |       | 2,270      |       |
| Tax benefit  related to stock option exercises                        |       | —                |       | —      |       | 871          |       | —         |       | —            |       | —          |       | —        |       | 871        |       |
| Amortization of  restricted stock awards                              |       | —                |       | —      |       | —       |       | —         |       | 726               |       | —          |       | —        |       | 726        |       |
| **Balance,  January 29, 2006 (Predecessor)**                          |       | 13,722,750            |       | 137         |       | 125,312      |       | (1,846         | )          | 2,180             |       | 345             |       | 79,092        |       | 205,220    |       |
| Net earnings                                                          |       | —                |       | —      |       | —       |       | —         |       | —            |       | —          |       | 486           |       | 486        |       |
| Unrealized  foreign currency translation gain (loss) (net of tax)     |       | —                |       | —      |       | —       |       | —         |       | —            |       | (3              | )          | —        |       | (3         | )          |
| Comprehensive  income                                                 |       | —                |       | —      |       | —       |       | —         |       | —            |       | —          |       | —        |       | 483        |       |
| Stock option  exercises                                               |       | 5,000                 |       | —      |       | 528          |       | —         |       | —            |       | —          |       | —        |       | 528        |       |
| Tax benefit  related to stock option exercises                        |       | —                |       | —      |       | 10           |       | —         |       | —            |       | —          |       | —        |       | 10         |       |
| Stock-based  compensation                                             |       | —                |       | —      |       | 25           |       | —         |       | —            |       | —          |       | —        |       | 25         |       |
| Amortization of  restricted stock awards                              |       | —                |       | —      |       | —       |       | —         |       | 61                |       | —          |       | —        |       | 61         |       |
| Merger  transaction                                                   |       | (13,727,750           | )          | (137        | )          | (125,875     | )          | 1,846          |       | (2,241            | )          | (342            | )          | (79,578       | )          | (206,327   | )          |
| **Balance,  March 8, 2006 (Successor)**                               |       | —                |       | —      |       | —       |       | —         |       | —            |       | —          |       | —        |       | —     |       |
| Initial  investment by WS Midway Acquisition Sub, Inc. and affiliates |       | 100                   |       | —      |       | 108,514      |       | —         |       | —            |       | —          |       | —        |       | 108,514    |       |
| Net loss                                                              |       | —                |       | —      |       | —       |       | —         |       | —            |       | —          |       | (12,063       | )          | (12,063    | )          |
| Unrealized  foreign currency translation gain (loss) (net of tax)     |       | —                |       | —      |       | —       |       | —         |       | —            |       | (184            | )          | —        |       | (184       | )          |
| Comprehensive  loss                                                   |       | —                |       | —      |       | —       |       | —         |       | —            |       | —          |       | —        |       | (12,247    | )          |
| Stock-based  Compensation                                             |       | —                |       | —      |       | 438          |       | —         |       | —            |       | —          |       | —        |       | 438        |       |
| **Balance, February 4, 2007**                                         |       | 100                   |       | —      |       | $            | 108,952    |           | —     |              | —     |            | $          | (184          | )          | $          | (12,063    | ) | $ | 96,705 |   |
|                                                                       |            |                       |            |             |            |              |            |                |            |                   |            |                 |            |               |            |            |            |  |  |  |  |  |  |  |

 

F-4

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**DAVE& BUSTER’S, INC.**

**CONSOLIDATED STATEMENTS OF CASHFLOWS**

(in thousands)
| ** **                                                                                | ** ** | **For the 334-Day  Period from  March 8, 2006 to  February 4, 2007** | ** ** | **For the 37-Day  Period from  January 30, 2006  to March 7, 2006** | ** **        | **January 29, 2006** | ** **        | **January 30, 2005** | ** **        |
|-------------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------------------------------------------|-------------------|--------------------------------|-------------------|--------------------------------|-------------------|
| ** **                                                                                | ** ** | **(Successor)**                                                                                              | ** ** | ** **                                                                                                  | **(Predecessor)** | ** **                     | **(Predecessor)** | ** **                     | **(Predecessor)** | ** ** |
| **Cash  flows from operating activities:**                                                | ** ** | ** **                                                                                                   | ** ** | ** **                                                                                                  | ** **        | ** **                     | ** **        | ** **                     | ** **        | ** ** |
| Net income (loss)                                                                         |       | $                                                                                                            | (12,063    | )                                                                                                           |              | $                              | 486               |                           | $                 | 4,288 |   | $ | 12,880 |   |
| Adjustments to reconcile net income (loss) to net  cash provided by operating activities: |       |                                                                                                         |       |                                                                                                        |              |                           |              |                           |              |   |
| Depreciation and amortization expense                                                     |       | 43,892                                                                                                       |       |                                                                                                        | 4,328             |                           | 42,616            |                           | 34,238            |   |
| Deferred income tax                                                                       |       | (10,342                                                                                                      | )          |                                                                                                        | (767              | )                              | 220               |                           | (3,820            | ) |
| Tax benefit related to stock options                                                      |       | —                                                                                                       |       |                                                                                                        | 10                |                           | 871               |                           | 705               |   |
| Restricted stock awards                                                                   |       | —                                                                                                       |       |                                                                                                        | 61                |                           | 726               |                           | 549               |   |
| Stock-based compensation charges                                                          |       | 438                                                                                                          |       |                                                                                                        | 25                |                           | —            |                           | —            |   |
| Warrants related to convertible debt                                                      |       | —                                                                                                       |       |                                                                                                        | 21                |                           | 257               |                           | 254               |   |
| Other, net                                                                                |       | (34                                                                                                          | )          |                                                                                                        | 7                 |                           | 30                |                           | 314               |   |
| Changes in assets and liabilities:                                                        |       |                                                                                                         |       |                                                                                                        |              |                           |              |                           |              |   |
| Inventories                                                                               |       | (607                                                                                                         | )          |                                                                                                        | (72               | )                              | (2,018            | )                              | (2,069            | ) |
| Prepaid expenses                                                                          |       | (3,652                                                                                                       | )          |                                                                                                        | (169              | )                              | 49                |                           | (325              | ) |
| Other current assets                                                                      |       | 889                                                                                                          |       |                                                                                                        | (1                | )                              | (1,582            | )                              | (94               | ) |
| Other assets and deferred charges                                                         |       | 3,230                                                                                                        |       |                                                                                                        | (66               | )                              | 3,666             |                           | (1,884            | ) |
| Accounts payable                                                                          |       | 1,055                                                                                                        |       |                                                                                                        | (3,916            | )                              | 5,419             |                           | (475              | ) |
| Accrued liabilities                                                                       |       | 15,668                                                                                                       |       |                                                                                                        | 6,918             |                           | 1,851             |                           | 3,535             |   |
| Income taxes payable                                                                      |       | (5                                                                                                           | )          |                                                                                                        | 1,183             |                           | (3,133            | )                              | 2,914             |   |
| Deferred occupancy costs                                                                  |       | 797                                                                                                          |       |                                                                                                        | 2,502             |                           | 11,470            |                           | 2,154             |   |
| Other liabilities                                                                         |       | 4,412                                                                                                        |       |                                                                                                        | 191               |                           | 693               |                           | 188               |   |
| Net cash provided by operating activities                                                 |       | 43,678                                                                                                       |       |                                                                                                        | 10,741            |                           | 65,423            |                           | 49,064            |   |
| **Cash  flows from investing activities:**                                                | ** ** | ** **                                                                                                   | ** ** | ** **                                                                                                  | ** **        | ** **                     | ** **        | ** **                     | ** **        | ** ** |
| Capital expenditures                                                                      |       | (31,943                                                                                                      | )          |                                                                                                        | (10,600           | )                              | (62,066           | )                              | (34,234           | ) |
| Business acquisitions, net of cash acquired                                               |       | —                                                                                                       |       |                                                                                                        | —            |                           | (1,511            | )                              | (47,876           | ) |
| Proceeds from sales of property and equipment                                             |       | 721                                                                                                          |       |                                                                                                        | —            |                           | 306               |                           | 338               |   |
| Merger with WS Midway                                                                     |       | (338,239                                                                                                     | )          |                                                                                                        | —            |                           | —            |                           | —            |   |
| Proceeds from sale leaseback                                                              |       | 28,357                                                                                                       |       |                                                                                                        | —            |                           | —            |                           | —            |   |
| Net cash used in investing activities                                                     |       | (341,104                                                                                                     | )          |                                                                                                        | (10,600           | )                              | (63,271           | )                              | (81,772           | ) |
| **Cash  flows from financing activities:**                                                | ** ** | ** **                                                                                                   | ** ** | ** **                                                                                                  | ** **        | ** **                     | ** **        | ** **                     | ** **        | ** ** |
| Borrowings of old debt                                                                    |       | —                                                                                                       |       |                                                                                                        | 6,000             |                           | 33,500            |                           | 78,446            |   |
| Repayments of old debt                                                                    |       | (51,137                                                                                                      | )          |                                                                                                        | (6,439            | )                              | (41,725           | )                              | (43,250           | ) |
| Borrowings under senior credit facility                                                   |       | 143,500                                                                                                      |       |                                                                                                        | —            |                           | —            |                           | —            |   |
| Repayments under senior credit facility                                                   |       | (64,125                                                                                                      | )          |                                                                                                        | —            |                           | —            |                           | —            |   |
| Borrowings under senior notes                                                             |       | 175,000                                                                                                      |       |                                                                                                        | —            |                           | —            |                           | —            |   |
| Initial investment by WS Midway Acquisition Sub,  Inc. and affiliates                     |       | 108,100                                                                                                      |       |                                                                                                        | —            |                           | —            |                           | —            |   |
| Debt issuance costs                                                                       |       | (11,352                                                                                                      | )          |                                                                                                        | —            |                           | —            |                           | (841              | ) |
| Proceeds from exercises of stock options                                                  |       | —                                                                                                       |       |                                                                                                        | 528               |                           | 2,268             |                           | 2,805             |   |
| Net cash provided by (used in) financing activities                                       |       | 299,986                                                                                                      |       |                                                                                                        | 89                |                           | (5,957            | )                              | 37,160            |   |
| Increase  (decrease) in cash and cash equivalents                                         |       | 2,560                                                                                                        |       |                                                                                                        | 230               |                           | (3,805            | )                              | 4,452             |   |
| Beginning cash  and cash equivalents                                                      |       | 7,812                                                                                                        |       |                                                                                                        | 7,582             |                           | 11,387            |                           | 6,935             |   |
| **Ending  cash and cash equivalents**                                                     |       | $                                                                                                            | 10,372     |                                                                                                        |              | $                              | 7,812             |                           | $                 | 7,582 |   | $ | 11,387 |   |
| ** **                                                                                | ** ** | ** **                                                                                                   | ** ** | ** **                                                                                                  | ** **        | ** **                     | ** **        | ** **                     | ** **        | ** ** |
| Supplemental  disclosures of cash flow information:                                       |       |                                                                                                         |       |                                                                                                        |              |                           |              |                           |              |   |
| Cash paid for income taxes-net of refunds                                                 |       | $                                                                                                            | 1,219      |                                                                                                        |              | $                              | —            |                           | $                 | 4,082 |   | $ | 7,146 |   |
| Cash paid for  interest, net of amounts capitalized                                       |       | $                                                                                                            | 16,227     |                                                                                                        |              | $                              | 878               |                           | $                 | 4,183 |   | $ | 2,504 |   |

 

F-5

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**DAVE & BUSTER’S, INC.**

**NOTES TO CONSOLIDATED TOFINANCIAL STATEMENTS**

**Note 1: Summary of SignificantAccounting Policies**

*Basis ofpresentation*—Dave & Buster’s, Inc., a Missouri corporation, was acquired onMarch 8, 2006, by WS Midway Holdings, Inc. (“WS Midway”), a newly-formedDelaware corporation, through the merger (the “Merger”) of WS MidwayAcquisition Sub, Inc., a newly-formed Missouri corporation and adirect, wholly-owned subsidiary of WS Midway, with and intoDave & Buster’s, Inc. with Dave & Buster’s, Inc. as thesurviving corporation.  Affiliates ofWellspring Capital Management LLC (“Wellspring”) and HBK Investments L.P. (“HBK”)control approximately 82 percent and 18 percent, respectively, of the outstandingcapital stock of WS Midway.  Dave &Buster’s Inc. continues as the same legal entity after the Merger.  The accompanying condensed consolidatedstatements of operations, stockholders’ equity, and cash flows present theresults of operations and cash flows of Dave & Buster’s, Inc. and allwholly-owned subsidiaries, for the periods preceding the Merger (“Predecessor”)and the period succeeding the Merger (“Successor”), respectively.  References to “Dave & Buster’s,”the “Company,” “we,” “us,” and “our” are references to Dave & Buster’s,Inc. and its subsidiaries and any predecessor companies.  Allmaterial intercompany accounts and transactions have been eliminated inconsolidation.

We are an operator of 48 largeformat, high-volume regional entertainment complexes.  Our one industry segment is the ownership andoperation of restaurant/entertainment complexes (a “Complex” or “Store”) underthe names “Dave & Buster’s,” “Dave & Buster’s Grand SportsCafé” and “Jillian’s,” which are located in the United States and Canada andthe franchise of one complex under the name “Dave & Buster’s” located inMexico.

Our fiscal year ends on theSunday after the Saturday closest to January 31.  All references to 2006 relate to the combined53-week period ending on February 4, 2007. As discussed further below, fiscal 2006 is comprised of the 334-dayperiod ended February 4, 2007 of the Successor and the 37-day period endedMarch 7, 2006 of the Predecessor, respectively. All references to 2005 and 2004 relate to the 52-week periods ending onJanuary 29, 2006 and January 30, 2005.  Inthe opinion of management, these financial statements contain all adjustmentsnecessary to present fairly the financial position, results of operations andcash flows for the periods indicated. All dollar amounts are presented in thousands, unless otherwise noted,except share and per share amounts.

*Reclassification of previouslyissued financials—*Certainprior period balances have been reclassified to conform to the current periodpresentation and to reflect successor management’s view of store leveloperations, as shown below:

·                  Costs associated with multi-unit operationspersonnel have be reclassified from operating payroll and benefits and otherstore operating expenses to general and administrative expenses.

·                  Certain costs associated with special eventsrevenue have been reclassified from other store operating to cost of amusementsand other.

·                  Certain costs associated with cost of goods soldhave been reclassed from other store operating to cost of food and beverage andcost of amusements and other.

Amount of increase (decrease) in previously reportedcosts are as follows:
| **(dollars in thousands)**                                                                                         | ** ** | **334-Day Period  from March 8,  2006 to  February 4, 2007** | ** ** | **37-Day Period   From January  30, 2006 to  March 7, 2006** | ** **        | **Fiscal Year  Ended  February 4, 2007** | ** **     | **Fiscal Year  Ended  January 29, 2006** | ** **        | **Fiscal Year  Ended  January 30, 2005** | ** **        |
|------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------------------------------|-------------------|---------------------------------------------------------|----------------|---------------------------------------------------------|-------------------|---------------------------------------------------------|-------------------|
| ** **                                                                                                                   | ** ** | **(Successor)**                                                                            | ** ** | ** **                                                                                      | **(Predecessor)** | ** **                                              | **(Combined)** | ** **                                              | **(Predecessor)** | ** **                                              | **(Predecessor)** | ** ** |
| ** **                                                                                                                   | ** ** | ** **                                                                                 | ** ** | ** **                                                                                      | ** **        | ** **                                              | ** **     | ** **                                              | ** **        | ** **                                              | ** **        | ** ** |
| Cost of food and  beverage                                                                                                   |       | $                                                                                          | —     |                                                                                            |              | $                                                       | —         |                                                    | $                 | —                                                  |              | $ | 3,587 |   | $ | 2,523 |   |
| Cost of  amusements and other                                                                                                |       | —                                                                                     |       |                                                                                            | 85                |                                                    | 85             |                                                    | 3,248             |                                                    | 2,640             |   |
| Operating  payroll and benefits                                                                                              |       | —                                                                                     |       |                                                                                            | (252              | )                                                       | (252           | )                                                       | (2,017            | )                                                       | (1,480            | ) |
| Other store  operating                                                                                                       |       | —                                                                                     |       |                                                                                            | (182              | )                                                       | (182           | )                                                       | (7,611            | )                                                       | (5,699            | ) |
| General and  administrative expenses                                                                                         |       | —                                                                                     |       |                                                                                            | 349               |                                                    | 349            |                                                    | 2,793             |                                                    | 2,016             |   |
| Total operating  costs                  |       | $                                                                                          | —     |                                                                                            |              | $                                                       | —         |                                                    | $                 | —                                                  |              | $ | — |   | $ | — |   |

 

*Use of estimates*—The preparation of financial statements in conformity with generallyaccepted accounting principles requires us to make certain estimates andassumptions that affect the amounts reported in the financial statements andaccompanying notes.  Actual results coulddiffer from those estimates.  We recordeda change in estimate to record deferred amusement revenue in the amount of$2,367 as of February 4, 2007 for the estimated amount of revenue thatwill be utilized for future game activations. The estimate is based on improvedinformation available as a result of the completion, installation andimplementation of new store level information systems in the fourth quarter offiscal 2006.  We recorded a change inestimate of our workers compensation and general liability accruals of $3,100based on an actuarial study obtained in the fourth quarter of fiscal 2006.

F-6

----

*Cash and cash equivalents*—We consider amounts receivable from credit cardcompanies and all highly liquid temporary investments with original maturitiesof three months or less to be cash equivalents.

*Inventories*—Food and beverage and amusements inventories are reported at the lowerof cost or market determined on a first-in, first-out method.  Amusements inventory includes electronicequipment, stuffed animals and small novelty items used as redemption prizesfor certain midway games, as well as supplies needed for midwayoperations.  Smallware replacements areexpensed as incurred.  Inventoriesconsist of the following:
|                    | ** ** | **February 4,  2007** | ** ** | **January 29,  2006** | ** ** |
|--------------------|------------|----------------------------|------------|----------------------------|------------|
| ** **         | ** ** | **(Successor)**            | ** ** | **(Predecessor)**          | ** ** |
| ** **         | ** ** | ** **                 | ** ** | ** **                 | ** ** |
| Food and  beverage |       | $                          | 2,709      |                       | $          | 2,555 |   |
| Amusements         |       | 6,556                      |       | 6,307                      |       |
| Other              |       | 3,883                      |       | 3,607                      |       |
|               |       | $                          | 13,148     |                       | $          | 12,469 |   |

 

*Property and equipment*—Property and equipment are recorded at cost.  Expenditures that substantially increase theuseful lives of the property and equipment are capitalized, whereas costsincurred to maintain the appearance and functionality of such assets arecharged to repair and maintenance expense. Interest costs and rent (through October 30, 2005) incurred duringconstruction were capitalized and depreciated based on the estimated usefullife of the underlying asset.  Interestcosts capitalized during the construction of facilities in 2006, 2005, and 2004were $322, $295, and $668, respectively. Beginning October 31, 2005, we no longer capitalize rental costsincurred during the construction of facilities. Rent costs capitalized during the construction period of facilitiesopened in fiscal 2005 and 2004 were $469 and $187, respectively.

Property and equipment, excludingmost games, are depreciated using the straight-line method over the estimateduseful life of the assets.  Games aregenerally depreciated on the 150 percent declining-balance method overthe estimated useful life of the assets. Reviews are performed regularly to determine whether facts orcircumstances exist that indicate the carrying values of the property andequipment are impaired.  We assess therecoverability of property and equipment by comparing the projected futureundiscounted net cash flows associated with these assets to their respectivecarrying amounts.  Impairment, if any, isbased on the excess of the carrying amount over the estimated fair market valueof the assets.

*Assets heldfor sale—*Assets held forsale represent the net book value of the land and buildings of three locationsthat were sold under the terms of the sale leaseback transaction described inNote 3.  The reported amounts of theseassets reflect the historical net book value of $22,733 of the Predecessor asof January 29, 2006.

*Goodwill and other intangible assets*—In accordance with Statement of FinancialAccounting Standards (“SFAS”) 142, “Goodwill, and Other Intangible Assets,”goodwill is not amortized, but is reviewed for impairment at leastannually.  Indefinite lived intangiblesinclude goodwill in the amount of $65,857 (see Note 2) and trade names in theamount of $63,000.

We have developed and acquiredcertain trademarks that are utilized in our business and have been determinedto have finite lives.  These trademarksare amortized over their estimated life of five years.  As of February 4, 2007 and January 29, 2006,we had trademarks of $6,523 and $74, respectively, included in other assets anddeferred charges.  The following tabledetails amounts relating to those assets:
|                                | ** ** | **February 4, 2007** | ** ** | **January 29, 2006** | ** ** |
|--------------------------------|------------|--------------------------------|------------|--------------------------------|------------|
| ** **                     | ** ** | **(Successor)**                | ** ** | **(Predecessor)**              | ** ** |
|                           |       |                           |       |                           |       |
| Trademarks, at  cost           |       | $                              | 8,000      |                           | $          | 242 |   |
| Less accumulated  amortization |       | (1,477                         | )          | (168                           | )          |
| Trademarks, net                |       | $                              | 6,523      |                           | $          | 74 |   |

 

Amortization expense related totrademarks totaled $1,477, $12, and $12 for fiscal years 2006, 2005 and 2004,respectively.  Total estimatedamortization expense for the next five fiscal years is currently estimated asfollows:
| 2007 |   | $     | 1,600  |   |
|------|--------|-------|--------|--------|
| 2008 |   | 1,600 |   |
| 2009 |   | 1,600 |   |
| 2010 |   | 1,600 |   |
| 2011 |   | 123   |   |

 

F-7

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*Deferredfinancing costs*—TheCompany capitalizes costs incurred in connection with borrowings orestablishment of credit facilities. These costs are included in other assets and deferred charges and areamortized as an adjustment to interest expense over the life of the borrowingor life of the credit facility.  In thecase of early debt principal repayments, the Company adjusts the value of thecorresponding deferred financing costs with a charge to interest expense, andsimilarly adjusts the future amortization expense.  During the year ended February 4, 2007, thefollowing occurred:
| Balance at January 29, 2006  (Predecessor)               |   | $      | 5,461  |   |
|----------------------------------------------------------|--------|--------|--------|--------|
| Write-off of  Predecessor deferred costs                 |   | (5,461 | )      |
| Financing cost  incurred (Successor)                     |   | 11,866 |   |
| Write-off during  period due to prepayments of principal |   | (519   | )      |
| Amortization  during period                              |   | (1,471 | )      |
| Balance at February 4,  2007                             |   | $      | 9,876  |   |

 

Scheduled amortization for futureyears, assuming no further prepayment of principal is as follows:
| 2007               |   | $     | 1,585  |   |
|--------------------|--------|-------|--------|--------|
| 2008               |   | 1,585 |   |
| 2009               |   | 1,585 |   |
| 2010               |   | 1,585 |   |
| 2011 and beyond    |   | 3,536 |   |
| Total amortization |   | $     | 9,876  |   |

 

*Income taxes*—We use the liability method which recognizes the amount of current anddeferred taxes payable or refundable at the date of the financial statements asa result of all events that are recognized in the financial statements and asmeasured by the provisions of enacted tax laws.

The calculation of taxliabilities involves significant judgment and evaluation of uncertainties inthe interpretation of complex tax regulations. As a result, we have established reserves for taxes that may becomepayable in future years as a result of audits by tax authorities.  Tax reserves are reviewed regularly pursuantto Statement of Financial Accounting Standard 5 “Accounting for Contingencies.”  Tax reserves are adjusted as events occurthat affect the potential liability for additional taxes, such as theexpiration of statutes of limitations, conclusion of tax audits, identificationof additional exposure based on current calculations, identification of newissues, or the issuance of statutory or administrative guidance or rendering ofa court decision affecting a particular issue.

*Predecessor share-based expense*—The Predecessor previously accounted forstock-based compensation awards to employees and directors in accordance withAccounting Principles Board Opinion 25, “Accounting for Stock Issued toEmployees” (“APB 25”) and its related interpretations.  Under APB 25, if the exercise price of anemployee’s stock options equals or exceeds the market price of the underlyingstock on the date of grant, no compensation expense is recognized.  In connection with the Merger discussed inNote 2, all restricted stock was converted into the right to receive $18.05 pershare and all outstanding options to acquire common stock was converted intothe right to receive an amount in cash equal to the difference between the pershare exercise price and $18.05.  We didnot adopt the previous voluntary expense recognition provisions of SFAS 123, “Accountingfor Stock-Based Compensation” (“SFAS 123”), whereby the fair value ofstock-based compensation awards would have been expensed over the terms ofawards.  However, consistent with thedisclosure requirements of SFAS 123, we made pro forma disclosures of theeffect that application of fair value expense recognition provisions of SFAS123 would have had on our net earnings. The pro forma impact of applying SFAS 123 in fiscal 2005 and 2004 is notnecessarily representative of the pro forma impact in future years.

In December 2004, the FinancialAccounting Standards Board (“FASB”) issued SFAS 123R, “Share-BasedPayments,” (“SFAS 123R”).  SFAS 123R wasa revision of SFAS 123 and supersedes APB 25. Among other items, SFAS 123R eliminates the use of APB 25 and theintrinsic value method of accounting, and requires companies to recognize intheir financial statements the cost of employee services received in exchangefor awards of equity instruments, based on the fair value of those awards onthe grant date.  The effective date ofSFAS 123R is the first reporting period beginning after June 15, 2005.  We adopted SFAS 123R as of the beginning of thefirst quarter of 2006 using the modified prospective method; accordingly, wehave not restated prior period amounts presented herein.  We recorded non-cash charges for stockcompensation of approximately $25 in the period from January 30, 2006 to March 7,2006.

The following table illustratesthe pro forma effect on net earnings for periods prior to the adoption of SFAS123R as if the Predecessor had applied the fair value recognition provisions ofSFAS 123 during fiscal years 2005 and 2004:

F-8

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|                                                                                                  | ** ** | **Fiscal Year Ended** | ** ** |
|--------------------------------------------------------------------------------------------------|------------|---------------------------------|------------|
| ** **                                                                                       | ** ** | **January 29,  2006**      | ** ** | **January 30,  2005** | ** ** |
| ** **                                                                                       | ** ** | ** **                      | ** ** | ** ** | ** ** |
| Net income, as  reported                                                                         |       | $                               | 4,288      |   | $ | 12,880 |   |
| Stock  compensation expenses recorded under the intrinsic method, net of income  taxes           |       | 564                             |       | 357 |   |
| Pro forma stock  compensation expense recorded under the fair value method, net of income  taxes |       | (820                            | )          | (1,180 | ) |
| Pro forma net income                                                                             |       | $                               | 4,032      |   | $ | 12,057 |   |

 

Inputs used for the fair valuemethod for employee stock options are as follows:
|                                                 | ** ** | **Fiscal Year Ended** | ** ** |
|-------------------------------------------------|------------|---------------------------------|------------|
| ** **                                      | ** ** | **January 29,  2006**      | ** ** | **January 30,  2005** | ** ** |
| ** **                                      | ** ** | ** **                      | ** ** | ** ** | ** ** |
| Volatility                                      |       | 0.55                            |       | 0.56 |   |
| Weighted-average  expected lives                |       | 4.05                            |       | 5.00 |   |
| Weighted-average  risk-free interest rates      |       | 3.98                            | %          | 3.58 | % |
| Weighted-average fair  value of options granted |       | $                               | 14.10      |   | $ | 9.41 |   |
|                                                 |            |                                 |            |  |  |  |  |

 

*Successorshare-based expense*—In December 2006, the members of the Board of Directors of WS Midway approvedthe adoption of the WS Midway Holdings, Inc. Stock Option Plan (the “WS MidwayPlan”).  The WS Midway Plan allows forthe granting to certain of our employees and consultants options to acquirestock in WS Midway.  The expense associated with share-based equityawards granted in fiscal 2006, as more fully described in Note 9 have beencalculated as required by SFAS 123R.  Theexpected term of the options is based on the weighted average of anticipatedexercise dates.  Since we do not havepublicly traded equity securities, the volatility of our options has beenestimated using peer group volatility information.  The risk-free interest rate is based on theimplied yield on U.S. Treasury zero-coupon issues with a remaining termequivalent to the expected term.  We havenot paid dividends in the past and do not plan to pay any dividends in the nearfuture.  The significant assumptions usedin determining the underlying fair value of each option grant, on the date ofgrant were as follows:
|                          | ** ** | **Series A  Service-Based  Options**                     | ** ** | **Series A  Performance-  Based Options**           | ** ** | **Series B  Performance-  Based Options**           | ** ** |
|--------------------------|------------|---------------------------------------------------------------|------------|---------------------------------------------------------------|------------|---------------------------------------------------------------|------------|
|                     |       |                                                          |       |                                                          |       |                                                          |       |
| **Valuation  Model**     | ** ** | **Black-Scholes**                                             | ** ** | **Monte Carlo  Simulation**                                   | ** ** | **Monte Carlo  Simulation**                                   | ** ** |
| Volatility               |       | 39.1%                 |       | 39.1%                 |       | 39.1%                 |       |
| Risk free  interest rate |       | 4.6%                  |       | 4.6%                  |       | 4.6%                  |       |
| Expected  dividend yield |       | 0.0%                  |       | 0.0%                  |       | 0.0%                  |       |
| Expected term            |       | 5.25 years                                                    |       | 5.25 years                                                    |       | 5.25 years                                                    |       |
| Calculated value         |       | $409.00          |       | $280.00          |       | $197.00          |       |

 

In fiscal year 2006, werecognized compensation expense of approximately $438 related to optionsgranted to employees.  Share-based commonstock expenses are reported as a component of general and administrativeexpense in the accompanying consolidated statements of operations.

*Foreign currency translation*—The financial statements related to theoperations of our Toronto complex are prepared in Canadian dollars.  Income statement amounts are translated ataverage exchange rates for each period, while the assets and liabilities aretranslated at year-end exchange rates. Translation adjustments are included in stockholders’ equity as acomponent of comprehensive income.

*Revenue recognition*—Food and beverage revenues are recorded at point of service.  Amusement revenues consist primarily ofdeposits on power cards used by customers to activate most of the midwaygames.  We have recorded deferred revenueof $3,117 as of February 4, 2007 for the estimated amount of unused depositswhich will be used for future game activations.

Foreign license revenues aredeferred until we fulfill our obligations under license agreements.  The license agreements provide for continuingroyalty fees based on a percentage of gross revenues, which are recognized whenrealization is assured.  Revenue frominternational licensees for 2006, 2005, and 2004 was $155, $604, and $627,respectively.

F-9

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*Amusements costs of products*—Certain of our midway games allow customers toearn coupons, which may be redeemed for prizes, including electronic equipment,sports memorabilia, stuffed animals, clothing and small novelty items.  The cost of these prizes is included in thecost of amusement and other in the consolidated statements of operations.   We record a liability for the estimatedamount of outstanding coupons that will be redeemed in subsequent periods.

*Advertising costs*—Advertising costs are recorded as an expense in the period in which weincur the costs or the first time the advertising takes place.  Advertising expenses were $20,353, $16,245,and $14,648, for 2006, 2005 and 2004, respectively.

*Startup costs*—Startup costs include costs associated with the opening and organizingof new complexes or conversion of existing complexes, including the cost offeasibility studies, training, and recruiting and travel costs for employeesengaged in such startup activities.  Allstartup costs are expensed as incurred. Through October 30, 2005, rent incurred between the timeconstruction is substantially completed and the time the complex opens wasincluded in startup costs.  BeginningOctober 31, 2005, all rent incurred during the construction period isexpensed and classified as a component of startup costs.

*Lease accounting*—Rent expense is recorded on a straight-line basis over the leaseterm.  The lease term commences on thedate when we take possession and have the right to control the use of theleased premises.  The lease term includesthe initial non-cancelable lease term plus any periods covered by renewaloptions that we consider reasonably assured of exercising.  Construction allowances we receive from thelessor to reimburse us for the cost of leasehold improvements are recorded asdeferred occupancy costs and amortized as a reduction of rent over the term ofthe lease.

*Comprehensive income*—Comprehensive income is defined as the change inequity of a business enterprise during a period from transactions and otherevents and circumstances from non-owner sources.  In addition to net income, unrealized foreigncurrency translation gain (loss) is included in comprehensive income.  Unrealized translation gains (losses) for2006, 2005, and 2004 was $(187), $120, and $225, respectively.

*Recent accounting pronouncements*—In March2006, the Emerging Issues Task Force (“EITF”) issued EITF Issue 06-03, “HowTaxes Collected from Customers and Remitted to Governmental Authorities ShouldBe Presented in the Income Statement” (That Is, Gross Versus NetPresentation).  A consensus was reachedthat entities may adopt a policy of presenting sales taxes in the incomestatement on either a gross or net basis. If taxes are significant, an entity should disclose its policy ofpresenting taxes and the amounts of taxes. The guidance is effective for periods beginning after December 15,2006.  We present revenues net of salestaxes.  This issue will not impact themethod for presenting these sales taxes in the consolidated financialstatements.

InJune 2006, the FASB issued FASB Interpretation 48, “Accounting for Uncertaintyin Income Taxes — an interpretation of FASB Statement 109” (“FIN 48”).  FIN 48 requires companies to determinewhether it is more likely than not that, a tax position will be sustained uponexamination by the appropriate taxing authorities before any part of thebenefit can be recorded in the financial statements.  This interpretation also provides guidance onderecognition, classification, accounting in interim periods, and expandeddisclosure requirements.  FIN 48 iseffective for fiscal years beginning after December 15, 2006.  We do not believe that the implementation ofFIN 48 will have a material affect on our consolidated financial statements.

InSeptember 2006, the FASB issued Statement of Financial Accounting Standards157, “Fair Value Measurements” (“SFAS 157”). SFAS 157 clarifies the definition of fair value, describes methods usedto appropriately measure fair value, and expands fair value disclosurerequirements.  This statement iseffective for fiscal years beginning after November 15, 2007.  We are currently in the process of assessing theimpact that SFAS 157 will have on our consolidated financial statements.

In February 2007, theFASB issued SFAS 159, “The Fair Value Option for Financial Assets andLiabilities” (“SFAS 159”).  Thisstatement permits entities to choose to measure many financial instruments andcertain other items at fair value.  Ifthe fair value option is elected, unrealized gains and losses will berecognized in earnings at each subsequent reporting date.  SFAS 159 is effective for fiscal yearsbeginning after November 15, 2007.  Weare currently evaluating the impact of this adoption on our consolidatedfinancial statements.

**Note 2: Merger with WS MidwayAcquisition Sub, Inc.**

At the effective time of theMerger described in Note 1, the following events occurred:

·                  All outstandingshares of our common stock (including those issued upon the conversion of ourconvertible subordinated notes), other than shares held by WS Midway, wereconverted into the right to receive $18.05 per share without interest, less anyapplicable withholding taxes;

F-10

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·                  Holders ofapproximately 2.6 million shares exercised dissenters’ rights andinitiated proceedings under Section 351.455 of the General and BusinessCorporation Law of Missouri to demand fair value with respect to their shares.

·                  Alloutstanding options or warrants to acquire our common stock were converted intothe right to receive an amount in cash equal to the difference between the pershare exercise price and $18.05, without interest, less any applicablewithholding taxes; and

·                  To the extentnot converted into shares of common stock, we redeemed for cash the convertiblesubordinated notes due 2008 and the indenture governing the convertible notesceased to have any effect.

The Merger transactions resultedin a change in ownership of 100 percent of our outstanding common stock and isbeing accounted for in accordance with Statement of Financial AccountingStandards 141, “Business Combinations.” The purchase price paid in the Merger has been “pushed down” to ourfinancial statements and is allocated to record the acquired assets andliabilities assumed based on their fair value. The Merger and the allocation of the purchase price to the assets andliabilities as of March 8, 2006 have been recorded based on valuation studiesand management estimates of fair value. Adjustments to the purchase price allocation, if any, arising out of thefinalization of the allocation of the purchase price will not impact cash flowincluding cash interest and rent.

The sources and uses of funds inconnection with the Merger as of February 4, 2007 are summarized below:
| **Sources**                                                 |       |       |       |
|-------------------------------------------------------------|------------|------------|------------|
| Revolving credit  facility and cash on hand                 |       | $          | 17,628     |   |
| Senior credit  facility (1)                                 |       | 100,000    |       |
| Senior notes                                                |       | 175,000    |       |
| Equity  contribution                                        |       | 108,100    |       |
| Total sources                                               |       | $          | 400,728    |   |
| ** **                                                  | ** ** | ** ** | ** ** |
| **Uses**                                                    |       |       |       |
| Consideration  paid to stockholders                         |       | $          | 264,835    |   |
| Consideration  paid to convertible note and warrant holders |       | 44,390     |       |
| Consideration  paid to option holders                       |       | 9,279      |       |
| Payment of  existing debt                                   |       | 51,137     |       |
| Transaction  costs (2)                                      |       | 31,087     |       |
| Total uses                                                  |       | $          | 400,728    |   |

----

(1)                                  As of the date of the Merger, March 8, 2006,$50,000 of the senior credit facility was available and $50,000 was availableon a delayed draw basis and was borrowed on August 15, 2006.

(2)                                  Transaction costs assumed in connection with theMerger include approximately $12,739 related to the exercise of Change inControl agreements by certain executives.

On July 10, 2006, we and all dissenting shareholdersreached an agreement which provided, among other things, for the permanent andirrevocable settlement of all claims among the parties.  The terms of the settlement included thepayment of approximately $51,733 to the shareholders in accordance with theterms of the settlement agreement. Payments of the settlement were funded from borrowings under the seniorcredit facility and available cash.

The purchase price has been allocated as follows:
| Working capital deficit       |   | $       | (23,373 | )      |
|-------------------------------|--------|---------|---------|--------|
| Property and  equipment       |   | 354,582 |    |
| Indefinite lived  intangibles |   | 128,857 |    |
| Definite lived  intangibles   |   | 8,000   |    |
| Other long-term  assets       |   | 18,699  |    |
| Deferred  occupancy costs     |   | (49,225 | )       |
| Deferred income  taxes        |   | (32,549 | )       |
| Other long-term  liabilities  |   | (4,263  | )       |
|                          |   | $       | 400,728 |   |

 

The purchase price associatedwith the Merger has increased by $11,316 since our initial purchase priceallocation due primarily to payments required by the exercise of change incontrol agreements by former officers of the Company. Additionally, we haverefined our estimates of the fair value of certain fixed assets, long-termliabilities, and deferred taxes.  

F-11

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The net effect of all adjustments resulted in a decreasein goodwill of $1,700.

Indefinite lived intangiblesinclude trade names in the amount of $63,000 and goodwill in the amount of$65,857 and are not subject to amortization, but instead are reviewed forimpairment at least annually.

In connection with the Merger,the Successor incurred approximately $1,500 in Merger related costs, primarilya bridge funding fee that is recorded in the statement of operations for the334-day period from March 8, 2006 to February 4, 2007 as interest expense.

*Pro formafinancial information* –The following unaudited pro forma results of operations assumes that the Mergeroccurred on January 31, 2005.  Thisunaudited pro forma information should not be relied upon as necessarily beingindicative of the historical results that would have been obtained if theMerger had actually occurred on that date, nor the results that may be obtainedin the future.  Pro forma adjustmentsreflect additional expenses incurred had the Merger occurred on January 31, 2005,consisting primarily of interest, depreciation and amortization expenses.
|                                 | ** ** | **February 4, 2007** | ** ** | **January 29, 2006** | ** ** |
|---------------------------------|------------|--------------------------------|------------|--------------------------------|------------|
|                            |       |                           |       |                           |       |
| Revenue                         |       | $                              | 510,201    |                           | $          | 463,452 |   |
| Net loss, pro  forma            |       | (12,544                        | )          | (16,480                        | )          |
| Pro forma  adjustments          |       | (967                           | )          | (20,768                        | )          |
| Net income (loss), as  reported |       | $                              | (11,577    | )                              | $          | 4,288 |   |

 

**Note 3:Acquisitions and Disposals**

On November 15, 2006, wecompleted the sale andsimultaneous leaseback of the land and buildings of three owned facilitieslocated in the states of Florida, Illinois, and Ohio.  The transaction was completed at a sale priceof $29,600, which approximated the carrying value of the assets.  Net proceeds from the transaction were usedto pay down outstanding balances on the Company’s senior credit and revolvingcredit facilities after a $5,000 hold back for reinvestment.

Weagreed to leaseback these facilities under various operating lease agreements,which have an initial term of 17.5 years. The leases require us to make monthly rental payments, which aggregate to$2,453 on an annual basis.  Rentalpayments under the leases are subject to adjustment based on defined changes inthe Consumer Price Index.  In addition tothe rental payments described above we are required to pay the property taxesand certain maintenance charges related to the properties.

In October 2005, we acquired the general partner interestin a limited partnership which owns a Jillian’s complex in the Discover MillsMall near Atlanta, Georgia.  The limitedpartner currently earns a preferred return on its remaining investedcapital.  We currently have a50.1 percent interest in the income or losses of the partnership.  After deducting the preferred return to thelimited partner, the interest in the income or losses of the partnership is notexpected to be significant to the results of operations until the limitedpartner receives a full return of its invested capital and preferredreturn.  We also manage the complex undera management agreement and receive a fee of 4.0 percent of operating revenuesannually.  We account for the generalpartner interest using the equity method due to the substantive participativerights of the limited partner in the operations of the partnership.

On November 1, 2004, we completedthe acquisition of nine Jillian’s entertainment complexes located in majormetropolitan areas in the states of Arizona, Maryland, Minnesota, NorthCarolina, New York, Pennsylvania, Tennessee, and Texas.  The acquisition was completed pursuant to anasset purchase agreement for $45,747 in cash. In addition, we incurred $2,369 in costs related to thetransaction.  The cash requirements ofthe acquisition were funded from borrowings under the amended senior bank creditfacility.  The results of the operationsof the acquired complexes have been included in the consolidated resultsbeginning on the date of acquisition. The historical results of operations of the acquired complexes were notsignificant compared to the historical consolidated results of operations.

On August 28, 2005, a subsidiaryof ours closed the acquired Jillian’s complex located at the Mall of America inBloomington, Minnesota due to continuing operating losses attributable to thiscomplex and the unsuccessful efforts to renegotiate the terms of the relatedleases.  As a result of the closing, werecorded total pre-tax charges of approximately $3,000 in fiscal 2005,comprised of approximately $2,500 in non-cash charges for depreciation,amortization and asset impairment charges and approximately $500 related toseverance and other costs required to close the complex.

F-12

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We have converted six of the former Jillian’s locationsto the “Dave & Buster’s Grand Sports Café” brand.  We believe this conversion has enhancedefforts to improve the operating economics of the Dave & Buster’s brandthroughout the system.  We began convertingthe stores in September 2005, and converted five of the stores in fiscal2005.  One additional store was convertedin the first quarter of 2006.  Weplan to convert two of the remaining Jillian’s locations to Dave & Buster’sduring the 2007 fiscal year.

**Note 4: Property and Equipment**

As of the date of the Merger,March 8, 2006, we recorded purchase accounting adjustments to the carryingvalue of property and equipment to record the acquired assets based on theirfair value.  (See Note 2.)  Property and equipment consist of thefollowing (in thousands):
|                                     | ** ** | **Estimated Depreciable**       | ** ** | **February 4,** | ** ** | **January 29,** | ** ** |
|-------------------------------------|------------|--------------------------------------|------------|----------------------|------------|----------------------|------------|
| ** **                          | ** ** | **Lives (In Years)**       | ** ** | **2007**             | ** ** | **2006**             | ** ** |
| ** **                          | ** ** | ** **                           | ** ** | **(Successor)**      | ** ** | **(Predecessor)**    | ** ** |
|                                |       |                                 |       |                 |       |                 |       |
| Land                                |       | —                               |       | $                    | 385        |                 | $          | 1,586 |   |
| Buildings                           |       | Shorter  of 40  or ground lease term |       | 15,452               |       | 23,851               |       |
|                                     |       |                                 |       |                 |       |                 |       |
| Leasehold and building improvements |       | Shorter  of 20  or lease term        |       | 223,702              |       | 264,747              |       |
| Furniture, fixtures and  equipment  |       | 5-10                                 |       | 68,151               |       | 166,478              |       |
| Games                               |       | 5                                    |       | 48,644               |       | 106,307              |       |
| Construction in progress            |       |                                 |       | 3,004                |       | 10,705               |       |
| Total cost                          |       |                                 |       | 359,338              |       | 573,674              |       |
| Less accumulated  depreciation      |       |                                 |       | (42,498              | )          | (221,791             | )          |
| Property and equipment,  net        |       |                                 |       | $                    | 316,840    |                 | $          | 351,883 |   |

 

**Note 5: Accrued liabilities**

Accrued liabilities consist ofthe following (in thousands):

|                                 | ** ** | **February 4,** | ** ** | **January 29,** | ** ** |
|---------------------------------|------------|----------------------|------------|----------------------|------------|
| ** **                      | ** ** | **2007**             | ** ** | **2006**             | ** ** |
| ** **                      | ** ** | **(Successor)**      | ** ** | **(Predecessor)**    | ** ** |
| ** **                      | ** ** | ** **           | ** ** | ** **           | ** ** |
| Compensation and  benefits      |       | $                    | 13,083     |                 | $          | 8,215 |   |
| Interest                        |       | 8,763                |       | 1,324                |       |
| Accrued severance               |       | 3,669                |       | —               |       |
| Deferred amusement  revenue     |       | 3,117                |       | 494                  |       |
| Sales and use taxes             |       | 2,880                |       | 2,462                |       |
| Amusement redemption  liability |       | 2,794                |       | 624                  |       |
| Other                           |       | 11,587               |       | 8,175                |       |
| Total accrued  liabilities      |       | $                    | 45,893     |                 | $          | 21,294 |   |

 

**Note 6: Long-Term Debt**

Long-term debt consisted of thefollowing (in thousands):

|                                                  | ** ** | **February 4,  2007** | ** ** | **January 29,  2006** | ** ** |
|--------------------------------------------------|------------|----------------------------|------------|----------------------------|------------|
| ** **                                       | ** ** | **(Successor)**            | ** ** | **(Predecessor)**          | ** ** |
| Senior credit  facility—revolving           |       | $                          | —     |                       | $          | — |   |
| Senior credit  facility—term                |       | 79,375                     |       | 5,439                      |       |
| Senior notes                                     |       | 175,000                    |       | —                     |       |
| Term debt facility                               |       | —                     |       | 45,375                     |       |
| Convertible  subordinated notes, net of discount |       | —                     |       | 29,361                     |       |
|                                             |       | 254,375                    |       | 80,175                     |       |
| Less current  installments                       |       | 1,000                      |       | 9,625                      |       |
| Long-term debt, less current installments        |       | $                          | 253,375    |                       | $          | 70,550 |   |

 

F-13

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In connection with the Merger, weterminated our existing credit facility and entered into a new senior securedcredit facility (“senior credit facility”) that (a) provides a $100,000term loan facility ($50,000 of the term loan facility was available as of thedate of the Merger, and $50,000 was available on a delayed draw basis and wasborrowed on August 15, 2006) with a maturity of seven years from the closingdate of the Merger, and (b) provides a $60,000 revolving credit facilitywith a maturity of five years from the closing date of the Merger.  The $60,000 revolving credit facilityincludes (i) a $20,000 letter of credit sub-facility, (ii) a $5,000swingline sub-facility and (iii) a $5,000 (in US Dollar equivalent) sub-facilityavailable in Canadian dollars to our Canadian subsidiary.  The revolving credit facility will be used toprovide financing for working capital and general corporate purposes.  As of February 4, 2007, in addition to theborrowings indicated above, we had $6,956 in letters of credit outstanding.

The interest rates per annumapplicable to loans, other than swingline loans, under the senior creditfacility are, at our option, equal to, either a base rate (or, in the case ofthe Canadian revolving credit facility, a Canadian prime rate) or a Eurodollarrate (or, in the case of the Canadian revolving credit facility, a Canadiancost of funds rate) for one-, two-, three- or six-month (or, in the caseof the Canadian revolving credit facility, 30, 60, 90 or 180-day) interestperiods chosen by us, in each case, plus an applicable margin percentage.  Swingline loans bear interest at the baserate plus the applicable margin.  Theweighted average rate of interest on the senior credit facility was 7.8 percent****at February 4, 2007.

Effective June 30, 2006, weentered into two interest rate swap agreements that expire in 2011, to change aportion of the variable rate debt to fixed rate debt.  Pursuant to the swap agreements, the interestrate on notional amounts aggregating $93,800 at February 4, 2007 is fixed at5.31 percent.  The notional amountsdecline ratably over the term of the agreements.  The agreements have not been designated ashedges and adjustments to mark the instruments to their fair value are recordedas interest income/expense and as a result of the swap agreements, we recordedadditional interest expense of $364 for the 53-weeks ended February 4,2007.  Subsequent to fiscal year end2006, we amended the swap agreements to reduce the notional amounts to anaggregate of $77,100.

Our senior credit facility requirescompliance with the following financial covenants: a minimum fixed chargecoverage ratio test and a maximum leverage ratio test.  We will initially be required to maintain aminimum fixed charge coverage ratio of 1.00:1.00 and a maximum leverage ratioof 4.75:1.00 as of February 4, 2007.  Thefinancial covenants will become more restrictive over time.  The required minimum fixed charge coverageratio increases annually to a required ratio of 1.20:1.00 in the fourth quarterof fiscal year 2009 and thereafter.  Themaximum leverage ratio decreases annually to a required ratio of 3.50:1.00 inthe fourth quarter of fiscal year 2010 and thereafter.  In addition, the new senior credit facilityincludes negative covenants restricting or limiting the ability of WS Midwayand its subsidiaries to, among other things, incur additional indebtedness,make capital expenditures and sell or acquire assets.  Virtually all of our assets are pledged ascollateral for the senior credit facility.

The senior credit facility alsocontains certain customary representations and warranties, affirmativecovenants and events of default, including payment defaults, breaches ofrepresentations and warranties, covenant defaults, cross-defaults andcross-acceleration to certain indebtedness, certain events of bankruptcy,certain events under ERISA, material judgments, actual or asserted failures ofany guarantee or security document supporting the senior credit facility to bein full force and effect and a change of control.  If an event of default occurs, the lendersunder the senior credit facility would be entitled to take various actions,including acceleration of amounts due under the senior credit facility and allactions permitted to be taken by a secured creditor.

On August 17, 2006, certaincovenants under the senior credit facility were amended.  The main provisions of this amendmentare as follows:

1.               Consent to enterinto a sale-leaseback transaction on three fee owned properties, the proceedsof which would be used to pay down the outstanding balance of the term loanportion of the senior credit facilitywith up to $5.0 million being available for reinvestment.

2.             For the purposes ofsatisfying negative covenants under the seniorcredit facility, (a) the amount of startup costs to be added back to ournet income would be increased from $5.0 million to $7.5 million for the year2006, and (b) the amount of payments to employees under change in controlcontracts to be added back to our net income would be set at $10.0 million throughour 2007 fiscal year.

3.             Theability to utilize purchasing cards, and treat up to $5.0 million of suchpurchasing card obligations as pari passu secured obligations.

In connection with the Merger, onMarch 8, 2006, we closed a placement of $175,000 aggregate principalamount of senior notes.  The notes aregeneral unsecured, unsubordinated obligations of ours and mature onMarch 15, 2014.  Interest on thenotes compounds semi-annually and accrues at the rate of 11.25 percent perannum.  On or after March 15, 2010,we may redeem all, or from time-to-time, a part of the senior notes upon notless than 30 nor more than 60 days notice, at redemption prices (expressedas a percentage of principal amount) plus accrued and unpaid interest on thesenior notes.  Prior to March 15,2009, we may on any one or more occasions redeem up to 35 percent of theoriginal principal amount of the notes using the proceeds of certain equityofferings completed before March 15, 2009. 

F-14

----

On September 22, 2006, we completed an exchange with theholders of the 11.25 percent senior notes pursuant to which the existing notessold in March 2006 pursuant to Rule 144A and Regulation S of the Securities Actof 1933, as amended, were exchanged for an equal amount of newly issued 11.25 percentsenior notes, which have been registered under the Securities Act of 1933.

The senior notes restrict ourability to incur indebtedness, outside of the senior credit facility, unlessthe consolidated coverage ratio exceeds 2.00:1.00 or other financial andoperational requirements are met. Additionally, the terms of the notes restrict our ability to makecertain payments to affiliated entities.

The following table sets forthour future debt payment obligations as of February 4, 2007:
|                       | ** ** | **Debt Outstanding  at February 4, 2007** | ** ** |
|-----------------------|------------|---------------------------------------------------------------|------------|
| 1 year or less        |       | $                                                             | 1,000      |   |
| 2 years               |       | 1,000                                                         |       |
| 3 years               |       | 1,000                                                         |       |
| 4 years               |       | 1,000                                                         |       |
| 5 years               |       | 1,000                                                         |       |
| Thereafter            |       | 249,375                                                       |       |
| Total future payments |       | $                                                             | 254,375    |   |

 

For the 53-weeks ended February4, 2007, and the 52-weeks ended January 29, 2006, and January 30, 2005,interest expense was $27,713, $6,695, and $5,586, respectively.  Interest costs capitalized during theconstruction of facilities for the 53-weeks ended February 4, 2007, 52-weeksended January 29, 2006, and January 30, 2005 was $322, $295, and $668,respectively.

**Note 7: Income Taxes**

The provision for income taxes isas follows:
|                                   | ** ** | **Fiscal Year Ended**                            | ** ** |
|-----------------------------------|------------|------------------------------------------------------------|------------|
| ** **                        | ** ** | **334-Day Period  Ended  February 4, 2007** | ** ** | ** ** | **37-Day Period  Ended  March 7, 2006** | ** ** | **January 29,  2006** | ** ** | **January 30,  2005** | ** ** |
| ** **                        | ** ** | **(Successor)**                                            | ** ** | ** ** | **(Predecessor)** | ** ** | **(Predecessor)** | ** ** | **(Predecessor)** | ** ** |
| Current expense  (benefit)        |       |                                                       |       |   |   |   |   |   |   |   |
|                              |       |                                                       |       |   |   |   |   |   |   |   |
| Federal                           |       | $                                                          | 1,302      |   |   | $ | 1,045 |   | $ | 1,211 |   | $ | 9,813 |   |
| State and local                   |       | 448                                                        |       |   | 144 |   | 585 |   | 932 |   |
| Deferred expense  (benefit)       |       | (10,342                                                    | )          |   | (767 | ) | 220 |   | (3,820 | ) |
| Total provision for  income taxes |       | $                                                          | (8,592     | ) |   | $ | 422 |   | $ | 2,016 |   | $ | 6,925 |   |

 

Significant components of thedeferred tax liabilities and assets in the consolidated balance sheets are asfollows:
|                                 | ** ** | **February 4,  2007** | ** ** | **January 29,  2006** | ** ** |
|---------------------------------|------------|----------------------------|------------|----------------------------|------------|
| ** **                      | ** ** | **(Successor)**            | ** ** | **(Predecessor)**          | ** ** |
| **Deferred tax liabilities:**   | ** ** | ** **                 | ** ** | ** **                 | ** ** |
| Property and equipment          |       | $                          | 6,832      |                       | $          | 17,468 |   |
| Trademark/trade name            |       | 23,915                     |       | —                     |       |
| Prepaid expenses                |       | —                     |       | 496                        |       |
| Other                           |       | 318                        |       | 152                        |       |
| Total deferred tax  liabilities |       | $                          | 31,065     |                       | $          | 18,116 |   |

 

F-15

----

 
|                                                             | ** ** | **February 4,  2007** | ** ** | **January 29,  2006** | ** ** |
|-------------------------------------------------------------|------------|----------------------------|------------|----------------------------|------------|
| ** **                                                  | ** ** | **(Successor)**            | ** ** | **(Predecessor)**          | ** ** |
| **Deferred  tax assets:**                                   | ** ** | ** **                 | ** ** | ** **                 | ** ** |
| Leasing transactions                                        |       | $                          | 1,099      |                       | $          | 6,051 |   |
| Worker’s compensation  and general liability insurance |       | 2,367                      |       | 831                        |       |
| Smallware supplies                                          |       | 1,048                      |       | —                     |       |
| Amusement redemption  liability                             |       | 1,718                      |       | —                     |       |
| Legal                                                       |       | 1,263                      |       | —                     |       |
| Tax credit carryovers                                       |       | 605                        |       | —                     |       |
| Other                                                       |       | 1,178                      |       | 241                        |       |
| Total deferred  tax assets                                  |       | 9,278                      |       | 7,123                      |       |
| Valuation allowance for  deferred tax assets                |       | (164                       | )          | (187                       | )          |
| Total deferred  tax assets net of valuation allowance       |       | 9,114                      |       | 6,936                      |       |
| Net deferred tax  liability                                 |       | $                          | 21,951     |                       | $          | 11,180 |   |

 

During 2005, we established avaluation allowance against the net Canadian deferred tax assets.  The existence of sustained losses prevent usfrom concluding that it is more likely than not that the Canadian deferred taxassets will be realized.  In general, weanticipate reversing the valuation allowance associated with deferred taxassets of the Canadian subsidiary when the underlying deferred tax assets are realizedor at the time, the actual results have demonstrated a sustained profitabilityand the projected results support our ability to realize the deferred taxassets currently being reserved.

As of February 4, 2007, we hadapproximately $605 of federal tax credit carryforwards for income taxpurposes.  The credits will expire in2027.

On May 18, 2006, Texas enactedlegislation changing its tax system essentially replacing the existingfranchise tax with a broad, new tax based on taxable margin.  The legislation included redefining the taxbase, lowering the tax rate, and extending the imposition of tax to numeroustypes of entities that were not previously subject to the franchise tax.  As a result of the new legislation and inaccordance with SFAS 109, we recorded an income tax expense of $117.

In June 2006, FASB issued FASBInterpretation 48, “Accounting for Uncertainty in Income Taxes — aninterpretation of FASB Statement 109” (“FIN 48”).  FIN 48 clarifies the accountingfor income taxes by prescribing a minimum threshold that a tax position isrequired to meet before being recognized in the financial statements.  FIN 48 also provides guidance onderecognition, measurement, classification, interest and penalties, accountingfor interim periods, disclosure and transition. This interpretation is effective for fiscal years beginning afterDecember 15, 2006.  We will adopt thisInterpretation in the first quarter of fiscal year 2007.  We do not believe that theimplementation of FIN 48 will have a material affect on our consolidatedfinancial statements.

The reconciliation of the federalstatutory rate to the effective income tax rate follows:
| ** **                                                       | ** ** | **For Fiscal Year Ended**                   | ** ** |
|------------------------------------------------------------------|------------|------------------------------------------------------------|------------|
| ** **                                                       | ** ** | **334-Day Period  Ended  February 4, 2007** | ** ** | ** ** | **37-Day Period  Ended  March 7, 2006** | ** ** | **January 29,  2006** | ** ** | **January 30,  2005** | ** ** |
| ** **                                                       | ** ** | **(Successor)**                                            | ** ** | ** ** | **(Predecessor)** | ** ** | **(Predecessor)** | ** ** | **(Predecessor)** | ** ** |
| ** **                                                       | ** ** | ** **                                                 | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Federal corporate  statutory rate                                |       | 35.0                                                       | %          |   | 35.0 | % | 35.0 | % | 35.0 | % |
| State and local income  taxes, net of federal income tax benefit |       | 1.7                                                        | %          |   | 13.3 | % | 7.8 | % | 2.7 | % |
| Foreign taxes                                                    |       | 0.1                                                        | %          |   | 1.3 | % | 3.2 | % | (2.1 | )% |
| Nondeductible expenses                                           |       | (4.3                                                       | )%         |   | 4.5 | % | 0.8 | % | 2.0 | % |
| Tax credits                                                      |       | 9.1                                                        | %          |   | (10.7 | )% | (17.9 | )% | (4.2 | )% |
| Other                                                            |       | 0.0                                                        | %          |   | 3.1 | % | 3.1 | % | 1.6 | % |
| Effective tax rate                                               |       | 41.6                                                       | %          |   | 46.5 | % | 32.0 | % | 35.0 | % |

 

Our effective tax rate differsfrom the statutory rate primarily due to the deduction for FICA tip credits andstate income taxes.

**Note 8: Leases**

We lease certain property andequipment under various non-cancelable capital and operating leases.  Some of the leases include options forrenewal or extension on various terms. Most of the leases require us to pay property taxes, insurance, andmaintenance of the leased assets. Certain leases also have provisions for additional percentage rentalsbased on revenues.  For 2006, 2005, and 2004,rent expense for operating leases was $38,088, $34,104, and $24,290,respectively, including contingent rentals of $1,197, $969, and $890,respectively.  

F-16

----

At February 4, 2007 futureminimum lease payments, including any periods covered by renewal options we arereasonably assured of exercising (including the sale/leaseback transactionsdescribed below), are:
| 2007                                                                            | ** ** | **2008**   | ** ** | **2009**   | ** ** | **2010**   | ** ** | **2011**   | ** ** | **Thereafter** | ** ** | **Total**  | ** ** |
|---------------------------------------------------------------------------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|----------------|------------|------------|------------|
| ** **                                                                      | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** **     | ** ** | ** ** | ** ** |
| $            42,825 |       | $          | 42,403     |       | $          | 42,435     |       | $          | 42,250     |           | $          | 42,304     |       | $ | 353,705 |   | $ | 565,922 |   |
|                                                                                 |            |            |            |            |            |            |            |            |            |                |            |            |            |  |  |  |  |  |  |

 

During 2000 and 2001, wecompleted the sale/leaseback of three complexes and the corporateheadquarters.  Cash proceeds of $24,774were received along with twenty-year notes aggregating $6,750.  The notes bear interest of 7 percent to 7.5 percent.  At February 4, 2007 and January 29, 2006, theaggregate balance of the notes receivable due from the lessors under thesale/leaseback agreements was $4,453 and $4,618, respectively.  Future minimum principal and interestpayments due to us under these notes are as follows:
| 2007                                                                                                       | ** ** | **2008**   | ** ** | **2009**   | ** ** | **2010**   | ** ** | **2011**   | ** ** | **Thereafter** | ** ** | **Total**  | ** ** |
|------------------------------------------------------------------------------------------------------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|----------------|------------|------------|------------|
| ** **                                                                                                 | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** **     | ** ** | ** ** | ** ** |
| $                 469 |       | $          | 489        |       | $          | 489        |       | $          | 489        |           | $          | 489        |       | $ | 4,846 |   | $ | 7,271 |   |
|                                                                                                            |            |            |            |            |            |            |            |            |            |                |            |            |            |  |  |  |  |  |  |

 

**Note 9: Common Stock**

*Predecessor share-based expense*—In June 2005, the Predecessor stockholdersapproved the adoption of the Dave & Buster’s 2005 Long-Term IncentivePlan (the “2005 Incentive Plan”).  ThePredecessor had established the 2005 Incentive Plan allowing for the grantingof incentive stock options, non-qualified stock options, restricted stockawards, and stock appreciation rights to officers, non-employee directors, andemployees of the Company.  A maximum of600,000 shares of common stock were reserved for issuance under the 2005 IncentivePlan.  Lapsed, forfeited, or canceledoptions, stock appreciation rights, or restricted stock awards do not countagainst these limits and can be regranted. In March 2006, the 2005 Incentive Plan was terminated and nofurther grants were permitted to be made under the 2005 Incentive Plan.

In 2005 and 2004, the Predecessorissued 215,250 and 115,000 shares, respectively, of restricted stock withmarket values of $17.57-$18.88 and $17.66-$18.90,respectively.  The total market value ofthe restricted shares, as determined at the date of issuance, is treated asunearned compensation and is charged to expense over the vesting period.  The charge to expense for the restrictedstock compensation was $726 and $549, in 2005 and 2004, respectively.

A summary of our stock optionactivity and related information for fiscal years 2005 and 2004 is as follows(in thousands, except per share data):
|                                     | ** ** | **Fiscal Year Ended** | ** ** |
|-------------------------------------|------------|---------------------------------|------------|
| ** **                          | ** ** | **January 29, 2006**  | ** ** | **January 30, 2005** | ** ** |
| ** **                          | ** ** | **Options**                     | ** ** | **Exercise  Price*** | ** ** | **Options** | ** ** | **Exercise  Price*** | ** ** |
| Outstanding—beginning  of year |       | 2,325                           |       | $ | 12.29 |   | 2,417 |   | $ | 11.55 |   |
| Granted                             |       | 255                             |       | 18.77 |   | 277 |   | 17.30 |   |
| Exercised                           |       | (270                            | )          | 8.44 |   | (271 | ) | 10.34 |   |
| Forfeited                           |       | (76                             | )          | 15.09 |   | (98 | ) | 13.41 |   |
| Outstanding—end of year        |       | 2,234                           |       | 13.40 |   | 2,325 |   | 12.29 |   |
| Exercisable—end of year        |       | 1,461                           |       | $ | 14.55 |   | 1,680 |   | $ | 12.86 |   |

 

----

*              Weightedaverage exercise price

In connection with the Merger, asmore fully described in Note 2, all restricted stock was converted into theright to receive $18.05 per share and all outstanding options to acquire thecommon stock vested and were converted into the right to receive an amount incash equal to the difference between the per share exercise price and $18.05.

*Successorshare-based compensation—*In December 2006, the members of theBoard of Directors of WS Midway approved the adoption of the WS MidwayHoldings, Inc. Stock Option Plan (the “WS Midway Plan”).  The WS Midway Plan allows for the granting tocertain of our employees and consultants options to acquire stock in WS Midwaythat are subject to either time-basedvesting or performance-based vesting.

F-17

----

The various options provided forin the Plan are as follows:

*Series A Service-based Options*

These options contain a service-based (or time-based) vesting provision,whereby the options will vest in five equal amounts beginning on March 8, 2007and every March 8 anniversary thereafter. Upon sale of the Company, all service-based options will fullyvest.  These options terminate on March8, 2016.

*Series A Performance Options*

These options contain a performance-based vesting provision, whereby theoptions will vest if Wellspring earns a 15 percent internal rate of return (“IRR”)on its investment in the Company at the time it sells such investment.  If the 15 percent IRR is not achieved uponsale, then the value of the interests of the optionees will be reduced by an amount necessary to increase theIRR to 15 percent.  In the event that nosale or liquidity event occurs by March 8, 2011 (approximately 4.25 years fromthe date of grant), a third party valuation will take place for purposes ofdetermining whether the 15 percent IRR has been achieved in order to establishvesting of these options.  These optionsterminate on March 8, 2016.

*Series B Performance Options*

Theseoptions contain a similar performance-based vesting provision, whereby theoptions will vest if Wellspring earns a 25 percent IRR on its investment in theCompany at the time it sells such investment. If the 25 percent IRR is not achieved upon sale, the value of theinterests of the optionees will be reducedby an amount necessary to increase the IRR to 25 percent.  These options do not contain a provisionrelating to a third party valuation, and therefore vest only upon a liquidityevent.  These options terminate on March8, 2016.

Transactions during fiscal 2006under this Plan were as follows:
|                                          | ** ** | **Series A  Service-Based  Options** | ** ** | **Series A  Performance-  Based Options** | ** ** | **Series B  Performance-  Based Options** | ** ** |
|------------------------------------------|------------|-------------------------------------------|------------|-----------------------------------------------------|------------|-----------------------------------------------------|------------|
|                                     |       |                                      |       |                                                |       |                                                |       |
| Options outstanding at  January 29, 2006 |       | —                                    |       | —                                              |       | —                                              |       |
| Granted                                  |       | 5,945.49                                  |       | 5,945.49                                            |       | 6,924.07                                            |       |
| Forfeited                                |       | —                                    |       | —                                              |       | —                                              |       |
| Options outstanding at  February 4, 2007 |       | 5,945.49                                  |       | 5,945.49                                            |       | 6,924.07                                            |       |
|                                     |       |                                      |       |                                                |       |                                                |       |
| Options exercisable at February 4, 2007  |       | —                                    |       | —                                              |       | —                                              |       |

 

The unrecognized expense relatedto this Plan totaled approximately $4,104 as of February 4, 2007 and will beexpensed over a weighted average 2.0 years. No options were vested or forfeited under this plan as of February 4,2007.

**Note 10:Employee Benefit Plan**

We sponsor a plan to provideretirement benefits under the provisions of Section 401(k) of the InternalRevenue Code (the “401(k) Plan”) for all employees who have completed aspecified term of service.  Ourcontributions may range from 0 percent to 100 percent of employeecontributions, up to a maximum of 6 percent of eligible employee compensation,as defined.  Employees may elect tocontribute up to 50 percent of their eligible compensation on a pretaxbasis.  Benefits under the 401(k) Planare limited to the assets of the 401(k) Plan. Our contributions to the 401(k) plan were $240, $223, and $208 for 2006,2005, and 2004, respectively.

**Note 11:Contingencies**

We are subject to certain legal proceedings and claimsthat arise in the ordinary course of its business.  Two class action cases have been filedagainst us and one of our subsidiaries in the State of California alleging violationsof California regulations concerning mandatory meal breaks and restperiods.  We are working to have thesetwo cases consolidated and coordinated because the potential class members arevirtually identical.  Therefore,settlement of one case would resolve both cases.  Various factors, including our internalpolicies and evidence of compliance with State of California regulations, makeearly resolution of these cases a possibility.

F-18

----

Various actions have been filed against us and certainsubsidiaries based on disagreements with landlords related to the amounts ofrent related obligations.  InMarch 2007, we entered into a confidential settlement agreement and releasewith the owner of the Jillian’s complex located at the Mall of America inBloomington, Minnesota resolving all disputes arising out of our leases forspace and decision to close the acquired Jillian’s complex.

We have made the appropriate provision for settlement inthe above matters in our 2006 financial statements.  In the opinion of management, based uponconsultation with legal counsel, the amount of ultimate liability with respectto all other actions will not materially affect the consolidated results of ouroperations or our financial condition.

**Note 12: Condensed Consolidating FinancialInformation**

In connection with the Merger, weclosed the placement of $175,000 aggregate principal amount senior notes asdescribed in Note 6.  The senior notesare guaranteed on a senior basis by all domestic subsidiaries of theCompany.  The subsidiaries’ guarantee ofthe senior notes are full and unconditional and joint and several.

The accompanying condensedconsolidating financial information have been prepared and presented pursuantto SEC Regulation S-X Rule 3-10 “Financial statements of guarantorsand issuers of guaranteed securities registered or being registered.”  No other condensed consolidating financialstatements are presented herein.  Theresults of operations and cash flows from operating activities from thenon-guarantor subsidiary were $426 and $3,367, respectively, for the 53-weekperiod ended February 4, 2007.  There areno restrictions on cash distributions from the non-guarantor subsidiary.

**February 4, 2007 (Successor):**
| ** **                         | ** ** | **Issuer and  Subsidiary  Guarantors** | ** ** | **Subsidiary Non-  Guarantors** | ** ** | **Consolidating  Adjustments** | ** ** | **Dave & Buster’s,  Inc.** | ** ** |
|------------------------------------|------------|---------------------------------------------|------------|--------------------------------------|------------|--------------------------------|------------|-----------------------------------------------|------------|
|                               |       |                                        |       |                                 |       |                           |       |                                          |       |
| Assets                             |       |                                        |       |                                 |       |                           |       |                                          |       |
| Current assets                     |       | $                                           | 31,930     |                                 | $          | 1,733                          |       | $                                             | 5,047      |   | $ | 38,710 |   |
| Property and equipment,  net       |       | 311,153                                     |       | 5,687                                |       | —                         |       | 316,840                                       |       |
| Tradename                          |       | 63,000                                      |       | —                               |       | —                         |       | 63,000                                        |       |
| Goodwill                           |       | 65,857                                      |       | —                               |       | —                         |       | 65,857                                        |       |
| Investment in Sub                  |       | 1,015                                       |       | —                               |       | (1,015                         | )          | —                                        |       |
| Other assets and  deferred charges |       | 22,314                                      |       | 92                                   |       | —                         |       | 22,406                                        |       |
| Total Assets                       |       | $                                           | 495,269    |                                 | $          | 7,512                          |       | $                                             | 4,032      |   | $ | 506,813 |   |

 
| ** **                                          | ** ** | **Issuer and  Subsidiary  Guarantors** | ** ** | **Subsidiary Non-  Guarantors** | ** ** | **Consolidating  Adjustments** | ** ** | **Dave & Buster’s,  Inc.** | ** ** |
|-----------------------------------------------------|------------|---------------------------------------------|------------|--------------------------------------|------------|--------------------------------|------------|-----------------------------------------------|------------|
| Liabilities and  stockholders’ equity          |       |                                        |       |                                 |       |                           |       |                                          |       |
| Current liabilities                                 |       | $                                           | 58,656     |                                 | $          | 6,437                          |       | $                                             | 5,047      |   | $ | 70,140 |   |
| Deferred income taxes                               |       | 27,429                                      |       | —                               |       | —                         |       | 27,429                                        |       |
| Deferred occupancy  costs                           |       | 49,962                                      |       | 60                                   |       | —                         |       | 50,022                                        |       |
| Other liabilities                                   |       | 9,142                                       |       | —                               |       | —                         |       | 9,142                                         |       |
| Long-term debt,  less current installments (Note 6) |       | 253,375                                     |       | —                               |       | —                         |       | 253,375                                       |       |
| Stockholders’ equity                           |       | 96,705                                      |       | 1,015                                |       | (1,015                         | )          | 96,705                                        |       |
| Total liabilities and stockholders’ equity     |       | $                                           | 495,269    |                                 | $          | 7,512                          |       | $                                             | 4,032      |   | $ | 506,813 |   |

 

**January 29, 2006 (Predecessor):**
| ** **                         | ** ** | **Issuer and  Subsidiary  Guarantors** | ** ** | **Subsidiary Non-  Guarantors** | ** ** | **Subsidiary Non-  Guarantors** | ** ** | **Dave & Buster’s  Inc.** | ** ** |
|------------------------------------|------------|---------------------------------------------|------------|--------------------------------------|------------|--------------------------------------|------------|----------------------------------------------|------------|
| Assets                             |       |                                        |       |                                 |       |                                 |       |                                         |       |
| Current assets                     |       | $                                           | 29,076     |                                 | $          | 907                                  |       | $                                            | (2,753     | ) | $ | 27,230 |   |
| Property and equipment,  net       |       | 346,736                                     |       | 5,147                                |       | —                               |       | 351,883                                      |       |
| Tradename                          |       | 7,482                                       |       | —                               |       | —                               |       | 7,482                                        |       |
| Investment in Sub                  |       | 1,071                                       |       | —                               |       | (1,071                               | )          | —                                       |       |
| Assets held for sale               |       | 22,733                                      |       | —                               |       | —                               |       | 22,733                                       |       |
| Other assets and  deferred charges |       | 13,633                                      |       | 101                                  |       | —                               |       | 13,734                                       |       |
| Total assets                       |       | $                                           | 420,731    |                                 | $          | 6,155                                |       | $                                            | (3,824     | ) | $ | 423,062 |   |

 

F-19

----

 
| ** **                                          | ** ** | **Issuer and  Subsidiary  Guarantors** | ** ** | **Subsidiary Non-  Guarantors** | ** ** | **Subsidiary Non-  Guarantors** | ** ** | **Dave & Buster’s  Inc.** | ** ** |
|-----------------------------------------------------|------------|---------------------------------------------|------------|--------------------------------------|------------|--------------------------------------|------------|----------------------------------------------|------------|
|                                                |       |                                        |       |                                 |       |                                 |       |                                         |       |
| Liabilities and  stockholders’ equity          |       |                                        |       |                                 |       |                                 |       |                                         |       |
| Current liabilities                                 |       | $                                           | 63,764     |                                 | $          | 3,425                                |       | $                                            | (2,753     | ) | $ | 64,436 |   |
| Deferred income taxes                               |       | 5,401                                       |       | —                               |       | —                               |       | 5,401                                        |       |
| Deferred occupancy  costs                           |       | 74,363                                      |       | 220                                  |       | —                               |       | 74,583                                       |       |
| Other liabilities                                   |       | 2,872                                       |       | —                               |       | —                               |       | 2,872                                        |       |
| Long-term debt,  less current installments (Note 6) |       | 69,111                                      |       | 1,439                                |       | —                               |       | 70,550                                       |       |
| Stockholders’ equity                           |       | 205,220                                     |       | 1,071                                |       | (1,071                               | )          | 205,220                                      |       |
| Total liabilities and stockholders’ equity     |       | $                                           | 420,731    |                                 | $          | 6,155                                |       | $                                            | (3,824     | ) | $ | 423,062 |   |

 

**Note 13:Quarterly Financial Information (unaudited)**
| ** **                                                            | ** ** | **Fiscal Year ended February 4, 2007**         | ** ** |
|-----------------------------------------------------------------------|------------|-------------------------------------------------------------------------|------------|
| **(in thousands, except per share amounts)** | ** ** | **For the 37-Day  Period from  1/30/06 to  3/7/06** | ** ** | ** ** | **For the 54-Day  Period from  3/8/06 to  4/30/06** | ** ** | **Second  Quarter  7/30/06** | ** ** | **Third  Quarter  10/29/06** | ** ** | **Fourth  Quarter  2/4/07** | ** ** |
| ** **                                                            | ** ** | **(Predecessor)**                                                       | ** ** | ** ** | **(Successor)** | ** ** | **(Successor)** | ** ** | **(Successor)** | ** ** | **(Successor)** | ** ** |
|                                                                  |       |                                                                    |       |   |   |   |   |   |   |   |   |   |
| Total revenues                                                        |       | $                                                                       | 50,409     |   |   | $ | 76,434 |   | $ | 123,151 |   | $ | 116,270 |   | $ | 143,937 |   |
| Income (loss) before  provision for income taxes                      |       | 908                                                                     |       |   | (3,244 | ) | (6,004 | ) | (8,659 | ) | (2,748 | ) |
| Net income (loss)                                                     |       | 486                                                                     |       |   | (2,028 | ) | (3,875 | ) | (5,217 | ) | (943 | ) |
|                                                                       |            |                                                                         |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 
| ** **                                                            | ** ** | **Fiscal Year Ended January 29, 2006** | ** ** |
|-----------------------------------------------------------------------|------------|-----------------------------------------------------------------|------------|
| ** **                                                            | ** ** | **First Quarter**                                          | ** ** | **Second Quarter** | ** ** | **Third Quarter** | ** ** | **Fourth Quarter** | ** ** |
| **(in thousands, except per share amounts)** | ** ** | **5/1/05**                                                      | ** ** | **7/31/05** | ** ** | **10/30/05** | ** ** | **1/29/06** | ** ** |
| ** **                                                            | ** ** | ** **                                                      | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Total revenues                                                        |       | $                                                               | 115,735    |   | $ | 110,829 |   | $ | 105,645 |   | $ | 131,243 |   |
| Income (loss) before  provision for income taxes                      |       | 7,183                                                           |       | (1,977 | ) | (5,039 | ) | 6,137 |   |
| Net income (loss)                                                     |       | 4,561                                                           |       | (1,256 | ) | (3,200 | ) | 4,183 |   |
|                                                                       |            |                                                                 |            |  |  |  |  |  |  |  |  |  |  |

 

During the fourth quarter of 2006, we recorded thefollowing as a result of changes in estimates. We do not anticipate a recurringmaterial financial statement impact related to these estimate changes:

·                              $2,367 reduction in revenue related to thedeferral of the estimated amount of amusement revenue that will be fulfilled bycustomer game play in subsequent quarters.

·                              $3,100 attributable to a change in our estimate ofdetermining the liabilities for general liability and workers compensationclaims based on an actuarial study received in the fourth quarter of fiscal2006.

As discussed in Note 3, in thethird quarter of fiscal 2005, one of our subsidiaries acquired the Jillian’scomplex located at the Mall of America in Bloomington, Minnesota due tocontinuing operating losses attributable to this complex and unsuccessfulefforts to renegotiate the terms of the related leases.  As a result of the closing, we recorded totalpre-tax charges of approximately $3,000 in the initial 39-weeks of fiscal2005.  The charges included $2,500 ofsecond quarter expenses of additional depreciation, amortization, andimpairment of the assets that were abandoned and whose carrying value was notrecoverable as of July 31, 2005. Additionally, $500 of the charges was recorded during the third quarterof 2005 and related to severance and other costs required to complete theclosure of the complex.

Startup costs impact the trendsin the quarterly results of operations. During 2006, we opened the Times Square and Maple Grove locations in thefirst and fourth quarters, respectively, and converted one of our Jillian’slocations to a Dave & Buster’s branded concept.  During 2005, we opened the Omaha, Buffalo,and Kansas City locations in the second, third, and fourth quarters,respectively, and converted five of our Jillian’s locations.  Startup costs incurred were $2,286, $821,$814 and $429 in the first, second, third and fourth quarters of 2006,respectively, compared to $78, $804, $1,495 and $2,948 in the first, second,third and fourth quarters of 2005, respectively.

As discussed in Note 1, effectiveOctober 31, 2005, we no longer capitalize rent incurred during the constructionperiod.

F-20

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**Note 14: Subsequent Events**

On March 16, 2007, David O. Corriveau, President andDirector of the Company, departed such positions.  Pursuant to the Employment Agreement andExecutive Retention Agreement, each dated April 3, 2000, by and between Mr.Corriveau and the Company, Mr. Corriveau received certain payments subsequentto the end of our 2006 fiscal year.  Mr.Corriveau received his accrued and unpaid bonus for the 2006 fiscal year and aspecial bonus equal to the sum of his annual salary and the maximum bonuspayable under our 2006 bonus plan as set forth in the Summary CompensationTable.  In addition, Mr. Corriveaureceived termination pay equal to (a) two times the sum of his annual salaryand maximum bonus payable under our bonus plan, (b) a pro-rated annual bonus(calculated at the maximum rate payable under our bonus plan) for the 2007fiscal year, and (c) the value of certain employee benefits commencing on March16, 2007 and ending March 2009. In the first quarter of fiscal 2007 we willrecord general and administrative expenses of approximately $3,300 related tothis matter.

F-21

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**INDEXOF EXHIBITS**
| Exhibit  Number | ** ** | **Description**                                                                                                                                                                                                                                                                                                                                                                                                       |
|-----------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|            |       |                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 3.1             |       | Amended and Restated Certificate of Incorporation of  the Registrant.(1)                                                                                                                                                                                                                                                                                                                                              |
|            |       |                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 3.2             |       | Amended and Restated By-Laws of the Registrant.(1)                                                                                                                                                                                                                                                                                                                                                                    |
|            |       |                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 4.1             |       | Indenture dated as of March 8, 2006 among the  Registrant, the Guarantors as defined therein and The Bank of New York Trust  Company, N.A., as Trustee.(1)                                                                                                                                                                                                                                                            |
|            |       |                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 4.2             |       | Form of 111⁄4% Senior Notes due 2014 (included in  Exhibit 4.1).                                                                                                                                                                                                                                                                                                                                                   |
|            |       |                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 10.1            |       | Credit Agreement dated as March 8, 2006, by and among  WS Midway Holdings, Inc., the Registrant, as Borrower, 6131646 Canada, Inc.,  as Canadian Borrower, the Several Lenders from Time to Time Parties Thereto,  Wells Fargo Bank, N.A. and CIT Lending Services Corporation, as  Co-Documentation Agents, Bank of America, N.A., as Syndication Agent, and  JPMorgan Chase Bank, N.A., as Administrative Agent.(1) |
|            |       |                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 10.2            |       | Form of Employment and Executive Retention  Agreements for Messrs. Corley and Corriveau, dated April 3, 2000.(1)                                                                                                                                                                                                                                                                                                      |
|            |       |                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 10.3            |       | Form of Executive Retention Agreement for Executive  Officers other than Messrs. Corley and Corriveau.(1)                                                                                                                                                                                                                                                                                                             |
|            |       |                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 10.4            |       | Form of Employment Agreement for Executive  Officers.(2)                                                                                                                                                                                                                                                                                                                                                              |
|            |       |                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 10.5            |       | Asset Purchase Agreement, dated September 24, 2004,  by and among Tango Acquisition, Inc., Dave & Buster’s, Inc., JBC  Acquisition Corp., Gemini Investors III L.P., Jillian’s Entertainment  Holdings, Inc., and various subsidiaries of Jillian’s Entertainment Holdings,  Inc. (1)                                                                                                              |
|            |       |                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 10.6            |       | WS Midway Holdings, Inc. Stock Option Plan.(2)                                                                                                                                                                                                                                                                                                                                                                        |
|            |       |                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 12.1            |       | Statement Regarding Computation of Ratio of Earnings  to Fixed Charges. (2)                                                                                                                                                                                                                                                                                                                                           |
|            |       |                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 21.1            |       | Subsidiaries of the Registrant.(2)                                                                                                                                                                                                                                                                                                                                                                                    |
|            |       |                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 31.1            |       | Certification of Stephen M. King, Chief Executive  Officer and Director of the Registrant, pursuant to 17 CFR 240.13a-14(a) or  17 CFR 240.15d-14(a).(2)                                                                                                                                                                                                                                                              |
|            |       |                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 31.2            |       | Certification of Brian A. Jenkins, Senior Vice  President and Chief Financial Officer of the Registrant, pursuant to 17 CFR  240.13a-14(a) or 17 CFR 240.15d-14(a).(2)                                                                                                                                                                                                                                                |
|            |       |                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 32.1            |       | Certification of Stephen M. King, Chief Executive  Officer and Director of the Registrant, pursuant to 18 U.S.C. Section 1350,  as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.(2)                                                                                                                                                                                                              |
|            |       |                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 32.2            |       | Certification of Brian A. Jenkins, Senior Vice  President and Chief Financial Officer of the Registrant, pursuant to 18  U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley  Act of 2002.(2)                                                                                                                                                                                               |

 

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(1)                                  Filedas an exhibit to registration statement on Form S-4 filed July 26, 2006, SECFile No. 333-136040, and incorporated herein by reference.

(2)                                  Filedherewith.

E-1

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