**UNITEDSTATES SECURITIES AND EXCHANGECOMMISSION****Washington, DC 20549**

**FORM 10-Q**

**x****    ****QUARTERLY REPORT PURSUANT TO SECTION13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934for the quarterly period ended October 1, 2006**

**OR**

**o****   **** TRANSITION REPORT PURSUANT TOSECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934****for the transition periodfrom           to           .**

**COMMISSIONFILE NUMBER:  333-135091-12**

**Palace EntertainmentHoldings, Inc.**

**(Exactname of registrant as specified in its charter)**

| **DELAWARE**                                                  |   | **20-4503577**                                             |
|---------------------------------------------------------------|--------|------------------------------------------------------------|
| (State of  incorporation)                                     |   | (I.R.S. Employer  Identification No.)                      |
|                                                          |   |                                                       |
| **4590  MacArthur Boulevard, Suite 400**                      |   | ** **                                                 |
| **Newport  Beach, California 92660**                          |   | **(949) 797-9700**                                    |
| (Address of  Principal Executive Offices, including Zip Code) |   | (Registrant’s  Telephone Number, Including Area Code) |

 

Indicate by check mark whether the Registrant (1) has filed all reportsrequired to be filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject to suchfiling requirements for the past 90 days.  Yes x  No o

Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer,or a non-accelerated filer. See definition of “accelerated filer and largeaccelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
| Large accelerated filer o | Accelerated  filer o | Non-accelerated  filer x |
|--------------------------------|---------------------------|-------------------------------|

Indicate by check markwhether the registrant is a shell company (as defined in Rule 12b-2 of theExchange Act).
|  | o Yes  x No |
|--|---------------------------------|

 

There were 100 shares ofcommon stock with a par value of $0.01 per share outstanding as of October 1,2006.

 

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**TABLEOF CONTENTS**
| Safe Harbor Statement under  the Private Securities Litigation Reform Act of 1995                       |   |
|---------------------------------------------------------------------------------------------------------|--------|
|                                                                                                    |   |
| PART  I. CONDENSED FINANCIAL INFORMATION                                                                |   |
| Item  1. Financial Statements (unaudited)                                                               |   |
| Condensed Consolidated Balance Sheets as of September  30, 2006 and December 31, 2005                   |   |
| Condensed Consolidated Statements of Operations for  the three months ended September 30, 2006 and 2005 |   |
| Condensed Consolidated Statements of Operations for  the nine months ended September 30, 2006 and 2005  |   |
| Condensed Consolidated Statements of Cash Flows for  the nine months ended September 30, 2006 and 2005  |   |
| Notes to Condensed Consolidated Financial Statements                                                    |   |
| Item 2. Management’s Discussion and Analysis of  Financial Condition and Results of Operations     |   |
| Item 3. Quantitative and Qualitative Disclosures About  Market Risk                                     |   |
| Item 4. Controls and Procedures                                                                         |   |
|                                                                                                    |   |
| PART  II. OTHER INFORMATION                                                                             |   |
| Item  1. Legal Proceedings                                                                              |   |
| Item  1A. Risk Factors                                                                                  |   |
| Item 2. Unregistered Sales of Equity Securities and  Use of Proceeds                                    |   |
| Item 3. Defaults Upon Senior Securities                                                                 |   |
| Item 4. Submission of Matters to a Vote of Security  Holders                                            |   |
| Item  5. Other Information                                                                              |   |
| Item 6.  Exhibits                                                                                       |   |

 

 

 

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**CAUTIONARYNOTE REGARDINGFORWARD-LOOKING STATEMENTS AND RISK FACTORS**

**(Safe-HarborStatement Under the Private Securities Litigation Reform Act of 1995)**

This quarterly report on Form10-Q contains forward-looking statements. Forward-looking statements are statementsthat are not historical facts, including statements about our beliefs andexpectations or any statement that may predict, forecast, indicate or implyfuture results, performance, achievements or events. Forward-looking statementsinclude, but are not limited to, statements generally preceded by, followed byor that include the words “believe,” “expect,” “anticipate,” “plan,” “estimate,”“intend,” “project,” “targets,” “likely,” “would,” “could” or similarexpressions. These statements include, among others, statements regarding ourexpected business outlook, anticipated financial and operating results,strategies, contingencies, financing plans, working capital needs, sources ofliquidity, capital expenditures, amounts and timing of expenditures andcontemplated transactions.

Forward-looking statementsreflect our current expectations and are not guarantees of performance. Thesestatements are based on our management’s beliefs and assumptions, which in turnare based on currently available information. Important assumptions relating tothese forward-looking statements include, among others, assumptions regardingdemand for our water parks and family entertainment centers, expected pricinglevels, the timing and cost of planned capital expenditures, the estimatedoperational costs for each of our water parks and family entertainment centers,expected outcomes of pending litigation, competitive conditions and generaleconomic conditions. These assumptions could prove inaccurate. Forward-lookingstatements involve risks and uncertainties, which could cause actual results todiffer materially from those contained in any forward-looking statement. Manyof these factors are beyond our ability to control or predict. Such factors mayrelate to, among other things:

·                  adverseweather conditions and other natural phenomena;

·                  seasonaloperations of water parks;

·                  riskof in-park accidents and health risks;

·                  changesin consumer preferences;

·                  reductionsin consumer disposable income;

·                  ourability to compete successfully with other amusement parks and otherentertainment providers;

·                  governmentaland environmental requirements and changes in those requirements;

·                  increasesin general liability and workers compensation claims;

·                  discontinuationof our leases pursuant to termination or default provisions;

·                  acquisitionand retention of key personnel;

·                  ourlevel of indebtedness; and

·                  restrictionscontained in our debt agreements;

Youshould not place undue reliance on any forward-looking statements. Further,forward-looking statements speak only as of the date they are made, and weundertake no obligation to update them in light of new information or futureevents. These forward-looking statements reflect our current views with respectto future events and are based on assumptions and subject to risks anduncertainties that may cause actual results to differ materially from trends,plans or expectations set forth in the forward-looking statements which, as aresult, may adversely affect the value of, and our ability to make payments on,our 10 7/8% Senior Notes due 2014. These risks and uncertainties may includethose discussed in Part I, Item 2 and Part II, Item 1A of this report. Newrisks can emerge from time to time. It is not possible for us to assess all ofthese risks, nor can we assess the extent to which any factor, or combinationof factors, may cause actual results to differ from those contained in theforward-looking statements. Given such risks and uncertainties, we urge you toread this report completely with the understanding that actual future resultsmay be materially different from what we plan or expect.  The Company will not update anyforward-looking information to reflect actual results or changes in the factorsaffecting the forward-looking information.

 

 

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**PART I.FINANCIAL INFORMATION**

Item 1. FINANCIAL STATEMENTS

**PALACE ENTERTAINMENT HOLDINGS, INC.**

**CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited / in thousandsexcept for per share amounts)**

**AS OF SEPTEMBER 30, 2006 AND DECEMBER 31, 2005**
| ** **                                                                                  | ** ** | **Successor**         | ** ** | **Predecessor**      | ** ** |
|---------------------------------------------------------------------------------------------|------------|-----------------------|------------|----------------------|------------|
| ** **                                                                                  | ** ** | **Post-Acquisition**  | ** ** | **Pre-Acquisition**  | ** ** |
| ** **                                                                                  | ** ** | **September 30** | ** ** | **December 31** | ** ** |
| ** **                                                                                  | ** ** | **2006**              | ** ** | **2005**             | ** ** |
| ASSETS                                                                                      |       |                  |       |                 |       |
|                                                                                        |       |                  |       |                 |       |
| CURRENT ASSETS                                                                              |       |                  |       |                 |       |
| Cash and cash  equivalents                                                                  |       | $                     | 19,049     |                 | $          | 5,240 |   |
| Inventories                                                                                 |       | 2,254                 |       | 3,295                |       |
| Prepaid expenses  and other current assets                                                  |       | 7,216                 |       | 3,901                |       |
|                                                                                        |       |                  |       |                 |       |
| Total current  assets                                                                       |       | 28,519                |       | 12,436               |       |
|                                                                                        |       |                  |       |                 |       |
| Property and Equipment  - Net                                                               |       | 125,067               |       | 112,388              |       |
|                                                                                        |       |                  |       |                 |       |
| Goodwill                                                                                    |       | 70,732                |       | 37,471               |       |
|                                                                                        |       |                  |       |                 |       |
| Intangible Assets - Net                                                                     |       | 20,136                |       | —               |       |
|                                                                                        |       |                  |       |                 |       |
| Other Assets - Net                                                                          |       | 6,343                 |       | 3,368                |       |
|                                                                                        |       |                  |       |                 |       |
| TOTAL                                                                                       |       | $                     | 250,797    |                 | $          | 165,663 |   |
|                                                                                        |       |                  |       |                 |       |
| **LIABILITIES AND SHAREHOLDER’S  EQUITY OR MEMBER’S INTEREST**                    |       |                  |       |                 |       |
|                                                                                        |       |                  |       |                 |       |
| CURRENT LIABILITIES                                                                         |       |                  |       |                 |       |
| Accounts Payable                                                                            |       | $                     | 2,417      |                 | $          | 2,706 |   |
| Accrued Interest                                                                            |       | 7,741                 |       | 610                  |       |
| Accrued wages  and payroll taxes                                                            |       | 2,260                 |       | 2,485                |       |
| Income taxes  payable                                                                       |       | 9,504                 |       | —               |       |
| Other accrued  liabilities                                                                  |       | 7,594                 |       | 7,155                |       |
| Unearned revenue                                                                            |       | 956                   |       | 1,342                |       |
| Current portion  of long-term debt                                                          |       | 853                   |       | 7,870                |       |
|                                                                                        |       |                  |       |                 |       |
| Total current  liabilities                                                                  |       | 31,325                |       | 22,168               |       |
|                                                                                        |       |                  |       |                 |       |
| LONG-TERM DEBT - Less  current portion                                                      |       | 150,010               |       | 157,374              |       |
|                                                                                        |       |                  |       |                 |       |
| OTHER LONG TERM  LIABILITIES                                                                |       | 3,417                 |       | 3,260                |       |
|                                                                                        |       |                  |       |                 |       |
| Total  Liabilities                                                                          |       | 184,752               |       | 182,802              |       |
|                                                                                        |       |                  |       |                 |       |
| COMMITMENTS AND  CONTINGENCIES                                                              |       |                  |       |                 |       |
|                                                                                        |       |                  |       |                 |       |
| SHAREHOLDER’S EQUITY                                                                   |       |                  |       |                 |       |
| Common Stock,  $.01 stated value, 1000 shares authorized, 100 shares issued and outstanding |       |                  |       |                 |       |
| Additional  Paid-in Capital                                                                 |       | 54,427                |       |                 |       |
| Retained  Earnings                                                                          |       | 11,618                |       |                 |       |
|                                                                                        |       |                  |       |                 |       |
| Total Shareholder’s  equity                                                            |       | 66,045                |       |                 |       |
|                                                                                        |       |                  |       |                 |       |
| MEMBER’S INTEREST                                                                      |       |                  |       | (17,139              | )          |
|                                                                                        |       |                  |       |                 |       |
| TOTAL                                                                                       |       | $                     | 250,797    |                 | $          | 165,663 |   |

 

*See Notesto Condensed Consolidated Financial Statements*

2

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**PALACE ENTERTAINMENT HOLDINGS, INC.**

**CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (unaudited / in thousands)**

**FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2006 AND 2005**
| ** **                          | ** ** | **Sucessor**                            | ** ** | **Predecessor**                         | ** ** |
|-------------------------------------|------------|-----------------------------------------|------------|-----------------------------------------|------------|
| ** **                          | ** ** | **For the Three months** | ** ** | **For the Three months** | ** ** |
| ** **                          | ** ** | **ended**                               | ** ** | **ended**                               | ** ** |
| ** **                          | ** ** | **September 30, 2006**        | ** ** | **September 30, 2005**        | ** ** |
|                                |       |                                    |       |                                    |       |
| REVENUES - Net                      |       | $                                       | 82,220     |                                    | $          | 78,466 |   |
|                                |       |                                    |       |                                    |       |
| OPERATING COSTS  AND EXPENSES       |       |                                    |       |                                    |       |
| Cost of Revenue                     |       | 40,865                                  |       | 37,890                                  |       |
| Selling, general and administrative |       | 7,558                                   |       | 5,837                                   |       |
| Gain on disposal of assets          |       | —                                  |       | (205                                    | )          |
| Depreciation and amortization       |       | 4,728                                   |       | 5,129                                   |       |
|                                |       |                                    |       |                                    |       |
| Total operating costs and expenses  |       | 53,151                                  |       | 48,651                                  |       |
|                                |       |                                    |       |                                    |       |
| OPERATING INCOME                    |       | 29,069                                  |       | 29,815                                  |       |
|                                |       |                                    |       |                                    |       |
| OTHER EXPENSE                       |       |                                    |       |                                    |       |
| Interest expense - net              |       | 4,216                                   |       | 10,139                                  |       |
|                                |       |                                    |       |                                    |       |
| INCOME FROM  OPERATIONS             |       | 24,853                                  |       | 19,676                                  |       |
|                                |       |                                    |       |                                    |       |
| INCOME TAX  PROVISION               |       | 9,520                                   |       | 73                                      |       |
|                                |       |                                    |       |                                    |       |
| NET INCOME                          |       | $                                       | 15,333     |                                    | $          | 19,603 |   |

 

*See Notes to Condensed Consolidated Financial Statements*

3

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**PALACE ENTERTAINMENT HOLDINGS, INC.CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (unaudited / in thousands)FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2006 AND 2005**
| ** **                          | ** ** | **Successor**                                    | ** ** | **Predecessor**                               | ** ** |
|-------------------------------------|------------|--------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                          | ** ** | **Post-Acquisition**                             | ** ** | **Pre-Acquisition**                           | ** ** | **For the Nine** | ** ** |
| ** **                          | ** ** | **April 13 to September 30** | ** ** | **January 1 to April 12** | ** ** | **months ended** | ** ** |
| ** **                          | ** ** | **2006**                                         | ** ** | **2006**                                      | ** ** | **September 30, 2005** | ** ** |
|                                |       |                                             |       |                                          |       |   |   |
| REVENUES - Net                      |       | $                                                | 121,682    |                                          | $          | 23,397 |   | $ | 139,913 |   |
|                                |       |                                             |       |                                          |       |   |   |
| OPERATING COSTS  AND EXPENSES       |       |                                             |       |                                          |       |   |   |
| Cost of Revenue                     |       | 70,072                                           |       | 26,190                                        |       | 89,038 |   |
| Selling, general and administrative |       | 13,030                                           |       | 4,208                                         |       | 15,274 |   |
| Gain on disposal of assets          |       | —                                           |       | —                                        |       | (32 | ) |
| Depreciation and amortization       |       | 9,028                                            |       | 4,478                                         |       | 13,851 |   |
|                                |       |                                             |       |                                          |       |   |   |
| Total operating costs and expenses  |       | 92,130                                           |       | 34,876                                        |       | 118,131 |   |
|                                |       |                                             |       |                                          |       |   |   |
| OPERATING INCOME  (LOSS)            |       | 29,552                                           |       | (11,479                                       | )          | 21,782 |   |
|                                |       |                                             |       |                                          |       |   |   |
| OTHER EXPENSE                       |       |                                             |       |                                          |       |   |   |
| Interest expense - net              |       | 8,370                                            |       | 6,674                                         |       | 21,738 |   |
|                                |       |                                             |       |                                          |       |   |   |
| INCOME (LOSS) FROM  OPERATIONS      |       | 21,182                                           |       | (18,153                                       | )          | 44 |   |
|                                |       |                                             |       |                                          |       |   |   |
| INCOME TAX  PROVISION               |       | 9,564                                            |       | —                                        |       | 73 |   |
|                                |       |                                             |       |                                          |       |   |   |
| NET INCOME (LOSS)                   |       | $                                                | 11,618     |                                          | $          | (18,153 | ) | $ | (29 | ) |

 

*See Notes to Condensed Consolidated Financial Statements*

4

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**PALACEENTERTAINMENT HOLDINGS, INC.CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWSFOR THE NINE MONTHS ENDED SEPTEMBER 30, 2006 AND SEPTEMBER 30, 2005  (unaudited / in thousands)**
| ** **                                                                           | ** ** | **Successor**                                                                                       | ** ** | **Predecessor**                                                                                 | ** ** |
|--------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------------------------------|------------|
| ** **                                                                           | ** ** | **Post-Acquisition  For the Period  April 13 to  September 30, 2006** | ** ** | **Pre-Acquisition  For the Period  January 1 to April  12, 2006** | ** ** | **For the Nine  months ended  September 30,  2005** | ** ** |
| ** **                                                                           | ** ** | ** **                                                                                          | ** ** | ** **                                                                                      | ** ** | ** ** | ** ** |
| CASH FLOWS FROM OPERATING ACTIVITIES:                            |       |                                                                                                |       |                                                                                            |       |   |   |
| Net Income (loss)                                                                    |       | $                                                                                                   | 11,618     |                                                                                            | $          | (18,153 | ) | $ | (29 | ) |
| **Adjustments to reconcile net loss to net cash provided  by operating activities:** |       |                                                                                                |       |                                                                                            |       |   |   |
| Depreciation and amortization                                                        |       | 9,028                                                                                               |       | 4,478                                                                                           |       | 13,851 |   |
| (Gain) on disposal of assets                                                         |       |                                                                                                |       |                                                                                            |       | (32 | ) |
| Amortization of deferred financing costs and  discount accretion                     |       | 364                                                                                                 |       | 796                                                                                             |       | 6,454 |   |
| Financed Interest Payments                                                           |       |                                                                                                |       | 3,515                                                                                           |       | 1,870 |   |
| Share based Compensation                                                             |       | 667                                                                                                 |       |                                                                                            |       |   |   |
| Deferred rent expense                                                                |       | 218                                                                                                 |       | 36                                                                                              |       | 207 |   |
|                                                                                 |       |                                                                                                |       |                                                                                            |       |   |   |
| Changes in net operating assets and liabilities:                                     |       |                                                                                                |       |                                                                                            |       |   |   |
| Inventories                                                                          |       | (65                                                                                                 | )          | (214                                                                                            | )          | (181 | ) |
| Prepaid expenses and other current assets                                            |       | (3,384                                                                                              | )          | 1,105                                                                                           |       | (2,238 | ) |
| Other assets                                                                         |       | 1                                                                                                   |       | 8                                                                                               |       | (221 | ) |
| Accounts payable                                                                     |       | (2,121                                                                                              | )          | 1,160                                                                                           |       | (883 | ) |
| Accrued interest                                                                     |       | 7,655                                                                                               |       | 436                                                                                             |       | 1 |   |
| Accrued wages and payroll taxes                                                      |       | (59                                                                                                 | )          | (167                                                                                            | )          | 582 |   |
| Income taxes payable                                                                 |       | 9,504                                                                                               |       |                                                                                            |       |   |   |
| Other accrued liabilities                                                            |       | 2,849                                                                                               |       | (1,347                                                                                          | )          | 506 |   |
| Unearned Revenue                                                                     |       | (380                                                                                                | )          | (6                                                                                              | )          | (388 | ) |
| Other long-term liabilities                                                          |       | (120                                                                                                | )          | 22                                                                                              |       | 37 |   |
|                                                                                 |       |                                                                                                |       |                                                                                            |       |   |   |
| Net cash provided (used) by operating activities                                     |       | 35,775                                                                                              |       | (8,331                                                                                          | )          | 19,536 |   |
|                                                                                 |       |                                                                                                |       |                                                                                            |       |   |   |
| **CASH  FLOWS FROM INVESTING ACTIVITIES:**                                           |       |                                                                                                |       |                                                                                            |       |   |   |
|                                                                                 |       |                                                                                                |       |                                                                                            |       |   |   |
| Payment for  acquisition of FFP, net                                                 |       | (37,599                                                                                             | )          |                                                                                            |       |   |   |
| Purchases of  property and equipment                                                 |       | (6,178                                                                                              | )          | (3,951                                                                                          | )          | (7,810 | ) |
| Proceeds from  disposal of assets                                                    |       |                                                                                                |       |                                                                                            |       | 348 |   |
|                                                                                 |       |                                                                                                |       |                                                                                            |       |   |   |
| Net cash used in investing activities                                                |       | (43,777                                                                                             | )          | (3,951                                                                                          | )          | (7,462 | ) |
|                                                                                 |       |                                                                                                |       |                                                                                            |       |   |   |
| **CASH  FLOWS FROM FINANCING ACTIVITIES:**                                           |       |                                                                                                |       |                                                                                            |       |   |   |
|                                                                                 |       |                                                                                                |       |                                                                                            |       |   |   |
| Issuance of  common stock                                                            |       | 54,260                                                                                              |       |                                                                                            |       |   |   |
| Return of  capital                                                                   |       | (500                                                                                                | )          |                                                                                            |       |   |   |
| Proceeds from  long-term debt                                                        |       | 163,500                                                                                             |       | 13,100                                                                                          |       | 25,750 |   |
| Repayment of  long-term debt                                                         |       | (189,095                                                                                            | )          | (767                                                                                            | )          | (32,629 | ) |
| Payment for cost  of financing                                                       |       | (5,575                                                                                              | )          |                                                                                            |       | (176 | ) |
| Payments on  capital leases                                                          |       | (655                                                                                                | )          | (118                                                                                            | )          | (866 | ) |
| Distributions to  member                                                             |       |                                                                                                |       | (57                                                                                             | )          | (60 | ) |
|                                                                                 |       |                                                                                                |       |                                                                                            |       |   |   |
| Net cash provided (used) by financing activities                                     |       | 21,935                                                                                              |       | 12,158                                                                                          |       | (7,981 | ) |
|                                                                                 |       |                                                                                                |       |                                                                                            |       |   |   |
| NET INCREASE IN  CASH AND CASH EQUIVALENTS                                           |       | 13,933                                                                                              |       | (124                                                                                            | )          | 4,094 |   |
|                                                                                 |       |                                                                                                |       |                                                                                            |       |   |   |
| CASH AND CASH  EQUIVALENTS, BEGINNING OF PERIOD                                      |       | 5,116                                                                                               |       | 5,240                                                                                           |       | 2,347 |   |
|                                                                                 |       |                                                                                                |       |                                                                                            |       |   |   |
| CASH AND CASH  EQUIVALENTS, END OF PERIOD                                            |       | $                                                                                                   | 19,049     |                                                                                            | $          | 5,116 |   | $ | 6,500 |   |

5

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| **Supplemental Disclosures of Cash Flow Information**          |   |   |   |   |   |   |   |
|----------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|
| Cash Paid For  Interest                                        |   | $      | 650    |   | $      | 1,925  |   | $ | 12,886 |   |
|                                                           |   |   |   |   |   |   |   |
| **Supplemental  Disclosures of Non Cash Investing Activities** |   |   |   |   |   |   |   |
| Property, Plant  and Equipment included in Accounts Payable    |   | $      | 70     |   | $      | — |   | $ | 26 |   |
|                                                           |   |   |   |   |   |   |   |
| **Supplemental  Disclosures of Other Cash Activities**         |   |   |   |   |   |   |   |

 

*Reconciliationof the April 12, 2006 acquisition of Festival Fun Parks LLC*
| Current Assets                        |   | $        | 6,020   |   |
|---------------------------------------|--------|----------|---------|--------|
| Property &  Equipment             |   | 127,859  |    |
| Intangible  Assets, Net               |   | 20,570   |    |
| Goodwill                              |   | 70,732   |    |
| Other Assets                          |   | 6,395    |    |
| Payments to  Previous Owners/Debtors  |   | (33,774  | )       |
| Current  Liabilities                  |   | (15,232  | )       |
| Other Long Term  Debt                 |   | (4,169   | )       |
| Equity  Contribution                  |   | (54,000  | )       |
| Pushed down debt  used in acquisition |   | (162,000 | )       |
|                                  |   |     |    |
| Payment for acquisition  of FFP, net  |   | $        | (37,599 | )      |

 

*(SeeFootnote 3 for Acquisition)**SeeNotes to Condensed Consolidated Financial Statements*

 

6

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**PALACE ENTERTAINMENTHOLDINGS, INC.**

**NOTES TO CONDENSED CONSOLIDATED FINANCIALSTATEMENTS**

**(unaudited, $ in thousands)**

**1.**                      ORGANIZATION

**Organization**

On April 12, 2006, PalaceEntertainment Holdings, Inc. (“Company”) a Delaware company acquired FestivalFun Parks, LLC (“FFP”).  The Company is a100% owned subsidiary of Palace Holdings Group, LLC (“Holdings”), which isprimarily owned by MidOcean Partners, LP (“MidOcean Partners”), a New York andLondon based private equity firm.  FFP isa Delaware limited liability company formed on June 23, 1998, with PalaceEntertainment, Inc. (“PAL”) being the sole member prior to the acquisition. TheCompany was established to purchase and operate family entertainment centers (“FECs”)and water parks (“WPs”). At September 30, 2006 and 2005, the Company owned andoperated 32 FECs and WPs (“Parks”). Of the 32 Parks owned at September 30,2006, 16 are located in California, five are located in Florida, four arelocated in Texas, and two each are located in Georgia and New York, and oneeach in North Carolina, New Jersey, and New Hampshire. Revenue earned from theParks located in California represents approximately 42%, in the aggregate, ofthe Company’s revenues for the nine months ended September 30, 2006 and 2005.Eight of the Parks are WPs featuring such attractions as water slides, flumes,and pools and one is a nature theme park. The other 23 FECs generallyfeature such attractions as miniature golf, batting cages, kiddy parks,go-carts, and video arcades.

For financial reportingpurposes, the Company uses a 52- or 53-week fiscal year. The fiscal periodspresented, which ended October 1, 2006 and October 2, 2005, comprised 40 weeks,or three quarters of the fiscal year. The fiscal period ends on the Sundaynearest to September 30. For simplicity of presentation, the Company refers tothe 40-week periods as ended on September 30.

**2.**                      SUMMARYOF SIGNIFICANT ACCOUNTING POLICIES

**Basis of Presentation**

The acquisition of FFP bythe Company (See Footnote 3) was accounted for under the purchase method ofaccounting, as required by Statement of Financial Accounting Standards (“SFAS”)No.141, *Business Combinations*.  The purchase price has been “pushed-down” andallocated to the assets and liabilities of FFP. Accordingly, the post-acquisition condensed consolidated financialstatements reflect a new basis of accounting. The Company’s Condensed Consolidated Statements of Operations and CashFlows for the period ending April 12, 2006 and the Condensed ConsolidatedBalance Sheet as of December 31, 2005 reflect the operations of the Companyprior to the acquisition of the FFP.  Theblackline division on the financial statements is intended to signify that thereporting entities shown are not comparable.

We prepared theaccompanying condensed consolidated financial statements pursuant to the rulesand regulations of the Securities and Exchange Commission (the “SEC”). The information reflects all normal and recurring adjustments that in theopinion of the Company’s management are necessary for a fair presentation ofthe financial position of the Company and its results of operations for theinterim periods set forth herein.

**Principlesof Consolidation**

The consolidatedfinancial statements include the accounts of the Company and its wholly owned subsidiaries.All significant intercompany transactions and balances have been eliminated inconsolidation.

7

 

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**Cash andCash Equivalents**

The Company considers allhighly liquid instruments with an original maturity of three months or less tobe cash equivalents.

**Inventories**

Inventories, consist ofmerchandise, uniforms and certain supplies, are valued at the lower of cost(first-in, first-out method) or market.

**Property and Equipment**

Property and equipment are stated at cost and aredepreciated using the straight-line method over the following estimated lives:

|                                       | ** ** | **Life**         | ** ** |
|---------------------------------------|------------|------------------|------------|
| Buildings and  leasehold improvements |       | 20–38 years |       |
| Land  improvements                    |       | 7–10 years  |       |
| Equipment and  fixtures               |       | 1–10 years  |       |
| Rides and  attractions                |       | 5–15 years  |       |
| Games                                 |       | 1–3 years   |       |

 

Property and equipmentinclude assets recorded under capital leases presented with the comparablecategories for owned assets. The charge to income resulting from amortizationof assets recorded under capital leases is included in depreciation expense inthe consolidated statement of operations. Leasehold improvements are amortizedover the shorter of the lease term or their useful lives.

Ordinary repairs andmaintenance are expensed as incurred; major replacements and betterments arecapitalized.

**Long-LivedAssets**

Long-lived assets arecarried at cost less accumulated depreciation. Long-lived assets are evaluatedfor potential impairment at least annually or whenever events or changes incircumstances indicate that their carrying amounts may not be recoverable. Inthe event that periodic assessments reflect that the carrying amount of a long-livedasset exceeds the sum of the undiscounted cash flows (excluding interest) thatare expected to result from the use and eventual disposition of the long-livedasset, the Company recognizes an impairment loss to the extent the carryingamount exceeds the fair value of the long-lived asset. The Company estimatesthe fair value using available market information or other industry valuationtechniques, such as present-value calculations. The Company has recorded noimpairment losses for the nine months ended September 30, 2006 and 2005. Inconjunction with the purchase of the Company long-lived assets were revalued atfair market value. (See Footnote 3)

**Advertising**

The Company expenses thecosts of advertising, promotion, and marketing programs as incurred. Thesecosts were $8,869 and $8,801, respectively, during the nine months endedSeptember 30, 2006 and 2005. These costs were $4,476 and $4,005, respectively,for the three months ended September 30, 2006 and 2005.

**Goodwill**

Goodwill is tested forimpairment annually, or when a possible impairment is indicated, using the fairvalue-based test prescribed by SFAS No. 142, *Goodwill andOther Intangible Assets*. The goodwill impairment test prescribed bySFAS No. 142 requires the Company to identify reporting units and to determineestimates of the fair value of the Company’s reporting units as of the date ofthe test for 

8

 

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impairment. As ofSeptember 30, 2006, the Company’s reporting units consisted of two segments,FECs and WPs. As of September 30, 2006 and December 31, 2005, the reportingunits consisted of 32 Parks. To conduct a goodwill impairment test, the fairvalue of the reporting segment is compared with its carrying value. If thereporting unit’s carrying value exceeds its fair value, an impairment loss isrecorded to the extent that the carrying value of the goodwill exceeds itsimplied fair value. The fair value of a reporting segment is the amount forwhich the segment as a whole could be bought or sold in a current transactionbetween willing parties. The Company estimates the fair values of its reportingsegments using discounted cash flow valuation models. The Company estimatesthese amounts by evaluating historical trends, current budgets, operatingplans, and industry data. Determining the fair value of reporting segments andgoodwill includes significant judgment by management and different judgmentscould yield different results.

The Company recorded noimpairment losses for the nine months ended September 30, 2006 and 2005.

**Intangibles**

Trademarksare amortized over their estimated useful lives of 20 years and property leasesare amortized over the terms of the related leases.

**FinancingCosts**

Financing costs, whichare included in other assets, are deferred and amortized using thestraight-line method, which approximates the effective interest method, overthe term of the respective loan agreements. At September 30, 2006 and December 31,2005, deferred financing costs were $5,524 and $2,934, respectively, net ofaccumulated amortization of $361 and $4,076, respectively. All debt outstandingas of the acquisition date was repaid and the related discounts were writtenoff. Additionally, discount on loans is being amortized using the effectiveinterest method over the term of the respective loan agreement.

**SelfInsurance Claims Liability**

The Company is partiallyself-insured for its workers’ compensation and general liability programs. In connectionwith these programs, the Company pays a base premium plus actual lossesincurred, not to exceed certain stop-loss limits. The Company is insured forlosses above these limits, both per occurrence and in the aggregate. Theself-insurance claim liability is determined based on claims filed and claimsincurred but not reported. As of September 30, 2006, the Company has fiveseparate unused letters of credit totaling $4,325 to secure its obligations forworkers’ compensation and general liability claims with three insurancecarriers.

**UnearnedRevenue**

Certain Parks sell seasontickets and annual passes. These sales are recorded as unearned revenue uponthe sale of tickets. Revenue on season tickets and annual passes is recognizedbased on usage of the tickets and passes.

**DeferredRent**

Certain of the Company’sground leases require minimum annual rent increases. Rent expense is recognizedon a straight-line basis over the term of each lease. Under this method, theCompany recognized $254 and $207 for the nine months ended September 30, 2006and 2005, respectively, of rent expense not currently due. Such amounts areincluded in other long-term liabilities.

**Stock-BasedCompensation**

The former parent of theCompany issued stock options to the Company’s employees in 2002. Outstandingoptions and the related potential compensation amounts are immaterial, and wereterminated in April 2006 in connection with the sale of the Company. Followingthe acquisition, Holdings adopted a new stock compensation plan and the Companyadopted SFAS No. 123(R), “*Share-Based Payment*”to account for 

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the incentive unitsgranted during the quarter. All awards granted, modified, or settled after thedate of adoption will be accounted for using the measurement, recognition, andattribution provisions of SFAS No.123(R). Under the fair value recognitionprovision of this statement, share based compensation costs are measured at thegrant date based upon the fair value of the award. The Company elected torecognize the expense on a straight-line basis over the requisite period thatis the vesting period.  See Footnote 11for a further description of the plan.

**RevenueRecognition**

The Company recognizesrevenue at the point of sale to a customer or over the period that receives thebenefit.

**Use ofEstimates**

The preparation offinancial statements in conformity with accounting principles generallyaccepted in the United States of America requires management to make estimatesand assumptions that affect the reported amounts of assets and liabilities anddisclosure of contingent assets and liabilities at the date of the financialstatements and the reported amounts of revenues and expenses during thereporting period. Actual results could differ from those estimates.

**Concentration of Credit Risk**

Financialinstruments that potentially subject the Company to concentrations of creditrisk consist primarily of cash and cash equivalents. At various times duringthe nine months ended September 30, 2006 and 2005, the Company maintained cashbalances in its general cash accounts in excess of Federal Deposit InsuranceCorporation insurable limits; however, the Company places its cash with highcredit quality financial institutions.

**Seasonality**

The business of theCompany is highly seasonal. Generally, the WPs are open for a period from Maythrough September. In addition, the Parks, other than WPs, are open year-roundand generate higher revenues during the summer months.

**FairValue of Financial Instruments**

The carrying values ofcash and cash equivalents, accounts receivable, and accounts payableapproximate fair values due to the relatively short maturities of suchinstruments. Long-term debt is carried at amounts approximating fair valuebased on current rates offered to the Company for debt with similar collateral,if any, and maturities. Fair values for related party amounts cannot bedetermined.

**RecentAccounting Pronouncements**

In May 2005, the FASBissued SFAS No. 154, *Accounting Changes andError Corrections*. SFAS No. 154 replaces Accounting Principles Board(“APB”) Opinion No.20, *Accounting Changes*,and FASB Statement No. 3, *Reporting AccountingChanges in Interim Financial Statements*, and changes therequirements for the accounting for and reporting of a change in accountingprinciple. SFAS No. 154 applies to all voluntary changes in accountingprinciples. APB No. 20 previously required that most voluntary changes inaccounting principle be recognized by including in net income of the period ofthe change the cumulative effect of changing to the new accounting principles.SFAS No. 154 requires retrospective application to prior periods’ financialstatements of changes in accounting principle, unless it is impracticable todetermine either the period-specific effects or the cumulative effect of the change.When it is impracticable to determine the period-specific effects of anaccounting change on one or more individual prior periods presented, SFASNo.154 requires that the new accounting principle be applied to the balances ofassets and liabilities as of the beginning of the earliest period for whichretrospective application is practicable and that a corresponding adjustment bemade to the opening balance of retained earnings (or other appropriatecomponents of equity or net assets in the statement of financial position) forthat period rather than being 

10

 

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reported in an incomestatement. When it is impracticable to determine the cumulative effect ofapplying a change in accounting principle to all prior periods, this statementrequires that the new accounting principle be applied as if it were adoptedprospectively from the earliest date practicable. The adoption of SFAS No. 154is not expected to have an impact on the Company’s financial statements.

In December 2005, theCompany adopted FASB Interpretation No. 47 (“FIN 47”), *Accounting for Conditional Asset RetirementObligations – an interpretation of FASB Statement No. 143*,which clarifies that the term “conditional asset retirement obligation” refersto a legal obligation to perform an asset retirement activity. Thisinterpretation also states that the fair value of a liability for theconditional asset obligation should be recognized when incurred. The initialadoption of FIN 47 was not material to the Company’s financial statements.

On December 16, 2004, theFASB issued SFAS No. 123 (revised 2004) (“SFAS No.123(R)”), *Share-Based Payment*, which is a revision of SFAS No. 123, *Accounting for Stock-Based Compensation*. SFAS No. 123(R)supersedes, *Accounting for Stock Issued to Employees*(APB No. 25), and amends SFAS No. 95, *Statement of Cash Flows.*Generally, the approach in SFAS No. 123(R) is similar to the approach describedin SFAS No. 123. However, SFAS No. 123(R) requires all share-based payments toemployees, including grants of employee stock options, to be recognized in theincome statement based on their fair values. Pro forma disclosure is no longeran alternative to financial statement recognition. Non-public entities arerequired to adopt the provisions of SFAS No. 123(R) as of the beginning of thefirst annual reporting period that began after December 15, 2005. The Companyadopted SFAS No. 123(R) at the date of grant.

In July 2006, the FASBissued FASB Interpretation No. 48 (“FIN 48”), *Accountingfor Uncertainty in Income Taxes,* which prescribes a recognitionthreshold and measurement process for recording in the financial statementsuncertain tax positions taken or expected to be taken in a tax return.Additionally, FIN 48 provides guidance on derecognition, classification,interest and penalties, accounting in interim periods and disclosurerequirements for uncertain tax positions. The accounting provisions of FIN 48are effective for reporting periods beginning after December 15, 2006.  The Company is currently assessing the impactof the adoption of FIN 48 and its impact on the Company’s consolidatedfinancial statements.

In July 2006, the FASBissued EITF 06-3, *How Taxes Collected from Customers andRemitted to Governmental Authorities Should Be Presented in the IncomeStatement (That Is, Gross versus Net Presentation)* that requiresdisclosure of the accounting policy related to any tax assessed by a governmentauthority in a revenue producing transaction (either gross or net) and theamount of such taxes in both interim and annual financial statements if theamounts are significant.  This EITFbecomes effective for reporting periods beginning after December 15, 2006. TheCompany is currently assessing the impact of the adoption of EITF 06-3 and itsimpact on the Company’s consolidated financial statements.

InSeptember 2006, the FASB issued SFAS No. 157, *“Fair ValueMeasurements.”* SFAS No. 157 establishes a framework for measuringfair value in generally accepted accounting principles (“GAAP”), and expandsdisclosures about fair value measurements. This Statement is effective forfinancial statements issued for fiscal years beginning after November 15, 2007,and interim periods within those fiscal years. Management has not yet completedits evaluation of the impact of adopting SFAS No. 157.

In September 2006, theSEC issued Staff Accounting Bulletin No. 108, *“Consideringthe Effects of Prior Year Misstatements when Quantifying Misstatements inCurrent Year Financial Statements”*(“SAB No. 108”). SAB No. 108establishes a single quantification framework wherein the significancemeasurement is based on the effects of the misstatements on each of thefinancial statements as well as the related financial statement disclosures. Ifa company’s existing methods for assessing the materiality of misstatements arenot in compliance with the provisions of SAB No. 108, the initial applicationof the provisions may be adopted by restating prior period financial statementsunder certain circumstances or otherwise by recording the cumulative effect ofinitially applying the provisions of SAB No. 108 as adjustments to the carryingvalues of assets and liabilities as of January 1, 2006 with an offsettingadjustment recorded to the opening balance of retained earnings. SAB No. 108 iseffective for the first annual period ending after November 15, 2006. TheCompany does not expect that the adoption of SAB No. 108 will have a materialeffect on its results of operations or financial position.

11

 

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**3.****                                     ****ACQUISITION**

In accordance with a definitive agreement datedFebruary 21, 2006, the Company acquired FFP on April 12, 2006.  The preliminary aggregate purchase price of$212,175 was funded by the $53.5 million equity contribution by Holdings,issuance of $150,000 in aggregate principal amount of 10 7/8% Senior Notes (“Notes”)due in 2014 and a draw of $12,000 against the Company’s senior securedrevolving credit facility (“Revolver”) (See Footnote 8).  Proceeds from this debt issuance was used topayoff all outstanding term debt in the amount of $173,177 as of April 12,2006, less the remaining capital lease obligations of $1,635, to paytransaction related fees and costs, and to fund initial working capital for theCompany.

The aggregate purchase price allocation is reflectedon the accompanying Consolidated Balance sheet as of September 30, 2006.  The purchase price allocation is preliminaryand will continue to be adjusted as final costs, independent appraisals andaccounting effects are determined.  Thefollowing table summarizes the estimated fair values of the assets acquired andliabilities assumed as of September 30, 2006 based upon management’s estimatesand with the support of an independent appraiser.
| Current Assets                                                 |   | $       | 6,020   |   |
|----------------------------------------------------------------|--------|---------|---------|--------|
| Property, plant  and equipment                                 |   | 127,859 |    |
| Intangibles                                                    |   | 20,570  |    |
| Other assets                                                   |   | 6,395   |    |
| Goodwill                                                       |   | 70,732  |    |
| Current  Liabilities                                           |   | (15,232 | )       |
| Other long term  liabilities                                   |   | (4,169  | )       |
| Allocated purchase  price, including related acquisition costs |   | $       | 212,175 |   |

 

The excess of the adjusted purchase price over thefair value of the net assets acquired or goodwill has been assigned to our WPsand FECs in the amounts of $40,634 and $30,098 respectively.  The goodwill is not amortized and is subjectto an annual impairment test in accordance with SFAS No.142, *Goodwill and Other Intangible Assets*.  For income tax purposes, the Company expects goodwilland other intangible assets to be amortized.

The trademarks are being amortized using a 20-year useful life.  The intangible asset related to the abovemarket leases and the deferred credit related to the below market leases arebeing amortized over the related lease terms on straight-line basis over theindividual remaining lease terms.

The following consolidated pro forma Income Statementscover the three-month period ended September 30, 2005, as well as thenine-month periods ended September 30, 2006 and September 30, 2005.

The pro forma adjustments reflect the purchase of theCompany, the extinguishment of the prior debt and its replacement with theNotes and the Revolver.  The pro formaalso adjusts interest expense based upon the terms of the agreements governingthe Notes and the Revolver.  Thefinancial information below also substitutes the Windward management fee withthe MidOcean Partners advisory fee and adjusts for the effect of thedirectors/officers and representations/warranties insurance policies issued inconnection with the sale transaction.

We have also adjusted depreciation/amortization forproperty and equipment, trademarks and leases based on the preliminary purchaseprice allocation.

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Palace Entertainment Holdings Inc.

Consolidated andCondensed Proforma Income Statement

Nine Months EndedSeptember 30, 2006

(Unaudited)

 
|                  | ** ** | **NINE MONTHS** | ** ** |
|------------------|------------|----------------------|------------|
|             |       |                 |       |
| REVENUES - NET   |       | $                    | 145,079    |   |
|             |       |                 |       |
| OPERATING INCOME |       | 2,839                |       |
|             |       |                 |       |
| NET INCOME       |       | $                    | 2,779      |   |

 

Palace EntertainmentHoldings Inc.

Consolidated andCondensed Proforma Income Statement

Three and Nine MonthsEnded September 30, 2005

(Unaudited)

 
|                  | ** ** | **THREE MONTHS** | ** ** | **NINE MONTHS** | ** ** |
|------------------|------------|-----------------------|------------|----------------------|------------|
|             |       |                  |       |                 |       |
| REVENUES - NET   |       | $                     | 78,466     |                 | $          | 139,913 |   |
|             |       |                  |       |                 |       |
| OPERATING INCOME |       | 26,444                |       | 6,843                |       |
|             |       |                  |       |                 |       |
| NET INCOME       |       | $                     | 26,371     |                 | $          | 6,771 |   |

 

**On a pro-forma basis for the threemonths period ended September 30, 2005 and the nine months period ended September30, 2005 and 2006, the Company had no tax expense and a 0% effective tax ratedue to recording a full tax provision.**

**4.**                                      PREPAIDEXPENSES AND OTHER CURRENT ASSETS

Prepaid expenses and other current assets at September30, 2006 and December 31, 2005, consist of the following:
|                       | ** ** | **September 30** | ** ** | **December 31** | ** ** |
|-----------------------|------------|-----------------------|------------|----------------------|------------|
| ** **            | ** ** | **2006**              | ** ** | **2005**             | ** ** |
|                  |       |                  |       |                 |       |
| Prepaid  insurance    |       | $                     | 1,399      |                 | $          | 1,381 |   |
| Prepaid rent          |       | 1,092                 |       | 1,070                |       |
| Accounts  receivable  |       | 2,567                 |       | 331                  |       |
| Other current  assets |       | 2,158                 |       | 1,119                |       |
|                  |       |                  |       |                 |       |
| Total                 |       | $                     | 7,216      |                 | $          | 3,901 |   |

 

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**5.**                      PROPERTYAND EQUIPMENT

Property andequipment at September 30, 2006 and December 31, 2005, consist of thefollowing:

|                                                 | ** ** | **September 30** | ** ** | **December 31** | ** ** |
|-------------------------------------------------|------------|-----------------------|------------|----------------------|------------|
| ** **                                      | ** ** | **2006**              | ** ** | **2005**             | ** ** |
|                                            |       |                  |       |                 |       |
| Land                                            |       | $                     | 158        |                 | $          | 158 |   |
| Buildings and  leasehold improvements           |       | 59,490                |       | 107,733              |       |
| Equipment and  fixtures                         |       | 16,593                |       | 26,295               |       |
| Games                                           |       | 4,472                 |       | 15,686               |       |
| Rides and  attractions                          |       | 52,362                |       | 64,997               |       |
|                                            |       |                  |       |                 |       |
| Total                                           |       | 133,075               |       | 214,869              |       |
| Less accumulated  depreciation and amortization |       | 8,766                 |       | 103,523              |       |
|                                            |       |                  |       |                 |       |
| Add construction  in progress                   |       | 758                   |       | 1,042                |       |
|                                            |       |                  |       |                 |       |
| Total                                           |       | $                     | 125,067    |                 | $          | 112,388 |   |

 

**6.**                      INTANGIBLEASSETS

The goodwill was$70,732 and $37,471 for the period ending September 30, 2006 and December 31,2005, respectively. The Company does not amortize goodwill which is subject toan annual impairment test pursuant to SFAS 142. For the nine months endedSeptember 30, 2006 and September 30, 2005, there were no impairments togoodwill.

There were noOther Intangible Assets as of December 31, 2005.  The Company did have Other Intangible Assetsthat were subject to amortization as of September 30, 2006.   The following are the gross carrying amountsand accumulated amortization of the intangible assets subject to amortizationas of September 30, 2006:

As of September 30, 2006

 
|                                | ** ** | **Gross**  | ** ** | **Accumulated**  | ** ** | **Net**    | ** ** |
|--------------------------------|------------|------------|------------|------------------|------------|------------|------------|
| ** **                     | ** ** | **Amount** | ** ** | **Amortization** | ** ** | **Amount** | ** ** |
|                           |       |       |       |             |       |       |       |
| Amortizable  intangible assets |       |       |       |             |       |       |       |
| Trademarks                     |       | $          | 13,500     |             | $          | (314       | )          | $ | 13,186 |   |
| Property Lease                 |       | 7,070      |       | (120             | )          | 6,950      |       |
|                           |       |       |       |             |       |       |       |
| Total                          |       | $          | 20,570     |             | $          | (434       | )          | $ | 20,136 |   |

 

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The future amortization on Trademarks and PropertyLeases as of September 30, 2006 are as follows:

| Year Ending     | ** ** | ** **     | ** ** | **Property** | ** ** | ** ** | ** ** |
|----------------------|------------|----------------|------------|--------------|------------|------------|------------|
| **December 31** | ** ** | **Trademarks** | ** ** | **Leases**   | ** ** | **Total**  | ** ** |
|                 |       |           |       |         |       |       |       |
| 2006 (3 months)      |       | $              | 169        |         | $          | 65         |       | $ | 234 |   |
|                 |       |           |       |         |       |       |       |
| 2007                 |       | 675            |       | 258          |       | 933        |       |
|                 |       |           |       |         |       |       |       |
| 2008                 |       | 675            |       | 258          |       | 933        |       |
|                 |       |           |       |         |       |       |       |
| 2009                 |       | 675            |       | 258          |       | 933        |       |
|                 |       |           |       |         |       |       |       |
| 2010                 |       | 675            |       | 258          |       | 933        |       |
|                 |       |           |       |         |       |       |       |
| Thereafter           |       | 10,317         |       | 5,853        |       | 16,170     |       |
|                 |       |           |       |         |       |       |       |
| Total                |       | $              | 13,186     |         | $          | 6,950      |       | $ | 20,136 |   |

 

**7.**                      OTHERACCRUED LIABILITIES

Other accrued liabilities at September 30, 2006 andDecember 31, 2005, consist of the following: 

|                                                             | ** ** | **September 30** | ** ** | **December 31** | ** ** |
|-------------------------------------------------------------|------------|-----------------------|------------|----------------------|------------|
| ** **                                                  | ** ** | **2006**              | ** ** | **2005**             | ** ** |
|                                                        |       |                  |       |                 |       |
| Worker’s  compensation and general liability insurance |       | $                     | 3,182      |                 | $          | 2,349 |   |
| Accrued property  tax                                       |       | 1,514                 |       | 1,491                |       |
| Accrued expenses                                            |       | 1,192                 |       | 1,371                |       |
| Other accrued  liabilities                                  |       | 1,706                 |       | 1,944                |       |
|                                                        |       |                  |       |                 |       |
| Total                                                       |       | $                     | 7,594      |                 | $          | 7,155 |   |

 

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**8.**                      LONG-TERMDEBT

Long-term debt atSeptember 30, 2006 and December 31, 2005 consists of the following:
|                                            | ** **   | **September 30** | ** **   | **December 31** | ** **   |
|--------------------------------------------|--------------|-----------------------|--------------|----------------------|--------------|
| ** **                                 | ** **   | **2006**              | ** **   | **2005**             | ** **   |
|                                       |         |                  |         |                 |         |
| 10 7/8% Senior  Notes [1]                  |         | $                     | 150,000      |                 |         |   |
| Revolving line  of credit - GE Capital [2] |         |                  |         |                 |         |
| Term loan A [3]                            |         |                  |         | $                    | 8,773        |   |
| Term loan B [3]                            |         |                  |         | 33,744               |         |
| Term loan C [3]                            |         |                  |         | 2,500                |         |
| Mezzanine debt  [3]                        |         |                  |         | 81,929               |         |
| Windward  mezzanine debt [3]               |         |                  |         | 4,716                |         |
| Windward senior  secured [3]               |         |                  |         | 9,113                |         |
| Revolving line  of credit - Antares [3]    |         |                  |         | 22,850               |         |
| Capital lease  obligations [4]             |         | 863                   |         | 1,619                |         |
|                                       |         |                  |         |                 |         |
| Total                                      |         | 150,863               |         | 165,244              |         |
|                                       |         |                  |         |                 |         |
| Less current  portion                      |         | 853                   |         | 7,870                |         |
| *** ***                               | *** *** | *** ***          | *** *** | *** ***         | *** *** |
| Total long-term debt                       |         | $                     | 150,010      |                 | $            | 157,374 |   |

 

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**[1]**           **10 7/8% Senior Notes**

In connection withthe April 12, 2006 acquisition of FFP by the Company, FFP issued its 10 7/8%Senior Notes, Series A, due April 12, 2014, which are fully and unconditionallyguaranteed by the Company.  Interest ispayable in semi-annual installments on October 15 and April 15 of eachsuccessive year.  The first payment wasmade on October 16, 2006.

**[2]**           **Revolving line of credit –GE Capital**

Revolving line ofcredit up to a maximum of $40,000, maturing no later than June 30, 2014.  Interest is payable periodically at the primerate plus a margin of 1.75% or the London Inter Bank Offered Rate (“LIBOR”)plus a margin of 2.75% based upon the Company’s election.  During July 2006, the Company paid theoutstanding balance, which had a weighted average interest rate of 9.84%, to GECapital.  There was no balanced owed toGE Capital as of September 30, 2006.  Themargin can vary based on the Company’s debt to earnings ratio.  Under this revolving line of credit, theCompany had certain letters of credit outstanding to secure its workerscompensation and general liability insurance policies.  Letters of credit outstanding at September30, 2006 was $4,325.

The revolvingcredit facility is secured by substantially all of the Company’s assets.

**[3]           Other Indebtedness**

*Term LoanA*

Term loanspayable, in the original amount of $35,000, payable in installments ofprincipal of $773 on March 31, 2006, $1,000 quarterly on June 30, December 31, and March 31of each period thereafter, and $4,000 on September 30 of each year throughJune 30, 2007. Prior to April 2, 2003, for the period January 5,2004 through March 7, 2005, and subsequent to March 31, 2005,interest was payable periodically at the base rate (greater of the prime rateor the federal funds rate plus 0.5% per annum) plus a margin of 2.25%–3% perannum or at London InterBank Offered Rate 

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(“LIBOR”) plus amargin of 3.5%–4.25% per annum, based on the Company’s election for specifiedperiods. Effective April 2, 2003 through January 5, 2004, andMarch 8, 2005 through March 31, 2005, interest payable was at thebase rate plus the applicable margin. The margin varied based on the Company’sdebt to earnings ratio, as defined. At April 12, 2006 and December 31,2005, the interest rate was 9.17% per annum based on the LIBOR rates in effectand 10.25% per annum, based on the base rate, respectively. These loans werepaid off in connection with April 12, 2006 acquisition of FFP by the Company.

*Term Loan B*

Term loans payable,in the original amount of $35,000, payable in installments of principal of $69and $75 on March 31, 2006 and September 30, 2006, respectively, $88 oneach quarterly period from September 30, 2006 through June 30, 2007,and $16,625 on September 30, 2007, and on December 31, 2007. Prior toApril 2, 2003, for the period January 5, 2004 through March 7,2005, and subsequent to March 31, 2005, interest was payable periodicallyat the base rate (greater of the prime rate or the federal funds rate plus 0.5%per annum) plus a margin of 2.75%–3.5% per annum or at LIBOR plus a margin of4%–4.75% per annum, based on the Company’s election for specific periods.Effective April 2, 2003 through January 5, 2004, and March 8,2005 through March 31, 2005, interest was payable at the base rate plusthe applicable margin. The margin varied based on the Company’s debt toearnings ratio, as defined. At April 12, 2006 and December 31, 2005, theinterest rate was 9.67% per annum based on the LIBOR rate in effect and 10.75%per annum, based on the base rate, respectively. These loans were paid off inconnection with April 12, 2006 acquisition of FFP by the Company.

*Term LoanC*

On April 1,2005, the Company entered into Term Note C in the amount of $2,500,pursuant to an amendment of the credit agreement on the $110,000 creditfacility described above. The note was due December 31, 2007. During 2006,an additional balance was added to this note in the amount of $2,500 for agrand total of $5,000. Interest was payable periodically at the base rate(greater of the prime rate or the federal funds rate plus 0.5% per annum) plusa margin of 5.75% per annum or at LIBOR plus a margin of 7.0% per annum, basedon the Company’s election for specified periods. At April 12, 2006 andDecember 31, 2005, the interest rates were 11.31% and 11.82%,respectively, based on LIBOR. These loans were paid off in connection withApril 12, 2006 acquisition of FFP by the Company.

*Revolving Line of Credit - Antares*

Revolving line ofcredit, up to a maximum of $40,000, maturing no later than June 30, 2007.Prior to April 2, 2003, for the period January 5, 2004 throughMarch 7, 2005, and subsequent to March 31, 2005, interest was payableperiodically at the base rate (greater of the prime rate or the federal fundsrate plus 0.5% per annum) plus a margin of 2.25%–3% per annum or at LIBOR plusa margin of 3.5%–4.25% per annum, based on the Company’s election for specifiedperiods. Effective April 2, 2003 through January 5, 2004, andMarch 8, 2005 through April 12, 2006, interest was payable at the baserate plus the applicable margin. The margin varied based on the Company’s debt to earnings ratio, as defined. Borrowingsunder the line of credit are limited based on the Company’s debt to earningsratio, as defined. At April 12, 2006 and December 31, 2005, theinterest rates were 9.04% based on the LIBOR rate and 10.25% based on the baserate respectively. During the period from June 15 through August 31of each year, the Company was required to repay the revolving line of credit inan amount equal to the Company’s aggregate cash balance in its bank accountsless $5,000. In addition, the lenders were generally not obligated to makeloans under the revolving line of credit during such periods. Under thisrevolving line of credit, the Company had certain letters of credit outstandingto secure its worker’s compensation and general liability insurance policies.Letters of credit outstanding at April 12, 2006 and December 31, 2005,were $4,549 and $9,045, respectively.

17

 

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The creditfacility was secured by substantially all of the Company’s assets. The Companywas required on an annual basis to prepay the credit facility by an amountequal to 50%–75% of the Company’s excess cash flow, depending on the Company’sdebt to earnings ratio as defined. For the three months and twelve day periodthrough April 12, 2006 and year ended December 31, 2005, no amounts weredue under this requirement. Some of the lenders under the credit agreement arestockholders of the Company’s sole member PAL. These loans were paid off inconnection with April 12, 2006 acquisition of FFP by the Company.

*MezzanineDebt*

The Company issued12% subordinated notes with a face value of $40,000 and 15% subordinated noteswith a face value of $40,500. Interest payments were due quarterly; principalof $500 due on July 29, 2007, $5,500 due on September 30, 2007, andthe balance was due on July 29, 2008. For the 15% subordinated notes, theCompany had the option to pay 20% of the interest due in the form of additionalnotes. The Company issued additional notes of $611 and $1,337 for paid-in-kindinterest during the three months and twelve day period through April 12, 2006and year ended December 31, 2005, respectively. The principal paymentamount of $5,500 due on September 30, 2007, was reduced by the aggregateamount of interest that the Company could have paid in the form of additionalnotes but has paid-in cash. The two notes were issued at a discount of $2,769,which was being amortized over the life of the notes at the weighted-averageeffective interest rate of 13.34%. In addition, $4,981 in loan proceedsreceived in 2002 were allocated to Member’s Interest for the 436,150 shares ofcommon stock of PAL issued to the lenders, based on an estimated value of$11.42 per common share of PAL, resulting in a discount to the Company, whichwas being amortized over the life of the notes. The amount of discount accretedwas $4,357 and $4,488 at April 12, 2006 and December 31, 2005,respectively. On January 5, 2004, additional subordinated notes payable of$807 were issued to the lenders in connection with a previous default discussedbelow. The note holders, including Windward Capital Partners, are alsostockholders of the Company’s sole member PAL. These loans were paid off inconnection with April 12, 2006 acquisition of FFP by the Company.

*WindwardMezzanine Debt*

On January 5,2004, the Company issued 12% senior secured subordinated notes with a facevalue of $4,000 with Windward Capital Partners. The Company had the option topay 8.32% of the interest due quarterly in the form of additional notes. Inthis regard, the Company issued additional notes of $98 and $373 during thethree months and twelve day period through April 12, 2006 and year endedDecember 31, 2005, respectively. The senior secured subordinated noteswere due on April 30, 2008. The notes were secured by a lien onsubstantially all of the Company’s assets. These loans were paid off inconnection with April 12, 2006 acquisition of FFP by the Company.

*WindwardSenior Secured Notes*

The Company issued15% subordinated notes with a face value of $9,054. The Company had the optionto pay 7.97% of the interest due quarterly in the form of additional notes. Inthis regard, the Company issued additional notes of $211 and $805 during thethree months and twelve day period through April 12, 2006 and year endedDecember 31, 2005, respectively. The subordinated notes are due onJuly 29, 2008. These loans were paid off in connection with April 12, 2006acquisition of FFP by the Company.

*SeniorSubordinated Additional Notes*

The Company issued12% additional notes on March 31, 2006 in the amount of $3,288 under termsidentical to that of Term Loan C discussed above. These loans were paid off inconnection with April 12, 2006 acquisition of FFP by the Company.

18

 

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**[4]****                                 CapitalLease Obligations**

Capital leaseobligations secured by applicable equipment with a net book value of $714 and$2,838 at September 30, 2006 and December 31, 2005, respectively, payable inperiodic installments.

Aggregate futureminimum payments for long-term debts as of September 30, 2006 are as follows: 
|                                                                 | ** ** | **Long-Term** | ** ** | **Capital** | ** ** | ** ** | ** ** |
|-----------------------------------------------------------------|------------|---------------|------------|-------------|------------|------------|------------|
| ** **                                                      | ** ** | **Debt**      | ** ** | **Leases**  | ** ** | **Total**  | ** ** |
|                                                            |       |          |       |        |       |       |       |
| 2006 (3 months)                                                 |       | $             | —     |        | $          | 6          |       | $ | 6 |   |
| 2007                                                            |       | —        |       | 919         |       | 919        |       |
| 2008                                                            |       | —        |       | 4           |       | 4          |       |
| 2009                                                            |       | —        |       | 3           |       | 3          |       |
| 2010                                                            |       | —        |       | 2           |       | 2          |       |
| Thereafter                                                      |       | 150,000       |       | —      |       | 150,000    |       |
|                                                            |       |          |       |        |       |       |       |
| Total                                                           |       | 150,000       |       | 934         |       | 150,934    |       |
|                                                            |       |          |       |        |       |       |       |
| Less amount  representing interest on capital leases            |       | —        |       | 71          |       | 71         |       |
|                                                            |       |          |       |        |       |       |       |
| Total long-term debt                                            |       | 150,000       |       | 863         |       | 150,863    |       |
|                                                            |       |          |       |        |       |       |       |
| Less current  portion, net of interest  on capital  leases |       | —        |       | 853         |       | 853        |       |
|                                                            |       |          |       |        |       |       |       |
| Total long-term  debt—noncurrent                           |       | $             | 150,000    |        | $          | 10         |       | $ | 150,010 |   |

 

**9.             401(K)PLAN**

The Company has a 401(k)plan that covers substantially all management employees who meet certaineligibility requirements as to age and length of service. Matchingcontributions to the plan are at the discretion of the Company. For the ninemonths ended September 30, 2006 and 2005, no matching contributions were madeto the plan.

**10.          RELATED-PARTYTRANSACTIONS**

A professional servicesagreement was in effect between the Company and MidOcean Partners as ofSeptember 30, 2006. The agreement provides for quarterly payments of $250. Theterm of this agreement is through April 12, 2016. Additionally, MidOceanPartners is entitled to reimbursement of expenses. As of  September 30, 2006, the Company had a prepaidbalance of $81 relating to the services agreement.  As of December 31, 2005, FFP had accruedexpenses of $493 related to a management agreement with Windward, the previousownership group.

**11.          STOCKCOMPENSATION PLANS**

The former parent of the Company issued stock optionsto Company employees in 2002.  Outstanding options and the relatedpotential compensation were immaterial and were terminated as of April 12, 2006pursuant to the sale of FFP.

As of September 30, 2006, Holdings has adopted ashare-based compensation plan for certain management employees and directors ofthe Company. The Company has accounted for the fair value of these grants underthis Plan in accordance with SFAS No. 123(R).

19

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Under the Incentive Equity Unit Plan, Holdings maygrant incentive units to selected management personnel and directors of theCompany. Four classes of units have been authorized in the following amounts4,081.12 class B-1 units, 6,801.87 class B-2 units, 2,720.75 class B-3 unitsand 1914.93 class C units. Units are granted at the discretion of the Board ofDirectors. The Class B units vest in equal 1/20th amounts at the end ofeach quarter following the grant date and the Class C units fully vest at the dateof the grant. Vesting on the Class B units is accelerated in the event of aliquidating event, such as; the approved sale of the Company, including mergeror consolidation as well as the sale of publicly traded securities of theCompany. The accelerated vesting is subject to the achievement of specifiedinternal rate of return and return on investment hurdles based on MidOceanPartners’ initial investment. Should those hurdles not be met at the time ofthe liquidating event, the shares will continue to vest quarterly over the restof the original five year service period, with the exception of the B-2 unitswhich will be forfeited on the date of the liquidating event if the hurdles arenot met.

The Board of Directors at its sole discretion mayrepurchase the vested portion of terminated employees under certain conditionsby establishing a fair market value for the units and applying the sameinternal rate of return and return on investment hurdles.

In March 2005, the SEC issued SAB No. 107 *Share Based Payments,* which provides guidance on theimplementation of SFAS No. 123(R). The Company applied the principles of SABNo. 107 in conjunction with its adoption of SFAS No. 123(R). The volatilityassumption used by the Company of 41.01 percent was determined by weighting thevolatility of comparable public companies because the Company does not havehistorical stock prices for direct comparison. The volatility weighting wasbased on the implied volatility, the most recent 1-year volatility, and themedian of the rolling 5-year volatilities. The risk-free interest rate of 4.9percent that was used in the Monte Carlo Simulation model is based on the riskfree rate of return that is equal to the yield of a five-year zero-coupon U.S.Treasury note as of June 2006. Management uses an expected dividend yield ofzero in the Monte Carlo Simulation model, as it has no intention to pay anycash dividends in the foreseeable future. SFAS No. 123(R) requires managementto estimate forfeitures at the time of grant and revise those estimates insubsequent periods if actual forfeitures differ from those estimates.Management uses an estimated forfeiture rate based on the weighted average ofdifferent scenarios as historical data is not available and records stock-basedcompensation expense only for those awards that are expected to vest. Adiscount has also been calculated into the fair value of the units to accountfor the market requirement inherent in the units.

The compensation cost that has been charged againstincome for that Plan was $209 and $667 for the three months and nine monthsperiod ended September 30, 2006, respectively. As of September 30, 2006, therewas $3,896 of total unrecognized compensation cost related to unvestedstock-based compensation that is expected to be recognized over aweighted-average period of 4.96 years. Based on currently outstanding options,total stock-based compensation expense for fiscal year 2006 is expected to beapproximately $864.

A summary of the units granted during the period andoutstanding as of September 30, 2006 is presented below:
|                                                                 | ** ** | **B1** | ** ** | **B2** | ** ** | **B3** | ** ** | **C**  | ** ** |
|-----------------------------------------------------------------|------------|--------|------------|--------|------------|--------|------------|--------|------------|
| Outstanding as  of April 12, 2006                               |       |   |       |   |       |   |       |   |       |
| Granted (units)                                                 |       | 3.7    |       | 6.1    |       | 2.4    |       | 0.4    |       |
| Exercised                                                       |       |   |       |   |       |   |       |   |       |
| Forfeited                                                       |       |   |       |   |       |   |       |   |       |
| Outstanding at  end of period (units)                           |       | 3.7    |       | 6.1    |       | 2.4    |       | 0.4    |       |
| Options  exercisable at period-end                              |       |   |       |   |       |   |       |   |       |
| Weighted-average fair  value of options granted during the year |       | $      | 482        |   | $          | 308    |       | $      | 201        |   | $ | 1,000 |   |
|                                                                 |            |        |            |        |            |        |            |        |            |  |  |  |  |

As of September 30, 2006, 5% of the outstanding classB units and 100% of the outstanding class C units were fully vested.

During the three months ended September 30, 2006,there were no stock grants or stock based units granted.

20

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**12.          COMMITMENTSAND CONTINGENCIES**

**LeaseExpense**

As of September 30, 2006,the Company leases the land for all 32 Parks. Of the 32 Parks, 30 leasethe land from third parties under noncancelable operating leases that expire onvarious dates through 2041 and two lease the land from third parties underoperating leases with a termination option by the respective landlords. The groundleases for certain of the Parks require the Company to pay minimum monthly orannual rentals, which are adjusted periodically based on changes in theConsumer Price Index or a percentage of sales method. The ground leases forcertain of the Parks require monthly rentals based on a percentage of grossrevenues derived from the operations of the premises, as defined. In addition,the ground leases require the payment of property taxes and certain leasesrequire the payment of common area expenses. Certain of the leases provide theCompany with options to renew for various periods of time. In addition, certainof the leases provide the Company with options to purchase the leased premisesin accordance with the terms of those lease agreements, and certain otherleases provide the Company with the right of first refusal in the event thatthe lessors decide to sell the land during the term of the leases.

In addition, the Companyleases its corporate office facilities from an unaffiliated third party under anon-cancelable operating lease, which expires in 2009.

For the three monthsended September 30, 2006 and 2005, rent expense amounted to $5,021 and $5,135,respectively. For the nine months ended September 30, 2006 and 2005, rentexpense amounted to $12,865 and $12,629, respectively.  Included in other accrued liabilities atSeptember 30, 2006 and December 31, 2005, are $980 and $950, respectively, inaccrued rent expense.

The future minimumlease payments required under noncancelable Park leases and office leases as ofSeptember 30, 2006, are as follows:

| Years Ending    | ** ** | **Park**   | ** ** | **Office** | ** ** |
|----------------------|------------|------------|------------|------------|------------|
| **December 31** | ** ** | **Leases** | ** ** | **Lease**  | ** ** |
|                 |       |       |       |       |       |
| 2006 (3 months)      |       | $          | 4,946      |       | $          | 102 |   |
| 2007                 |       | 13,242     |       | 416        |       |
| 2008                 |       | 13,360     |       | 426        |       |
| 2009                 |       | 13,281     |       |       |       |
| 2010                 |       | 13,437     |       |       |       |
| Thereafter           |       | 231,228    |       |       |       |
|                 |       |       |       |       |       |
|                 |       | $          | 289,494    |       | $          | 944 |   |

 

**Lease Income**

The Company subleasesbuilding space to various tenants. Included in net rent and property taxes forthe nine months ended September 30, 2006 and 2005 is aggregate rental income of$571 and $500, respectively.  For thethree months ended September 30, 2006 and 2005, the rental income was $185 and$154, respectively.

21

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Future minimum leaseincome under noncancelable operating leases as of September 30, 2006, is asfollows:
| Years Ending    | ** ** | ** ** | ** ** |
|----------------------|------------|------------|------------|
| **December 31** | ** ** | ** ** | ** ** |
|                 |       |       |       |
| 2006 (3 months)      |       | $          | 105        |   |
| 2007                 |       | 291        |       |
| 2008                 |       | 50         |       |
| 2009                 |       | 50         |       |
| 2010                 |       | 0          |       |
| Thereafter           |       | 0          |       |
|                 |       |       |       |
| Total                |       | $          | 496        |   |

 

**Litigation**

From time to time, theCompany is involved in litigation relating to claims arising out of itsoperations in the normal course of business. As of September 30, 2006, theCompany is not a party to any legal proceedings, the adverse outcome of which,in management’s opinion, individually or in the aggregate, would have amaterially adverse effect on the Company’s consolidated financial position orresults of operations.

The Company receivedwritten notice in December 2004 concerning the Texas Department ofTransportation’s intention to seize, through the eminent domain process, aportion of the real property leased by the Company at its Dallas SpeedZone® FECin connection with the widening of Interstate 35 E. The Company is currentlyreviewing its options and has retained legal counsel to advise and assist itthrough this process. In addition, the city of Riverside, California iscurrently in the process of seizing a portion of roadside property at theCompany’s Castle Park FEC under the doctrine of eminent domain in connectionwith the construction of a freeway access ramp. The portion of land at issue isunimproved dirt, and the Company does not believe that any of the attractionsat this FEC will be affected.  The Company has reached a stipulation withthe landlord that will extricate it from the litigation, which will continuesolely between the City and the landlord.

The Company and MidOceanPartners have been named as defendants in a lawsuit alleging, among otherthings, breach of a finder’s fee agreement and tortious interference with suchagreement in connection with the acquisition of FFP by the Company.  Theagreement at issue is between an individual and a company that is separate anddistinct from both the Company and MidOcean Partners.  As such, althoughthe lawsuit seeks aggregate damages in excess of  $3.2MM, the Company isconfident that it will be dismissed from the litigation in an expeditiousfashion.  The Company believes the lawsuit to be utterly and completelywithout merit and intends to seek recovery of fees and costs after a successfulresolution of the litigation.

**13.          INCOMETAXES**

The Company and its subsidiaries file a consolidated federal income taxreturn and various state income and franchise tax returns.   The Company uses the estimated effective taxrate for the year to determine the provision for income taxes for interimperiods.  As a result of the acquisition,the interim period begins on the acquisition date of April 13, 2006.  The Company recorded income tax expense of$9.5 million for the three months ended September 30, 2006.  For the previous period, April 13 throughJune 30, 2006, the Company recorded tax expense of $0.044 million. 

As of June 30, 2006, the Company had projected a net operating loss forthe period ended December 31, 2006 and had recorded a full valuation allowancewhich offset the tax benefits from the projected losses.  Accordingly, no tax benefit was recorded asof June 30, 2006.  As a result ofoperations from the quarter ended September 30, 2006, the Company’s revisedprojections result in operating profits. Accordingly, an income  taxexpense was recorded for the quarter ended September 30, 2006.

The estimated effective tax rate differed from the federal statutorytax rate primarily due to state income taxes and nondeductible compensationexpense charged against income under the Incentive Equity Unit Plan of Holdings.

The Company recorded income tax expense of $9.5 million for the periodApril 13, 2006 through September 30, 2006. The estimated effective tax rate was 44.58% during the period April 13,2006 through September 30, 2006.

On a pro-forma basis for the 3 months ended September 30, 2005 and thenine months period ended September 30, 2005 and 2006, the Company had no taxexpense and a 0% effective tax rate due to recording a full valuationallowance.

22

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We recorded income tax expense of $9.4 million for the periodApril 13, 2006 through September 30, 2006. Our estimated effective tax rate was 48.58% during the period April 13,2006 through September 30, 2006.

**On a pro-forma basis for thethree-month and nine-month periods ended September 30, 2005 and 2006, thecompany had no tax expense and a 0% effective tax rate due to recording a fullvaluation allowance.**

**14.          SEGMENTINFORMATION DISCLOSURE**

The Company hasoperations in two business segments and, as a result, has adopted SFASNo. 131, *Disclosures about Segments ofan Enterprise and Related Information.* SFAS No. 131 establishesstandards for reporting information about operating segments in annualfinancial statements. Operating segments are defined as components of anenterprise about which separate financial information is available and isevaluated on a regular basis by the chief operating decision maker or decisionmaking group, in deciding how to allocate resources to an individual segmentand in assessing performance of the segment. The Company has identified thesesegments based on the nature of business conducted by each.

TheCompany has two reportable segments: FECs and WPs. FECs primarily offerminiature golf, batting cages, kiddie parks, go-carts, and video arcades. WPsfeature water slides, flumes, and pools as their primary attractions. Theaccounting policies of the segments are the same as those described inNote 2. Operating income (loss) of segments does not include interestincome or expense and provision for income taxes and also excludes corporateitems, such as general and administrative expenses and corporate depreciationexpense. Identifiable assets are those used in the Company’s operations in eachsegment. Corporate assets consist primarily of deferred financing costs,deposits, property and equipment, and cash and cash equivalents.

Goodwill for WPs and FECswas $40,634 and $30,098 respectively, as of September 30, 2006 and was $16,741and $20,729 respectively as of December 31, 2005.

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SEGMENT DATA:Three Months Ended
| **Successor**          | ** ** | ** **   | ** ** | ** **             | ** ** | **Depreciation** | ** ** | ** **       | ** ** | ** ** | ** ** |
|------------------------|------------|--------------|------------|------------------------|------------|------------------|------------|------------------|------------|------------|------------|
| **Three Months Ended** | ** ** | **Revenues** | ** ** | **Net**                | ** ** | **and**          | ** ** | **Capital**      | ** ** | **Total**  | ** ** |
| **September 30, 2006** | ** ** | **Net**      | ** ** | **Income (Loss)** | ** ** | **Amortization** | ** ** | **Expenditures** | ** ** | **Assets** | ** ** |
|                   |       |         |       |                   |       |             |       |             |       |       |       |
| FEC                    |       | $            | 24,294     |                   | $          | 3,510            |       | $                | 2,603      |       | $          | 1,561 |   | $ | 121,714 |   |
| WP                     |       | 57,926       |       | 29,141                 |       | 1,626            |       | 1,150            |       | 99,593     |       |
|                   |       |         |       |                   |       |             |       |             |       |       |       |
| Total Operations       |       | 82,220       |       | 32,651                 |       | 4,229            |       | 2,711            |       | 221,307    |       |
|                   |       |         |       |                   |       |             |       |             |       |       |       |
| Corporate              |       |         |       | (17,318                | )          | 499              |       | 111              |       | 29,490     |       |
|                   |       |         |       |                   |       |             |       |             |       |       |       |
| Total                  |       | $            | 82,220     |                   | $          | 15,333           |       | $                | 4,728      |       | $          | 2,822 |   | $ | 250,797 |   |

 
| **Predecessor**        | ** ** | ** **   | ** ** | ** **             | ** ** | **Depreciation** | ** ** | ** **       | ** ** | ** ** | ** ** |
|------------------------|------------|--------------|------------|------------------------|------------|------------------|------------|------------------|------------|------------|------------|
| **Three Months Ended** | ** ** | **Revenues** | ** ** | **Net**                | ** ** | **and**          | ** ** | **Capital**      | ** ** | **Total**  | ** ** |
| **September 30, 2005** | ** ** | **Net**      | ** ** | **Income (Loss)** | ** ** | **Amortization** | ** ** | **Expenditures** | ** ** | **Assets** | ** ** |
|                   |       |         |       |                   |       |             |       |             |       |       |       |
| FEC                    |       | $            | 24,701     |                   | $          | 4,533            |       | $                | 2,908      |       | $          | 1,154 |   | $ | 74,527 |   |
| WP                     |       | 53,765       |       | 27,081                 |       | 2,026            |       | 679              |       | 93,911     |       |
|                   |       |         |       |                   |       |             |       |             |       |       |       |
| Total Operations       |       | 78,466       |       | 31,614                 |       | 4,934            |       | 1,833            |       | 168,438    |       |
|                   |       |         |       |                   |       |             |       |             |       |       |       |
| Corporate              |       | —       |       | (12,011                | )          | 195              |       | 9                |       | 3,617      |       |
|                   |       |         |       |                   |       |             |       |             |       |       |       |
| Total                  |       | $            | 78,466     |                   | $          | 19,603           |       | $                | 5,129      |       | $          | 1,842 |   | $ | 172,055 |   |

 

24

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SEGMENT DATA:Nine Months Ended
| ** **                         | ** ** | ** **   | ** ** | ** **             | ** ** | **Depreciation** | ** ** | ** **       | ** ** | ** ** | ** ** |
|------------------------------------|------------|--------------|------------|------------------------|------------|------------------|------------|------------------|------------|------------|------------|
| **Successor**                      | ** ** | **Revenues** | ** ** | **Net**                | ** ** | **and**          | ** ** | **Capital**      | ** ** | **Total**  | ** ** |
| **April 13 to September 30, 2006** | ** ** | **Net**      | ** ** | **Income (Loss)** | ** ** | **Amortization** | ** ** | **Expenditures** | ** ** | **Assets** | ** ** |
| ** **                         | ** ** | ** **   | ** ** | ** **             | ** ** | ** **       | ** ** | ** **       | ** ** | ** ** | ** ** |
| FEC                                |       | $            | 46,447     |                   | $          | 7,141            |       | $                | 5,289      |       | $          | 2,862 |   | $ | 121,714 |   |
| WP                                 |       | 75,235       |       | 28,806                 |       | 2,871            |       | 3,193            |       | 99,593     |       |
|                               |       |         |       |                   |       |             |       |             |       |       |       |
| Total Operations                   |       | 121,682      |       | 35,947                 |       | 8,160            |       | 6,055            |       | 221,307    |       |
|                               |       |         |       |                   |       |             |       |             |       |       |       |
| Corporate                          |       | —       |       | (24,329                | )          | 868              |       | 123              |       | 29,490     |       |
|                               |       |         |       |                   |       |             |       |             |       |       |       |
| Total                              |       | $            | 121,682    |                   | $          | 11,618           |       | $                | 9,028      |       | $          | 6,178 |   | $ | 250,797 |   |

 
| ** **                                               | ** ** | ** **   | ** ** | ** ** | ** ** | **Depreciation** | ** ** | ** **       | ** ** | ** ** | ** ** |
|----------------------------------------------------------|------------|--------------|------------|------------|------------|------------------|------------|------------------|------------|------------|------------|
| **Predecessor**                                          | ** ** | **Revenues** | ** ** | **Net**    | ** ** | **and**          | ** ** | **Capital**      | ** ** | **Total**  | ** ** |
| **January 1 to April 12, 2006** | ** ** | **Net**      | ** ** | **Loss**   | ** ** | **Amortization** | ** ** | **Expenditures** | ** ** | **Assets** | ** ** |
| ** **                                               | ** ** | ** **   | ** ** | ** ** | ** ** | ** **       | ** ** | ** **       | ** ** | ** ** | ** ** |
| FEC                                                      |       | $            | 19,268     |       | $          | (67              | )          | $                | 1,790      |       | $          | 1,104 |   | $ | 117,618 |   |
| WP                                                       |       | 4,129        |       | (8,161     | )          | 2,280            |       | 2,800            |       | 106,418    |       |
|                                                     |       |         |       |       |       |             |       |             |       |       |       |
| Total Operations                                         |       | 23,397       |       | (8,228     | )          | 4,070            |       | 3,904            |       | 224,036    |       |
|                                                     |       |         |       |       |       |             |       |             |       |       |       |
| Corporate                                                |       | —       |       | (9,925     | )          | 408              |       | 47               |       | 10,129     |       |
|                                                     |       |         |       |       |       |             |       |             |       |       |       |
| Total                                                    |       | $            | 23,397     |       | $          | (18,153          | )          | $                | 4,478      |       | $          | 3,951 |   | $ | 234,165 |   |

 
| ** **                               | ** ** | ** **   | ** ** | ** **             | ** ** | **Depreciation** | ** ** | ** **       | ** ** | ** ** | ** ** |
|------------------------------------------|------------|--------------|------------|------------------------|------------|------------------|------------|------------------|------------|------------|------------|
| **Predecessor**                          | ** ** | **Revenues** | ** ** | **Net**                | ** ** | **and**          | ** ** | **Capital**      | ** ** | **Total**  | ** ** |
| **Nine Months Ended September 30, 2005** | ** ** | **Net**      | ** ** | **Income (Loss)** | ** ** | **Amortization** | ** ** | **Expenditures** | ** ** | **Assets** | ** ** |
| ** **                               | ** ** | ** **   | ** ** | ** **             | ** ** | ** **       | ** ** | ** **       | ** ** | ** ** | ** ** |
| FEC                                      |       | $            | 64,698     |                   | $          | 8,726            |       | $                | 6,860      |       | $          | 4,574 |   | $ | 74,527 |   |
| WP                                       |       | 75,215       |       | 20,014                 |       | 6,473            |       | 3,179            |       | 93,911     |       |
|                                     |       |         |       |                   |       |             |       |             |       |       |       |
| Total Operations                         |       | 139,913      |       | 28,740                 |       | 13,333           |       | 7,753            |       | 168,438    |       |
|                                     |       |         |       |                   |       |             |       |             |       |       |       |
| Corporate                                |       | —       |       | (28,769                | )          | 518              |       | 57               |       | 3,617      |       |
|                                     |       |         |       |                   |       |             |       |             |       |       |       |
| Total                                    |       | $            | 139,913    |                   | $          | (29              | )          | $                | 13,851     |       | $          | 7,810 |   | $ | 172,055 |   |

 

25

----

**15.**                               SEPARATEFINANCIAL INFORMATION OF SUBSIDIARY GUARANTORS OF INDEBTEDNESS

As described in Footnotes3 and 8 above, FFP issued $150,000 in aggregate principal amount of 10 7/8%Senior Notes, Series A, due in 2014.  TheNotes are guaranteed on a senior unsecured basis by the Company and certain ofthe Company’s subsidiaries.  Thefollowing disclosures reflect the Company’s condensed consolidating financialinformation for the periods presented. The condensed consolidating financial information for the Company andthe Company’s guarantor subsidiaries for the periods presented as outlinedbelow have been prepared from the books and records maintained by the Companyand the guarantor subsidiaries.  Thecondensed financial information may not necessarily be indicative of theresults of operations or financial position had the Company and the guarantorsubsidiaries operated as independent entities. Certain intercompany amounts included in the subsidiary records areeliminated in consolidation.  As a resultof this activity, an amount due to / due from related companies will exist atany time.

Successor

PalaceEntertainment Holdings, Inc

CondensedConsolidated Balance Sheet As Of September 30, 2006

(unaudited / in thousands)
| ** **                                | ** ** | ** **   | ** ** | ** **                       | ** ** | **Combined Guarantor** | ** ** | ** **       | ** ** | **Holdings**     | ** ** |
|-------------------------------------------|------------|--------------|------------|----------------------------------|------------|-----------------------------|------------|------------------|------------|------------------|------------|
| ** **                                | ** ** | **Holdings** | ** ** | **Festival Fun Parks** | ** ** | **Subsidiaries**            | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
|                                      |       |         |       |                             |       |                        |       |             |       |             |       |
| ASSETS                                    |       |         |       |                             |       |                        |       |             |       |             |       |
| CURRENT ASSETS                            |       |         |       |                             |       |                        |       |             |       |             |       |
| Cash and cash equivalents                 |       | $            |       |                             | $          | 18,844                      |       | $                | 205        |             | $          |   |   | $ | 19,049 |   |
| Inventories                               |       |         |       | 925                              |       | 1,329                       |       |             |       | 2,254            |       |
| Prepaid Expenses and Other Current Assets |       |         |       | 5,123                            |       | 2,093                       |       |             |       | 7,216            |       |
| Total Current Assets                      |       |         |       | 24,892                           |       | 3,627                       |       |             |       | 28,519           |       |
|                                      |       |         |       |                             |       |                        |       |             |       |             |       |
| PROPERTY AND  EQUIPMENT-NET               |       |         |       | 59,484                           |       | 65,583                      |       |             |       | 125,067          |       |
| GOODWILL                                  |       |         |       | 55,694                           |       | 15,038                      |       |             |       | 70,732           |       |
| INATNGIBLES                               |       |         |       | 11,999                           |       | 8,137                       |       |             |       | 20,136           |       |
| OTHER ASSETS-NET                          |       |         |       | 6,199                            |       | 144                         |       |             |       | 6,343            |       |
| DUE FROM  SUBSIDIARIES                    |       |         |       | 48,064                           |       |                        |       | (48,064          | )          |             |       |
| INVESTMENT IN  SUBSIDIARIES               |       | 66,045       |       | 42,378                           |       |                        |       | (108,423         | )          |             |       |
| TOTAL                                     |       | $            | 66,045     |                             | $          | 248,710                     |       | $                | 92,529     |             | $          | (156,487 | ) | $ | 250,797 |   |
|                                      |       |         |       |                             |       |                        |       |             |       |             |       |
| LIABILITIES AND  MEMBERS INTEREST         |       |         |       |                             |       |                        |       |             |       |             |       |
| CURRENT  LIABILITIES                      |       |         |       |                             |       |                        |       |             |       |             |       |
| Accounts Payable                          |       | $            |       |                             | $          | 2,417                       |       | $                | —     |             | $          |   |   | $ | 2,417 |   |
| Accrued Interest                          |       |         |       | 7,741                            |       | —                      |       |             |       | 7,741            |       |
| Accrued Wages and Payroll Taxes           |       |         |       | 2,241                            |       | 19                          |       |             |       | 2,260            |       |
| Income Taxes Payable                      |       |         |       | 9,504                            |       | 0                           |       |             |       | 9,504            |       |
| Other accrued liabilities                 |       |         |       | 7,286                            |       | 308                         |       |             |       | 7,594            |       |
| Unearned Revenue                          |       |         |       | 35                               |       | 921                         |       |             |       | 956              |       |
| Current portion of long term debt         |       |         |       | 14                               |       | 839                         |       |             |       | 853              |       |
| Total Current Liabilities                 |       |         |       | 29,238                           |       | 2,087                       |       |             |       | 31,325           |       |
|                                      |       |         |       |                             |       |                        |       |             |       |             |       |
| LONG TERM  DEBT-Less Current Portion      |       |         |       | 150,010                          |       | —                      |       |             |       | 150,010          |       |
| DUE TO PARENT                             |       |         |       |                             |       | 48,064                      |       | (48,064          | )          |             |       |
| OTHER LONG TERM  LIABILITIES              |       |         |       | 3,417                            |       |                        |       |             |       | 3,417            |       |
| Total Liabilities                         |       |         |       | 182,665                          |       | 50,151                      |       | (48,064          | )          | 184,752          |       |
| SHAREHOLDER’S EQUITY                 |       | 66,045       |       | 66,045                           |       | 42,378                      |       | (108,423         | )          | 66,045           |       |
| TOTAL                                     |       | $            | 66,045     |                             | $          | 248,710                     |       | $                | 92,529     |             | $          | (156,487 | ) | $ | 250,797 |   |

 

26

----

 

Predecessor

Festival Fun ParksLLC

CondensedConsolidated Balance Sheet As Of December 31, 2005

(unaudited / in thousands)

 
| ** **                                 | ** ** | ** **                       | ** ** | **Combined Guarantor** | ** ** | ** **       | ** ** | ** **                | ** ** |
|--------------------------------------------|------------|----------------------------------|------------|-----------------------------|------------|------------------|------------|---------------------------|------------|
| ** **                                 | ** ** | **Festival Fun Parks** | ** ** | **Subsidiaries**            | ** ** | **Eliminations** | ** ** | **FFP Consolidated** | ** ** |
|                                       |       |                             |       |                        |       |             |       |                      |       |
| ASSETS                                     |       |                             |       |                        |       |             |       |                      |       |
| CURRENT ASSETS                             |       |                             |       |                        |       |             |       |                      |       |
| Cash and cash  equivalents                 |       | $                                | 5,125      |                        | $          | 115              |       |                      |       | $ | 5,240 |   |
| Inventories                                |       | 2,858                            |       | 437                         |       |             |       | 3,295                     |       |
| Prepaid Expenses  and Other Current Assets |       | 2,878                            |       | 1,023                       |       |             |       | 3,901                     |       |
| Total Current  Assets                      |       | 10,861                           |       | 1,575                       |       |             |       | 12,436                    |       |
|                                       |       |                             |       |                        |       |             |       |                      |       |
| PROPERTY AND EQUIPMENT-NET                 |       | 61,778                           |       | 50,610                      |       |             |       | 112,388                   |       |
| GOODWILL                                   |       | 22,432                           |       | 15,039                      |       |             |       | 37,471                    |       |
| OTHER ASSETS-NET                           |       | 3,225                            |       | 143                         |       |             |       | 3,368                     |       |
| INVESTMENT IN AND DUE  FROM SUBSIDIARIES   |       | 64,477                           |       |                        |       | (64,477          | )          |                      |       |
| TOTAL                                      |       | 162,773                          |       | $                           | 67,367     |             | $          | (64,477                   | )          | $ | 165,663 |   |
|                                       |       |                             |       |                        |       |             |       |                      |       |
| LIABILITIES AND MEMBERS  INTEREST          |       |                             |       |                        |       |             |       |                      |       |
| CURRENT LIABILITIES                        |       |                             |       |                        |       |             |       |                      |       |
| Accounts Payable                           |       | $                                | 2,705      |                        | —     |             |       |                      | $          | 2,705 |   |
| Accrued Interest                           |       | 610                              |       | —                      |       | —           |       | 610                       |       |
| Accrued Wages  and Payroll Taxes           |       | 2,485                            |       | —                      |       |             |       | 2,485                     |       |
| Income Taxes  Payable                      |       | —                           |       |                        |       |             |       | —                    |       |
| Other accrued  liabilities                 |       | 7,156                            |       | —                      |       |             |       | 7,155                     |       |
| Unearned Revenue                           |       | 92                               |       | 1,250                       |       |             |       | 1,342                     |       |
| Current portion  of long term debt         |       | 7,106                            |       | 764                         |       |             |       | 7,870                     |       |
| Total Current  Liabilities                 |       | 20,154                           |       | 2,014                       |       |             |       | 22,168                    |       |
|                                       |       |                             |       |                        |       |             |       |                      |       |
| LONG TERM DEBT-Less  Current Portion       |       | 156,535                          |       | 839                         |       |             |       | 157,374                   |       |
| OTHER LONG TERM LIABILITIES                |       | 3,223                            |       | 37                          |       |             |       | 3,260                     |       |
| Total Liabilities                          |       | 179,912                          |       | 2,890                       |       |             |       | 182,802                   |       |
|                                       |       |                             |       |                        |       |             |       |                      |       |
| DUE TO/FROM  SUBSIDIARIES                  |       | (36,003                          | )          | 56,397                      |       | (20,394          | )          |                      |       |
| MEMBER’S INTEREST                     |       | 18,864                           |       | 8,080                       |       | (44,083          | )          | (17,139                   | )          |
| TOTAL                                      |       | $                                | 162,773    |                        | $          | 67,367           |       | $                         | (64,477    | ) | $ | 165,663 |   |

 

27

----

 

Successor

PalaceEntertainment Holdings, Inc.

CondensedConsolidated Statement of Operations For The Three Months Ended September 30,2006

(unaudited / inthousands)

 
| ** **                               | ** ** | ** **   | ** ** | ** **                       | ** ** | **Combined Guarantor** | ** ** | ** **       | ** ** | **Holdings**     | ** ** |
|------------------------------------------|------------|--------------|------------|----------------------------------|------------|-----------------------------|------------|------------------|------------|------------------|------------|
| ** **                               | ** ** | **Holdings** | ** ** | **Festival Fun Parks** | ** ** | **Subsidiaries**            | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
|                                     |       |         |       |                             |       |                        |       |             |       |             |       |
| Revenues, net                            |       | $            | —     |                             | $          | 40,529                      |       | $                | 41,691     |             | $          | — |   | $ | 82,220 |   |
| Operating Costs  and Expenses            |       |         |       |                             |       |                        |       |             |       |             |       |
| Cost of Revenue                          |       |         |       | 22,418                           |       | 18,447                      |       |             |       | 40,865           |       |
| Selling, General and Administrative      |       |         |       | 4,804                            |       | 2,754                       |       |             |       | 7,558            |       |
| Depreciation and Amortization            |       |         |       | 2,647                            |       | 2,081                       |       |             |       | 4,728            |       |
| Total Operating Expenses                 |       |         |       | 29,869                           |       | 23,282                      |       |             |       | 53,151           |       |
|                                     |       |         |       |                             |       |                        |       |             |       |             |       |
| Operating Income                         |       |         |       | 10,660                           |       | 18,409                      |       | —           |       | 29,069           |       |
|                                     |       |         |       |                             |       |                        |       |             |       |             |       |
| Equity in Earnings of Subsidiaries       |       | 15,333       |       | 18,409                           |       | —                      |       | (33,742          | )          | —           |       |
|                                     |       |         |       |                             |       |                        |       |             |       |             |       |
| Other Expense                            |       |         |       |                             |       |                        |       |             |       |             |       |
| Interest and Other Expense, net          |       | —       |       | 4,216                            |       | —                      |       | —           |       | 4,216            |       |
|                                     |       |         |       |                             |       |                        |       |             |       |             |       |
| Income (Loss) from Continuing Operations |       | 15,333       |       | 24,853                           |       | 18,409                      |       | (33,742          | )          | 24,853           |       |
|                                     |       |         |       |                             |       |                        |       |             |       |             |       |
| Income Tax Provision                     |       |         |       | 9,520                            |       | —                      |       | —           |       | 9,520            |       |
|                                     |       |         |       |                             |       |                        |       |             |       |             |       |
| Net Income (Loss)                        |       | $            | 15,333     |                             | $          | 15,333                      |       | $                | 18,409     |             | $          | (33,742 | ) | $ | 15,333 |   |

 

Predecessor

Festival Fun ParksLLC

CondensedConsolidated Statement of Operations For The Three Months Ended September 30,2005

(unaudited / inthousands)

 
| ** **                          | ** ** | ** **                       | ** ** | **Combined Guarantor** | ** ** | ** **       | ** ** | ** **                | ** ** |
|-------------------------------------|------------|----------------------------------|------------|-----------------------------|------------|------------------|------------|---------------------------|------------|
| ** **                          | ** ** | **Festival Fun Parks** | ** ** | **Subsidiaries**            | ** ** | **Eliminations** | ** ** | **FFP Consolidated** | ** ** |
|                                |       |                             |       |                        |       |             |       |                      |       |
| Revenues, net                       |       | $                                | 38,186     |                        | $          | 40,280           |       |                      |       | $ | 78,466 |   |
| Operating Costs  and Expenses       |       |                             |       |                        |       |             |       |                      |       |
| Cost of Revenue                     |       | 18,329                           |       | 19,561                      |       |             |       | 37,890                    |       |
| Selling, General and Administrative |       | 5,543                            |       | 294                         |       |             |       | 5,837                     |       |
| Depreciation and Amortization       |       | 2,207                            |       | 2,922                       |       |             |       | 5,129                     |       |
| Gain/Loss on disposal of assets     |       | (205                             | )          |                        |       |             |       | (205                      | )          |
|                                |       |                             |       |                        |       |             |       |                      |       |
| Total Operating Expenses            |       | 25,874                           |       | 22,777                      |       | —           |       | 48,651                    |       |
|                                |       |                             |       |                        |       |             |       |                      |       |
| Operating Income                    |       | 12,312                           |       | 17,503                      |       | —           |       | 29,815                    |       |
|                                |       |                             |       |                        |       |             |       |                      |       |
| Equity in Earnings of Subsidiaries  |       | 17,503                           |       | —                      |       | (17,503          | )          | —                    |       |
|                                |       |                             |       |                        |       |             |       |                      |       |
| Other Expense                       |       |                             |       |                        |       |             |       |                      |       |
| Interest and Other Expense, net     |       | 10,139                           |       | —                      |       | —           |       | 10,139                    |       |
|                                |       |                             |       |                        |       |             |       |                      |       |
| Income (Loss) from Operations       |       | 19,676                           |       | 17,503                      |       | (17,503          | )          | 19,676                    |       |
|                                |       |                             |       |                        |       |             |       |                      |       |
| Income Tax Provision                |       | 73                               |       |                        |       |             |       | 73                        |       |
|                                |       |                             |       |                        |       |             |       |                      |       |
| Net Income (Loss)                   |       | $                                | 19,603     |                        | $          | 17,503           |       | $                         | (17,503    | ) | $ | 19,603 |   |
|                                     |            |                                  |            |                             |            |                  |            |                           |            |  |  |  |  |

 

28

----

 

Successor

PalaceEntertainment Holdings, Inc.

CondensedConsolidated Statement of Operations For The Period Ended April 13 to September30, 2006

(unaudited / inthousands)

 
| ** **                               | ** ** | ** **   | ** ** | ** **                       | ** ** | **Combined Guarantor** | ** ** | ** **       | ** ** | **Holdings**     | ** ** |
|------------------------------------------|------------|--------------|------------|----------------------------------|------------|-----------------------------|------------|------------------|------------|------------------|------------|
| ** **                               | ** ** | **Holdings** | ** ** | **Festival Fun Parks** | ** ** | **Subsidiaries**            | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
|                                     |       |         |       |                             |       |                        |       |             |       |             |       |
| Revenues, net                            |       | $            | —     |                             | $          | 65,238                      |       | $                | 56,444     |             |       |   | $ | 121,682 |   |
| Operating Costs  and Expenses            |       |         |       |                             |       |                        |       |             |       |             |       |
| Cost of Revenue                          |       |         |       | 39,412                           |       | 30,660                      |       |             |       | 70,072           |       |
| Selling, General and Administrative      |       |         |       | 8,610                            |       | 4,420                       |       |             |       | 13,030           |       |
| Depreciation and Amortization            |       |         |       | 6,686                            |       | 2,342                       |       |             |       | 9,028            |       |
| Total Operating Expenses                 |       |         |       | 54,708                           |       | 37,422                      |       |             |       | 92,130           |       |
|                                     |       |         |       |                             |       |                        |       |             |       |             |       |
| Operating Income                         |       |         |       | 10,530                           |       | 19,022                      |       |             |       | 29,552           |       |
|                                     |       |         |       |                             |       |                        |       |             |       |             |       |
| Equity in Earnings of Subsidiaries       |       | 11,618       |       | 19,022                           |       |                        |       | (30,640          | )          |             |       |
|                                     |       |         |       |                             |       |                        |       |             |       |             |       |
| Other Expense                            |       |         |       |                             |       |                        |       |             |       |             |       |
| Interest and Other Expense, net          |       |         |       | 8,370                            |       |                        |       |             |       | 8,370            |       |
|                                     |       |         |       |                             |       |                        |       |             |       |             |       |
| Income (Loss) from Continuing Operations |       | 11,618       |       | 21,182                           |       | 19,022                      |       | (30,640          | )          | 21,182           |       |
|                                     |       |         |       |                             |       |                        |       |             |       |             |       |
| Income Tax Provision                     |       |         |       | 9,564                            |       |                        |       |             |       | 9,564            |       |
|                                     |       |         |       |                             |       |                        |       |             |       |             |       |
| Net Income (Loss)                        |       | $            | 11,618     |                             | $          | 11,618                      |       | $                | 19,022     |             | $          | (30,640 | ) | $ | 11,618 |   |
|                                          |            |              |            |                                  |            |                             |            |                  |            |                  |            |  |  |  |  |  |

 

Predecessor

Festival Fun ParksLLC

CondensedConsolidated Statement of Operations For The Period Ended January 1 to April12, 2006

(unaudited / inthousands)

 
| ** **                               | ** ** | ** **                       | ** ** | **Combined Guarantor** | ** ** | ** **       | ** ** | ** **                | ** ** |
|------------------------------------------|------------|----------------------------------|------------|-----------------------------|------------|------------------|------------|---------------------------|------------|
| ** **                               | ** ** | **Festival Fun Parks** | ** ** | **Subsidiaries**            | ** ** | **Eliminations** | ** ** | **FFP Consolidated** | ** ** |
|                                     |       |                             |       |                        |       |             |       |                      |       |
| Revenues, net                            |       | $                                | 17,818     |                        | $          | 5,579            |       |                      |       | $ | 23,397 |   |
| Operating Costs  and Expenses            |       |                             |       |                        |       |             |       |                      |       |
| Cost of Revenue                          |       | 18,148                           |       | 8,042                       |       |             |       | 26,190                    |       |
| Selling, General and Administrative      |       | 3,151                            |       | 1,057                       |       |             |       | 4,208                     |       |
| Depreciation and Amortization            |       | 2,825                            |       | 1,653                       |       |             |       | 4,478                     |       |
| Total Operating Expenses                 |       | 24,124                           |       | 10,752                      |       |             |       | 34,876                    |       |
|                                     |       |                             |       |                        |       |             |       |                      |       |
| Operating Loss                           |       | (6,306                           | )          | (5,173                      | )          |             |       | (11,479                   | )          |
|                                     |       |                             |       |                        |       |             |       |                      |       |
| Equity in Earnings of Subsidiaries       |       | (5,173                           | )          |                        |       | 5,173            |       |                      |       |
|                                     |       |                             |       |                        |       |             |       |                      |       |
| Other Expense                            |       |                             |       |                        |       |             |       |                      |       |
| Interest and Other Expense, net          |       | 6,674                            |       |                        |       |             |       | 6,674                     |       |
|                                     |       |                             |       |                        |       |             |       |                      |       |
| Income (Loss) from Continuing Operations |       | (18,153                          | )          | (5,173                      | )          | 5,173            |       | (18,153                   | )          |
|                                     |       |                             |       |                        |       |             |       |                      |       |
| Income Tax Provision                     |       | —                           |       | —                      |       | —           |       | —                    |       |
|                                     |       |                             |       |                        |       |             |       |                      |       |
| Net Income (Loss)                        |       | $                                | (18,153    | )                           | $          | (5,173           | )          | $                         | 5,173      |   | $ | (18,153 | ) |
|                                          |            |                                  |            |                             |            |                  |            |                           |            |  |  |  |  |

 

29

----

 

Predecessor

Festival Fun ParksLLC

CondensedConsolidated Statement of Operations For The Nine Months Ended September 30,2005

(unaudited / inthousands)

 
| ** **                          | ** ** | ** **                       | ** ** | **Combined Guarantor** | ** ** | ** **       | ** ** | ** **                | ** ** |
|-------------------------------------|------------|----------------------------------|------------|-----------------------------|------------|------------------|------------|---------------------------|------------|
| ** **                          | ** ** | **Festival Fun Parks** | ** ** | **Subsidiaries**            | ** ** | **Eliminations** | ** ** | **FFP Consolidated** | ** ** |
|                                |       |                             |       |                        |       |             |       |                      |       |
| Revenues, net                       |       | $                                | 80,257     |                        | $          | 59,656           |       |                      |       | $ | 139,913 |   |
| Operating Costs  and Expenses       |       | 0                                |       |                        |       |             |       |                      |       |
| Cost of Revenue                     |       | 53,475                           |       | 35,563                      |       |             |       | 89,038                    |       |
| Selling, General and Administrative |       | 9,732                            |       | 5,542                       |       |             |       | 15,274                    |       |
| Depreciation and Amortization       |       | 7,232                            |       | 6,619                       |       |             |       | 13,851                    |       |
| Gain/Loss on disposal of assets     |       | (32                              | )          | 0                           |       |             |       | (32                       | )          |
|                                |       |                             |       |                        |       |             |       |                      |       |
| Total Operating Expenses            |       | 70,407                           |       | 47,724                      |       |             |       | 118,131                   |       |
|                                |       |                             |       |                        |       |             |       |                      |       |
| Operating Income                    |       | 9,850                            |       | 11,932                      |       | —           |       | 21,782                    |       |
|                                |       |                             |       |                        |       |             |       |                      |       |
| Equity in Earnings of Subsidiaries  |       | 11,932                           |       | —                      |       | (11,932          | )          | 0                         |       |
|                                |       |                             |       |                        |       |             |       |                      |       |
| Other Expense                       |       |                             |       |                        |       |             |       |                      |       |
| Interest and Other Expense, net     |       | 21,738                           |       | —                      |       | —           |       | 21,738                    |       |
|                                |       |                             |       |                        |       |             |       |                      |       |
| Income (Loss) from Operations       |       | 44                               |       | 11,932                      |       | (11,932          | )          | 44                        |       |
|                                |       |                             |       |                        |       |             |       |                      |       |
| Income Tax Provision                |       | 73                               |       | —                      |       | —           |       | 73                        |       |
|                                |       |                             |       |                        |       |             |       |                      |       |
| Net Income (Loss)                   |       | $                                | (29        | )                           | $          | 11,932           |       | $                         | (11,932    | ) | $ | (29 | ) |
|                                     |            |                                  |            |                             |            |                  |            |                           |            |  |  |  |  |

 

30

----

Predecessor

FESTIVAL FUN PARKSLLC

CONDENSEDCONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE PERIODJANUARY 1 TO APRIL12, 2006

(unaudited / inthousands)

 
| ** **                                                                       | ** ** | **Festival Fun Parks** | ** ** | **Combined Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **FFP Consolidated** | ** ** |
|----------------------------------------------------------------------------------|------------|----------------------------------|------------|-------------------------------------------|------------|------------------|------------|---------------------------|------------|
|                                                                             |       |                             |       |                                      |       |             |       |                      |       |
| CASH FLOWS FROM  OPERATING ACTIVITIES:                                           |       |                             |       |                                      |       |             |       |                      |       |
| Net Income  (loss)                                                               |       | $                                | (18,153    | )                                         | $          | (5,173           | )          | $                         | 5,173      |   | $ | (18,153 | ) |
| Adjustments to  reconcile net loss to net cash provided by operating activities: |       |                             |       |                                      |       |             |       |                      |       |
| Depreciation and  amortization                                                   |       | 2,825                            |       | 1,653                                     |       |             |       | 4,478                     |       |
| Equity in  Earnings of Subsidiaries                                              |       | 5,173                            |       |                                      |       | (5,173           | )          | —                    |       |
| Amortization of  deferred financing costs and discount accretion                 |       | 796                              |       | —                                    |       |             |       | 796                       |       |
| Financed  Interest Payments                                                      |       | 3,515                            |       | —                                    |       |             |       | 3,515                     |       |
| Share based  Compensation                                                        |       | —                           |       | —                                    |       | —           |       | —                    |       |
| Deferred rent  expense                                                           |       | 36                               |       | —                                    |       |             |       | 36                        |       |
|                                                                             |       |                             |       |                                      |       |             |       |                      |       |
| Changes in net  operating assets and liabilities:                                |       |                             |       |                                      |       |             |       |                      |       |
| Inventories                                                                      |       | 470                              |       | (684                                      | )          |             |       | (214                      | )          |
| Prepaid expenses  and other current assets                                       |       | 433                              |       | 672                                       |       |             |       | 1,105                     |       |
| Other assets                                                                     |       | 8                                |       | —                                    |       |             |       | 8                         |       |
| Accounts payable                                                                 |       | 1,160                            |       | —                                    |       |             |       | 1,160                     |       |
| Accrued interest                                                                 |       | 436                              |       | —                                    |       |             |       | 436                       |       |
| Accrued wages  and payroll taxes                                                 |       | (182                             | )          | 15                                        |       |             |       | (167                      | )          |
| Income taxes  payable                                                            |       | —                           |       | —                                    |       |             |       | —                    |       |
| Other accrued  liabilities                                                       |       | (1,857                           | )          | 510                                       |       |             |       | (1,347                    | )          |
| Unearned Revenue                                                                 |       | (163                             | )          | 157                                       |       |             |       | (6                        | )          |
| Other long-term  liabilities                                                     |       | 22                               |       | —                                    |       |             |       | 22                        |       |
|                                                                             |       |                             |       |                                      |       |             |       |                      |       |
| Net cash  provided used by operating activities                                  |       | (5,481                           | )          | (2,850                                    | )          | —           |       | (8,331                    | )          |
|                                                                             |       |                             |       |                                      |       |             |       |                      |       |
| CASH FLOWS FROM INVESTING  ACTIVITIES:                                           |       |                             |       |                                      |       |             |       |                      |       |
|                                                                             |       |                             |       |                                      |       |             |       |                      |       |
| Payment for acquisition  of FFP, net                                             |       |                             |       |                                      |       |             |       |                      |       |
| Purchases of property  and equipment                                             |       | (1,269                           | )          | (2,682                                    | )          | —           |       | (3,951                    | )          |
| Proceeds from disposal  of assets                                                |       |                             |       |                                      |       |             |       |                      |       |
|                                                                             |       |                             |       |                                      |       |             |       |                      |       |
| Net cash used in  investing activities                                           |       | (1,269                           | )          | (2,682                                    | )          | —           |       | (3,951                    | )          |
|                                                                             |       |                             |       |                                      |       |             |       |                      |       |
| CASH FLOWS FROM  FINANCING ACTIVITIES:                                           |       |                             |       |                                      |       |             |       |                      |       |
|                                                                             |       |                             |       |                                      |       |             |       |                      |       |
| Issuance of common  stock                                                        |       |                             |       |                                      |       |             |       |                      |       |
| Return of capital                                                                |       |                             |       |                                      |       |             |       |                      |       |
| Porceeds from long-term  debt                                                    |       | 13,100                           |       |                                      |       |             |       | 13,100                    |       |
| Repayment of long-term  debt                                                     |       | (767                             | )          |                                      |       |             |       | (767                      | )          |
| Payment for cost of  financing                                                   |       |                             |       |                                      |       |             |       |                      |       |
| Advances to related  company                                                     |       | (5,558                           | )          |                                      |       | 5,558            |       |                      |       |
| Advances from related  company                                                   |       |                             |       | 5,558                                     |       | (5,558           | )          |                      |       |
| Payments on capital  leases                                                      |       | (118                             | )          | —                                    |       |             |       | (118                      | )          |
| Distributions to member                                                          |       | (57                              | )          |                                      |       |             |       | (57                       | )          |
|                                                                             |       |                             |       |                                      |       |             |       |                      |       |
| Net cash  provided by financing activities                                       |       | 6,600                            |       | 5,558                                     |       | 0                |       | 12,158                    |       |
|                                                                             |       |                             |       |                                      |       |             |       |                      |       |
|                                                                             |       |                             |       |                                      |       |             |       |                      |       |
| NET INCREASE (DECREASE)  IN CASH AND CASH EQUIVALENTS                            |       | (150                             | )          | 26                                        |       |             |       | (124                      | )          |
|                                                                             |       |                             |       |                                      |       |             |       |                      |       |
| CASH AND CASH  EQUIVALENTS, BEGINNING OF PERIOD                                  |       | 5,125                            |       | 115                                       |       |             |       | 5,240                     |       |
|                                                                             |       |                             |       |                                      |       |             |       |                      |       |
| CASH AND CASH EQUIVALENTS, END OF PERIOD                                         |       | $                                | 4,975      |                                      | $          | 141              |       | $                         | —     |   | $ | 5,116 |   |

 

31

----

 

Successor

PALACEENTERTAINMENT HOLDINGS, INC.

CONDENSEDCONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE PERIODAPRIL 13 TO SEPTEMBER 30, 2006

(unaudited / inthousands)

 
| ** **                                                                       | ** ** | **Holdings** | ** ** | **Festival Fun Parks** | ** ** | **Combined  Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Holdings  Consolidated** | ** ** |
|----------------------------------------------------------------------------------|------------|--------------|------------|----------------------------------|------------|---------------------------------------|------------|------------------|------------|----------------------------|------------|
|                                                                             |       |         |       |                             |       |                                  |       |             |       |                       |       |
| CASH FLOWS FROM  OPERATING ACTIVITIES:                                           |       |         |       |                             |       |                                  |       |             |       |                       |       |
| Net Income (loss)                                                                |       | $            | 11,618     |                             | $          | 11,618                                |       | $                | 19,022     |                       | $          | (30,640 | ) | $ | 11,618 |   |
| Adjustments to reconcile net loss to net cash provided  by operating activities: |       |         |       |                             |       |                                  |       |             |       |                       |       |
| Depreciation and amortization                                                    |       |         |       | 6,686                            |       | 2,342                                 |       |             |       | 9,028                      |       |
| Equity in Earnings of Subsidiaries                                               |       | 11,618       |       |                             |       |                                  |       | (11,618          | )          |                       |       |
| Amortization of deferred financing costs and  discount accretion                 |       |         |       | 364                              |       |                                  |       |             |       | 364                        |       |
| Financed Interest Payments                                                       |       |         |       |                             |       |                                  |       |             |       |                       |       |
| Share based Compensation                                                         |       |         |       | 667                              |       |                                  |       |             |       | 667                        |       |
| Deferred rent expense                                                            |       |         |       | 218                              |       |                                  |       |             |       | 218                        |       |
|                                                                             |       |         |       |                             |       |                                  |       |             |       |                       |       |
| Changes in net operating assets and liabilities:                                 |       |         |       |                             |       |                                  |       |             |       |                       |       |
| Inventories                                                                      |       |         |       | 143                              |       | (208                                  | )          |             |       | (65                        | )          |
| Prepaid expenses and other current assets                                        |       |         |       | (1,643                           | )          | (1,741                                | )          |             |       | (3,384                     | )          |
| Other assets                                                                     |       |         |       | 1                                |       |                                  |       |             |       | 1                          |       |
| Accounts payable                                                                 |       |         |       | (2,121                           | )          |                                  |       |             |       | (2,121                     | )          |
| Accrued interest                                                                 |       |         |       | 7,655                            |       |                                  |       |             |       | 7,655                      |       |
| Accrued wages and payroll taxes                                                  |       |         |       | (63                              | )          | 4                                     |       |             |       | (59                        | )          |
| Income taxes payable                                                             |       |         |       | 9,504                            |       | 0                                     |       |             |       | 9,504                      |       |
| Other accrued liabilities                                                        |       |         |       | 3,051                            |       | (202                                  | )          |             |       | 2,849                      |       |
| Unearned Revenue                                                                 |       |         |       | (208                             | )          | (172                                  | )          |             |       | (380                       | )          |
| Other long-term liabilities                                                      |       |         |       | (195                             | )          | 75                                    |       |             |       | (120                       | )          |
|                                                                             |       |         |       |                             |       |                                  |       |             |       |                       |       |
| Net cash provided (used) by operating activities                                 |       | 23,236       |       | 35,677                           |       | 19,120                                |       | (42,258          | )          | 35,775                     |       |
|                                                                             |       |         |       |                             |       |                                  |       |             |       |                       |       |
| CASH FLOWS FROM  INVESTING ACTIVITIES:                                           |       |         |       |                             |       |                                  |       |             |       |                       |       |
|                                                                             |       |         |       |                             |       |                                  |       |             |       |                       |       |
| Payment for  acquisition of FFP, net                                             |       | (37,599      | )          |                             |       |                                  |       |             |       | (37,599                    | )          |
| Purchases of  property and equipment                                             |       |         |       | (3,397                           | )          | (2,781                                | )          |             |       | (6,178                     | )          |
| Proceeds from  disposal of assets                                                |       |         |       |                             |       |                                  |       |             |       |                       |       |
|                                                                             |       |         |       |                             |       |                                  |       |             |       |                       |       |
| Net cash used in investing activities                                            |       | (37,599      | )          | (3,397                           | )          | (2,781                                | )          |             |       | (43,777                    | )          |
|                                                                             |       |         |       |                             |       |                                  |       |             |       |                       |       |
| CASH FLOWS FROM  FINANCING ACTIVITIES:                                           |       |         |       |                             |       |                                  |       |             |       |                       |       |
|                                                                             |       |         |       |                             |       |                                  |       |             |       |                       |       |
|                                                                             |       |         |       |                             |       |                                  |       |             |       |                       |       |
| Issuance of  common stock                                                        |       | 54,260       |       |                             |       |                                  |       |             |       | 54,260                     |       |
| Return of  capital                                                               |       | (500         | )          |                             |       |                                  |       |             |       | (500                       | )          |
| Porceeds from  long-term debt                                                    |       | 163,500      |       |                             |       |                                  |       |             |       | 163,500                    |       |
| Repayment of  long-term debt                                                     |       |         |       | (189,095                         | )          |                                  |       |             |       | (189,095                   | )          |
| Payment for cost  of financing                                                   |       | (5,575       | )          |                             |       |                                  |       |             |       | (5,575                     | )          |
| Advances to  related company                                                     |       | (197,322     | )          | (8,095                           | )          |                                  |       | 205,417          |       |                       |       |
| Advances from  related company                                                   |       |         |       | 178,596                          |       | (15,437                               | )          | (163,159         | )          |                       |       |
| Payments on  capital leases                                                      |       |         |       | 183                              |       | (838                                  | )          |             |       | (655                       | )          |
| Distributions to  member                                                         |       |         |       |                             |       |                                  |       |             |       |                       |       |
|                                                                             |       |         |       |                             |       |                                  |       |             |       |                       |       |
| Net cash provided (used) by financing activities                                 |       | 14,363       |       | (18,411                          | )          | (16,275                               | )          | 42,258           |       | 21,935                     |       |
|                                                                             |       |         |       |                             |       |                                  |       |             |       |                       |       |
| NET INCREASE IN  CASH AND CASH EQUIVALENTS                                       |       |         |       | 13,869                           |       | 64                                    |       |             |       | 13,933                     |       |
|                                                                             |       |         |       |                             |       |                                  |       |             |       |                       |       |
| CASH AND CASH  EQUIVALENTS, BEGINNING OF PERIOD                                  |       |         |       | 4,975                            |       | 141                                   |       |             |       | 5,116                      |       |
|                                                                             |       |         |       |                             |       |                                  |       |             |       |                       |       |
| CASH AND CASH  EQUIVALENTS, END OF PERIOD                                        |       | $            | —     |                             | $          | 18,844                                |       | $                | 205        |                       | $          | — |   | $ | 19,049 |   |

 

32

----

 

Predecessor

Festival Fun ParksLLC

ConsolidatedStatement of Cash Flows for the Nine Months Ended September 30, 2005

(unaudited / inthousands)

 
| ** **                                                       | ** ** | **Festival Fun Parks** | ** ** | **Combined  Guarantor  Subsidiaries** | ** ** | **Elimination** | ** ** | **FFP Consolidated** | ** ** |
|------------------------------------------------------------------|------------|----------------------------------|------------|---------------------------------------|------------|-----------------|------------|---------------------------|------------|
| **CASH  FLOWS FROM OPERATING ACTIVITIES**                        | ** ** | ** **                       | ** ** | ** **                            | ** ** | ** **      | ** ** | ** **                | ** ** |
| **Net  Profit/(Loss)**                                           |       | $                                | (29        | )                                     | $          | 11,932          |       | $                         | (11,932    | ) | $ | (29 | ) |
| Depreciation and Amortization                                    |       | 7,233                            |       | 6,618                                 |       | —          |       | 13,851                    |       |
| Equity in Earnings of Subsidiaries                               |       | 27,654                           |       | —                                |       | (27,654         | )          | —                    |       |
| Gain/loss on disposition                                         |       | (32                              | )          | —                                |       |            |       | (32                       | )          |
| Amortization of deferred financing costs and  discount accretion |       | 6,454                            |       | —                                |       |            |       | 6,454                     |       |
| Financed Interest payments                                       |       | 1,870                            |       | —                                |       |            |       | 1,870                     |       |
| Deferred Rent expense                                            |       | 207                              |       | 37                                    |       |            |       | 244                       |       |
|                                                             | ** ** | ** **                       | ** ** | ** **                            | ** ** | ** **      | ** ** | ** **                | ** ** |
| **Changes  in Net Operating Assets and Liabilities:**            | ** ** | ** **                       | ** ** | ** **                            | ** ** | ** **      | ** ** | ** **                | ** ** |
| Inventories                                                      |       | 486                              |       | (667                                  | )          |            |       | (181                      | )          |
| Prepaid Expenses and Other Current Assets                        |       | (1,352                           | )          | (886                                  | )          |            |       | (2,238                    | )          |
| Other Assets                                                     |       | (156                             | )          | (65                                   | )          |            |       | (221                      | )          |
| Accounts Payable                                                 |       | (883                             | )          | —                                |       |            |       | (883                      | )          |
| Accrued Interest                                                 |       | 1                                |       | —                                |       |            |       | 1                         |       |
| Accrued Wages and Payroll Taxes                                  |       | 478                              |       | 104                                   |       |            |       | 582                       |       |
| Income Taxes Payable                                             |       | —                           |       | —                                |       |            |       | —                    |       |
| Unearned Revenue                                                 |       | 917                              |       | (1,305                                | )          |            |       | (388                      | )          |
| Long Term liabilities                                            |       | (1,067                           | )          | 1,067                                 |       |            |       | —                    |       |
| Other Long Term Labilities                                       |       | 188                              |       | 318                                   |       |            |       | 506                       |       |
|                                                             | ** ** | ** **                       | ** ** | ** **                            | ** ** | ** **      | ** ** | ** **                | ** ** |
| Net Cash Provided by Operating Activities                        |       | 41,969                           |       | 17,153                                |       | (39,586         | )          | 19,536                    |       |
|                                                             | ** ** | ** **                       | ** ** | ** **                            | ** ** | ** **      | ** ** | ** **                | ** ** |
| **CASH  FLOWS FROM INVESTING ACTIVITIES**                        | ** ** | ** **                       | ** ** | ** **                            | ** ** | ** **      | ** ** | ** **                | ** ** |
|                                                             | ** ** | ** **                       | ** ** | ** **                            | ** ** | ** **      | ** ** | ** **                | ** ** |
| Purchase of Property and Equipment                               |       | (3,548                           | )          | (4,262                                | )          |            |       | (7,810                    | )          |
| Proceeds from disposal of assets                                 |       | 348                              |       | —                                |       |            |       | 348                       |       |
|                                                             | ** ** | ** **                       | ** ** | ** **                            | ** ** | ** **      | ** ** | ** **                | ** ** |
| Net Cash used in Investing Activities                            |       | (3,200                           | )          | (4,262                                | )          | —          |       | (7,462                    | )          |
|                                                             | ** ** | ** **                       | ** ** | ** **                            | ** ** | ** **      | ** ** | ** **                | ** ** |
| **CASH  FLOWS FROM FINANCING ACTIVITIES**                        | ** ** | ** **                       | ** ** | ** **                            | ** ** | ** **      | ** ** | ** **                | ** ** |
| Proceeds from Issuance of debt                                   |       | 25,750                           |       |                                  |       |            |       | 25,750                    |       |
| Repayment of long-term debt                                      |       | (26,670                          | )          | (5,899                                | )          |            |       | (32,569                   | )          |
| Payments for cost of financing                                   |       | (176                             | )          |                                  |       |            |       | (176                      | )          |
| Payments on capital leases                                       |       | (769                             | )          | (97                                   | )          |            |       | (866                      | )          |
| Advances to related company                                      |       | (32,898                          | )          | (33,468                               | )          | 66,366          |       |                      |       |
| Advances from related company                                    |       |                             |       | 26,780                                |       | (26,780         | )          |                      |       |
| Distributions to member                                          |       | (60                              | )          |                                  |       |            |       | (60                       | )          |
| Net Cash Provided by or (Used in) Financing  Activities          |       | (34,823                          | )          | (12,684                               | )          | 39,586          |       | (7,921                    | )          |
|                                                             | ** ** | ** **                       | ** ** | ** **                            | ** ** | ** **      | ** ** | ** **                | ** ** |
| **NET  INCREASE (DECREASE) IN CASH**                             |       | 3,946                            |       | 207                                   |       |            |       | 4,153                     |       |
| ** **                                                       | ** ** | ** **                       | ** ** | ** **                            | ** ** | ** **      | ** ** | ** **                | ** ** |
| **CASH  AND EQUIVALENTS - BEGINNING OF PERIOD**                  |       | 2,215                            |       | 132                                   |       | —          |       | 2,347                     |       |
| ** **                                                       | ** ** | ** **                       | ** ** | ** **                            | ** ** | ** **      | ** ** | ** **                | ** ** |
| **CASH AND EQUIVALENTS - END OF  PERIOD**                        |       | $                                | 661        |                                  | $          | 339             |       | $                         |       |   | $ | 6,500 |   |

 

33

----

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION ANDRESULTS OF OPERATIONS

**Overview**

We are one of the largestoperators of water parks (“WPs”) and family entertainment centers (“FECs”) inthe United States, based on the number of Parks operated. As of September 30,2006, we operated a geographically diverse portfolio of 32 Parks in eightstates with an attendance that we estimate to be in excess of 10 millionguests in 2005. Each of our Parks is a well-established business with a longoperating history, with our WPs and our FECs having been in operation for anaverage of over 23 years and 17 years, respectively. We operate ourParks under several established brand names such as Wet ’N Wild®, SplishSplashÔ, Raging Waters®, Malibu Grand Prix®, MountasiaÔ, SpeedZone®, Big Kahuna’s®, Silver Springs® and Boomers!®.

Our typical WP offers 15 to 25rides and attractions including variable depth pools, water slides, wave pools,action and “lazy” rivers, tube rides and water-themed adventure areas, as wellas interactive children’s play areas. We generate revenue in our WPs fromgeneral admission ticket sales, the sales of food, beverages, souvenir items,strollers, locker rentals and parking.

With locations in California,Florida, Georgia, New York and Texas, our FECs offer a variety of attractions,including some or all of the following: miniature golf courses, go-karts,bumper boats, thrill rides, state-of-the-art arcade games, redemption games,batting cages, rock walls, laser tag and kiddie rides. Two of our FECs offerdragster racing on six racing tracks. Our FECs typically do not charge ageneral admission fee; guests only pay for those games they wish to utilize.Additionally, under certain promotions, we offer bundled pricing and grouppackages. Our FECs generate revenues from attractions and the sales of food,beverages and merchandise.

Attendance at our Parks is thekey driver of our revenues and profitability. Adverse weather conditionssignificantly reduce our guests’ attendance. In addition, our Parks also aresubject to changing consumer tastes, preferences and demands, which directlyaffect attendance and revenue per guest. In general, we compete indirectly withall phases of the entertainment and recreation industry within our primary markets,including movie theaters, bowling alleys, skating rinks, sporting events,restaurants, zoos, museums, carnivals, aquariums, resorts, natural andhistorical attractions and playgrounds.

In order to anticipate and adaptto changing consumer preferences and maintain and increase attendance, we mustinvest in new rides, amusements, arcade games and attractions. Such investmentsrequire capital availability and spending on our part, and we estimate that asignificant new ride at one of our WPs may cost between $500,000 to$1.5 million. For the nine months ended September 30, 2006, and year endedDecember 31, 2005 we spent $4.9 million and $2.6 million, respectively, on newrides and attractions.

Our operating costs and expensesconsist of the following: cost of revenue, which primarily includes costs ofproducts sold like food and beverage, arcade redemption prizes and merchandise;salaries and benefits, which include the costs of our park level fulltime andpart time employees; operating and maintenance, which include outside services,supplies, spare parts, and utilities; rent (a portion of which are percentagerents) and property taxes, which includes all park level rent and property taxexpenses (offset by rental income earned from the sublease of building spaceand/or land); selling, general and administrative expenses, which includes allcorporate overhead including corporate salaries, office rent, insurance costsand fees to outside professional service providers, other operating costs whichinclude all advertising, promotion and marketing program expenses (includingtelevision, radio and print advertising); and depreciation and amortization,which is primarily related to our leasehold improvements, equipment andtrademarks. All of our facilities are on leased property. Certain of ourexpenses are relatively fixed, and costs for full-time employees, outsideservices, maintenance, utilities, insurance, depreciation and amortization andoccupancy costs do not vary significantly with attendance. We add significantnumbers of seasonal employees during the warmer months of the year, primarilyfrom Memorial Day to Labor Day. Our workforce consists of high-school agedyoung adults and teachers who work on an hourly basis during our operatingseason for our WPs and year-round with peak summer employment for our FECs. Asignificant number of our hourly personnel at our facilities are paid at ratesrelated to the federal minimum wage. Under federal and state child labor laws,we are regulated in the number of hours, the times and the types of jobs thatyouths up to the age of 18 are permitted to work.

34

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Our eight WPs and one nature parkhave gated entrances, which allow us to track admissions and per capitaspending for these Parks. We generally do not track attendance and per capitaspending for our 23 non-gated FECs.

Our business is highly seasonal.Typically, our WPs operate on an approximate 110-day operating season,generally from Memorial Day through Labor Day, and though our FECs are openyear-round, there is also significantly greater attendance at our FECs duringthis period and other periods when children are out of school. In 2006, our WPwith the longest operating period was open for 141 days while our parkwith the shortest operating period was open for 79 days. As a result, morethan 75% of our revenues are generated during the second and third calendarquarters of each year. We believe that the spending at our FECs varies widelyamong our customers based on age and other demographic factors, and the locationand nature of the attractions of the park.

Our business is concentratedgeographically and by the size of our Parks. Sixteen of our Parks are locatedin California and accounted for 42%****of our revenuefor the nine months ended September 30, 2006 and September 30, 2005.

Our strategic initiatives afterthe acquisition of FFP by the Company and related transactions includeimplementing several near-term expense reduction initiatives.  We have implemented a regional organizationalstructure to better leverage our full time WP employees on a year-round basisthat we believe will reduce our park level management expenses. Additionally,we continue to evaluate the potential benefits of relocating corporate officesto a less expensive location, or sublet a portion thereof, which we expect willreduce corporate office rent expense. General and administrative expenses willcontinue to increase from additional headcounts in finance and additional auditand legal fees as a result of our becoming a reporting company in connectionwith the registration of our 10 7/8% Senior Notes due 2014 (“Notes”).  In addition, we have dedicated corporatepersonnel to focus on realizing our merchandising, sponsorships and improvedoperating initiatives. We are increasing spending on marketing, includingconcerts and other events to increase attendance.

In connection with theacquisition of FFP by the Company, we incurred certain one-time transactionaland restructuring expenses. These include but are not limited to expensesassociated with consulting service agreements with members of existingmanagement, severance costs and moving expenses.

**Comparison of Three Months EndedSeptember 30, 2006 and 2005**

Our combined net income was $15.3 million and $19.6million for the three months ended September 30, 2006 and 2005, respectively.The following table sets forth statement of operations data and other data forthe periods indicated:

35

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|                                     | ** ** | **2006**   | ** ** | **2005**   | ** ** |
|-------------------------------------|------------|------------|------------|------------|------------|
| **Statement  of operations:**       | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Revenues**                        |       |       |       |       |       |
| FECs                                |       | $          | 24,294     |       | $          | 24,701 |   |
| WPs                                 |       | 57,926     |       | 53,765     |       |
| Total revenues                      |       | 82,220     |       | 78,466     |       |
|                                |       |       |       |       |       |
| **Operating  costs and expenses**   |       |       |       |       |       |
| ** **                          |       |       |       |       |       |
| Cost of revenue                     |       | 40,865     |       | 37,890     |       |
|                                |       |       |       |       |       |
| % of Revenues                       |       | 49.70      | %          | 48.20      | %          |
|                                |       |       |       |       |       |
| Gain on disposal of assets          |       | —     |       | 205        |       |
|                                |       |       |       |       |       |
| Selling, general and administrative |       | 7,558      |       | 5,837      |       |
|                                |       |       |       |       |       |
| % of Revenues                       |       | 9.20       | %          | 7.40       | %          |
|                                |       |       |       |       |       |
| Depreciation and amortization       |       | 4,728      |       | 5,129      |       |
| Total operating costs and expenses  |       | 53,151     |       | 48,651     |       |
|                                |       |       |       |       |       |
| Operating Income                    |       | 29,069     |       | 29,815     |       |
|                                |       |       |       |       |       |
| Interest and  other expense, net    |       | 4,216      |       | 10,139     |       |
|                                |       |       |       |       |       |
| Income tax  expense                 |       | 9,520      |       | 73         |       |
|                                |       |       |       |       |       |
| Net Income                          |       | $          | 15,333     |       | $          | 19,603 |   |

 

We have two reportable segments,FECs and WPs. The accounting policies of the segments are the same as thosedescribed in critical accounting policies below. Net Income of the segmentsdoes not include interest income or expense and provision for income taxes. Thefollowing table sets forth certain statement of operations data by segment andother data for the periods indicated:
|                                     | ** ** | **Three months ended September 30,** | ** ** |
|-------------------------------------|------------|----------------------------------------------------------|------------|
| ** **                          | ** ** | **WPs**                                                  | ** ** | **FECs** | ** ** |
| ** **                          | ** ** | **Combined**                                             | ** ** | ** ** | ** ** | **Combined** | ** ** | ** ** | ** ** |
| **($ in thousands)**      | ** ** | **2006**                                                 | ** ** | **2005** | ** ** | **2006** | ** ** | **2005** | ** ** |
| Revenues, net                       |       | $                                                        | 57,926     |   | $ | 53,765 |   | $ | 24,294 |   | $ | 24,701 |   |
| Segment-level  EBITDA               |       | 30,766                                                   |       | 29,131 |   | 6,113 |   | 7,438 |   |
| Segment-level capital  expenditures |       | 1,150                                                    |       | 679 |   | 1,561 |   | 1,154 |   |
|                                     |            |                                                          |            |  |  |  |  |  |  |  |  |  |  |

36

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The following is areconciliation of EBITDA to Net Income for the Three Months Ended September 30,2006 and September 30, 2005:
|                            | ** ** | **Three Months Ending** | ** ** | **Three Months Ending** | ** ** |
|----------------------------|------------|-----------------------------------|------------|-----------------------------------|------------|
| ** **                 | ** ** | **September 30, 2006**  | ** ** | **September 30, 2005**  | ** ** |
|                       |       |                              |       |                              |       |
| WPs EBITDA                 |       | $                                 | 30,766     |                              | $          | 29,131 |   |
| FECs EBITDA                |       | 6,113                             |       | 7,438                             |       |
| Total Segment EBITDA       |       | 36,879                            |       | 36,569                            |       |
|                       |       |                              |       |                              |       |
| Depreciation               |       | 4,728                             |       | 5,129                             |       |
| Income tax expense         |       | 9,520                             |       | 73                                |       |
| Gain on disposal of assets |       | 0                                 |       | (205                              | )          |
| Interest                   |       | 4,216                             |       | 10,139                            |       |
| Corporate G&A          |       | 3,082                             |       | 1,830                             |       |
| Total Expenses             |       | 21,546                            |       | 16,966                            |       |
|                       |       |                              |       |                              |       |
| Net Income                 |       | $                                 | 15,333     |                              | $          | 19,603 |   |

 
| ** **                       | ** ** | **Three months ended September 30,** | ** ** |
|----------------------------------|------------|----------------------------------------------------------|------------|
| ** **                       | ** ** | **Combined**                                             | ** ** | ** ** | ** ** |
| **WP operating data:** | ** ** | **2006**                                                 | ** ** | **2005** | ** ** |
|                             |       |                                                     |       |   |   |
| WP attendance                    |       | 1,923,474                                                |       | 1,886,538 |   |
|                             |       |                                                     |       |   |   |
| Revenue per guest                |       | $                                                        | 30.11      |   | $ | 28.50 |   |
|                                  |            |                                                          |            |  |  |  |  |

 

*Revenue.*  Revenuefor the three months ended September 30, 2006 totaled $82.2 millioncompared to $78.4 million for the same period in 2005, an increase of $3.8million or 4.8%.  Despite inclementweather at the east coast WPs locations during the last week in August andthrough the Labor Day Weekend that resulted in several days of both closed andlimited operations, we still increased attendance 2% over 2005 driven byimproved service levels and the overall park appearance.  The strong 5.6% increase in revenue per guestalso contributed to the overall 7.7% revenue increase at the WPs during theperiod.   Revenues at the FECs were down1.6% primarily due to hot weather in California in July and early August thatadversely impacted attendance but benefited our two WP locations in that region.

*Cost ofrevenue.*  Our park level operating expenses totaled$40.8 million for the three months ended September 30, 2006 compared to $37.8million for the same period in 2005, an increase of $3 million or 8%. Theincrease in operating expenses continued to be impacted by management’s plannedincreased spending on catch-up maintenance and other one-time expenditures atthe WPs and FECs.  We believe that theCompany’s performance should continue to benefit from these expenditures overthe next several quarters. The primary drivers in each expense category were asfollows:

·                  Cost of products sold increased $0.2 million or3.4% for the three months ended September 30, 2006 compared to the same periodin 2005 primarily due to revenue driven incremental food, beverage andmerchandise costs The implementation of our consolidated purchasing initiativelowered the food and beverage cost of sales percentage from 32.9% in 2005 to30.9% in 2006.

·                  Salaries and benefits increased $1.5 millionor 9.8% for the three months ended September 30, 2006 compared to the sameperiod in 2005 due primarily to increased man hours of hourly employees toservice higher attendance levels at the WPs and management’s continuing effortto improve customer service levels in the FECs and WPs.

·                  Operating and maintenance costs increased$1.2 million or 12.2% for the three months ended September 30, 2006 primarilyresulting from higher revenues, a $0.2 million increase in insurance premiumsand a rate driven $0.6 million increase in utility costs.

·                  Rent and property taxes decreased $0.05 million or0.8% for the three months ended September 30, 2006 compared to the same periodin 2005 as a result of lower common area charges.  In addition, there were lower revenues forthe three month period ended September 30, 2006 compared to the three monthsperiod ended September 30, 2005 at the Southern California locations which resultedin lower rent expenses for the “rentals based on a percentage of gross revenues”contracts.

37

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*Selling,general and administrative expenses.*  Selling, general andadministrative expenses totaled $7.5 million for the three months endedSeptember 30, 2006 compared to $5.8 million for the same period in 2005, anincrease of $1.7 million or 29.3%.  Theincrease was driven by a $0.5 million increase in advertising costs; aresult of deferring media campaigns to later in the WP season. Also contributingto the increase is $0.2 million in stock compensation expense, increasedmanagement fees as well as costs associated with the corporate reorganization,transition costs following the Acquisition and costs attributable to being apublic company.

*Depreciationand amortization. *Depreciation andamortization expenses decreased $0.4 million or 7.8% for the three months endedSeptember 30, 2006 compared to the same period in 2005.  During the second quarter of 2006, severallarge assets acquired in prior acquisitions were fully depreciated.  As a result, depreciation in the thirdquarter was $.6 million below the comparable third quarter in 2005.  These assets were adjusted to fair market valuewith new useful lives as of the Acquisition date.  The decrease was offset by higherdepreciation and amortization in 2006 as a result of increasing property andequipment and intangibles to fair market value in connection with the Acquisition.

*Interestexpense, net*.  Interest expense, net totaled $4.2million for the three months endedSeptember 30, 2006 compared to $10.1million during the same period in 2005, a decrease of $5.9 million or58.4%.  The decrease in interest expenseresulted from lower interest rates and the Company’s improved cash position.  In addition, there were approximately $4.4million of accretion expenses recorded for the three months ended September 30,2005, relating to $35.3 million of mezzanine securities that were recorded onthe balance sheet as of that period.  These securities were redeemed prior to December 31, 2005.

*Income tax expense. *Based upon a revised projection of operating incomefor full year period post Acquisition, the Company recorded $9.5 million ofincome tax expense for the three months ended 2006. The Company is currentlyprojecting a net operating loss for the fourth quarter.  To the extent these losses offset a portionof income from operations earned during the period ended September 30, 2006, anincome tax benefit will be recognized.

*Income from operations. *The foregoing resulted in income fromoperations of $15.3 million for the three months ended September 30, 2006and $19.6 million for the same period in 2005.

**Comparison ofNine Months ended September 30, 2006 and 2005**

The period April 13, 2006 to September 30, 2006 reflect the results ofoperations by the Company following the acquisition of FFP while the periodJanuary 1, 2006 to April 12, 2006 reflect the operations of FFP under theownership of PAL.  Therefore, the periodsare not comparable.  However, for thepurpose of comparing the operations for the nine months ended September 30,2006 and 2005, the pre-acquisition and post-acquisition periods in 2006 havebeen combined in the discussions below:

38

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We had combined net loss of $6.53million and $0.03 million for the nine months ended September 30, 2006 and2005, respectively. The following table sets forth statement of operations dataand other data for the periods indicated:
|                                     | ** ** | **Nine months ended September 30,** | ** ** |
|-------------------------------------|------------|---------------------------------------------------------|------------|
| **$ in thousands**        | ** ** | **2006**                                                | ** ** | **2005** | ** ** |
| **Statement  of operations:**       | ** ** | ** **                                              | ** ** | ** ** | ** ** |
| **Revenues**                        |       |                                                    |       |   |   |
| FECs                                |       | $                                                       | 65,715     |   | $ | 64,698 |   |
| WPs                                 |       | 79,364                                                  |       | 75,215 |   |
| Total revenues                      |       | 145,079                                                 |       | 139,913 |   |
| **Operating  costs and expenses**   |       |                                                    |       |   |   |
| Cost of revenue                     |       | 96,262                                                  |       | 89,038 |   |
| % of Revenues                       |       | 66.30                                                   | %          | 63.60 | % |
| (Gain) / Loss on disposal of assets |       | 0                                                       |       | (32 | ) |
| Selling, general and administrative |       | 17,238                                                  |       | 15,274 |   |
| % of Revenues                       |       | 11.90                                                   | %          | 10.90 | % |
| Depreciation and amortization       |       | 13,506                                                  |       | 13,851 |   |
| Total operating costs and expenses  |       | 127,006                                                 |       | 118,131 |   |
| Operating Income                    |       | 18,073                                                  |       | 21,782 |   |
| Interest and  other expense, net    |       | 15,044                                                  |       | 21,738 |   |
| Income tax  expense                 |       | 9,564                                                   |       | 73 |   |
| Net Loss                            |       | $                                                       | (6,535     | ) | $ | (29 | ) |

 

|                                     | ** ** | **Nine months ended September 30,** | ** ** |
|-------------------------------------|------------|---------------------------------------------------------|------------|
| ** **                          | ** ** | **WPs**                                                 | ** ** | **FECs** | ** ** |
| ** **                          | ** ** | **Combined**                                            | ** ** | ** ** | ** ** | **Combined** | ** ** | ** ** | ** ** |
| **($ in thousands)**      | ** ** | **2006**                                                | ** ** | **2005** | ** ** | **2006** | ** ** | **2005** | ** ** |
| Revenues, net                       |       | $                                                       | 79,364     |   | $ | 75,215 |   | $ | 65,715 |   | $ | 64,698 |   |
| Segment-level  EBITDA               |       | 25,794                                                  |       | 26,487 |   | 14,153 |   | 15,586 |   |
| Segment-level capital  expenditures |       | 5,993                                                   |       | 3,179 |   | 3,965 |   | 4,574 |   |
|                                     |            |                                                         |            |  |  |  |  |  |  |  |  |  |  |

 

The following is areconciliation of EBITDA to Net Income for the Nine Months Ended September 30,2006 and September 30, 2005:
|                            | ** ** | **Nine Months Ending** | ** ** | **Nine Months Ending** | ** ** |
|----------------------------|------------|----------------------------------|------------|----------------------------------|------------|
| ** **                 | ** ** | **September 30, 2006** | ** ** | **September 30, 2005** | ** ** |
|                       |       |                             |       |                             |       |
| WPs EBITDA                 |       | $                                | 25,794     |                             | $          | 26,487 |   |
| FECs EBITDA                |       | 14,153                           |       | 15,586                           |       |
| Total Segment EBITDA       |       | 39,947                           |       | 42,073                           |       |
|                       |       |                             |       |                             |       |
| Depreciation               |       | 13,506                           |       | 13,851                           |       |
| Gain on disposal of assets |       | 0                                |       | (32                              | )          |
| Income tax expense         |       | 9,564                            |       | 73                               |       |
| Interest                   |       | 15,044                           |       | 21,738                           |       |
| Corporate G&A          |       | 8,368                            |       | 6,472                            |       |
| Total Expenses             |       | 46,482                           |       | 42,102                           |       |
|                       |       |                             |       |                             |       |
| Net Income                 |       | $                                | (6,535     | )                                | $          | (29 | ) |

39

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|                                  | ** ** | **Nine months ended September 30,** | ** ** |
|----------------------------------|------------|----------------------------------------------------|------------|
| ** **                       | ** ** | **Combined**                                       | ** ** | ** ** | ** ** |
| **WP operating data:** | ** ** | **2006**                                           | ** ** | **2005** | ** ** |
| WP attendance                    |       | 2,756,638                                          |       | 2,733,423 |   |
| Revenue per guest                |       | $                                                  | 28.79      |   | $ | 27.52 |   |
|                                  |            |                                                    |            |  |  |  |  |

 

*Revenue.*  Revenuefor the nine months ended September 30, 2006 totaled $145 million comparedto $139.9 million for the same period in 2005, an increase of $5 millionor 3.5%. The increase in 2006 resulted primarily from a 5.5% increase in WPsrevenues.  Our initiatives to improveguest service and the over all park appearance at the WPs drove a 0.8 %increase in attendance despite unfavorable weather conditions at the east coastWPs during the last week of August through the Labor Day weekend.  In addition WP revenues increased due to astrong 4.6 % increase in revenue per guest spending.  The overall FEC revenue during the first sixmonths was reduced by the impact of hot weather conditions during July andearly August at our California locations.

*Cost ofrevenue.*  Our park level operating expenses totaled$96.2 million for the nine months ended September 30, 2006 compared to $89million for the same period in 2005, an increase of $7.2 million or 8.1%. Theincrease in operating expenses continued to be impacted by management’s plannedincreased spending on catch-up maintenance and other one-time expenditures atthe WPs and FECs. We believe that the Company’s performance should continue tobenefit from these expenditures over the next several fiscal quarters.   The primary drivers in each expense categorywere as follows:

·                  Cost of products sold increased $0.38 million or3.7% for the nine months ended September 30, 2006 compared to the same periodin 2005 primarily due to costs revenue related incremental food, beverage andmerchandise costs.  Food and Beveragecosts of sales percentage continued to benefit from our use of a nationalsupplier, decreasing from 32.6 % in 2005 to 31.1% in 2006.

·                  Salaries and benefits increased $2.2 millionor 5.8% for the nine months ended September 30, 2006 compared to the sameperiod in 2005 due primarily to increased man hours of hourly employees toservice higher attendance levels and to strengthen customer service efforts atthe WPs and FECs.  In addition, in ourWPs we opened our operations earlier in 2006 than in 2005 in order to be betterprepared for the summer season.

·                  Operating and maintenance costs increased $4.2million or 17.4% for the nine months ended September 30, 2006 compared to thesame period in 2005 due primarily to management’s continued commitment toimprove the appearance of our WPs and FECs. Maintenance spending increased$0.6 million as a result of the prior management’s liquidity constraintsin 2005 and early 2006. Supply costs increased $0.9 million due to higherrevenues and price increases particularly in fuel costs. Insurance premiumsincreased $0.6 million and outside services and fees increased$0.3 million over 2005.  Inaddition, utility costs increased $0.9 million primarily resulting from rateincreases.

·                  Rent and property taxes increased $0.3 million or2.1% due primarily to increases in rent tied to inflation or park performance,as well as slight increases in property taxes tied to statutory rate increases.

*Selling,general and administrative expenses.*  Selling, general andadministrative expenses totaled $17.2 million for the nine months endedSeptember 30, 2006 compared to $15.2 million for the same period in 2005, anincrease of $2.0 million or 13%. The increase was primarily driven by the $0.7 millionin stock compensation expense recorded in the period April 13 to September 30,2006, management fees as well as costs associated with corporatereorganization, transition costs following the Acquisition and costsattributable to being a public company.

*Depreciationand amortization. *Depreciation andamortization expenses decreased $0.34 million or 2.5% for the nine months endedSeptember 30, 2006 compared to the same period in 2005.   During the second quarter of 2006, severallarge assets acquired in prior acquisitions were fully depreciated.  As a result, depreciation for the nine monthsended 2006 is lower than 2005.  Theseassets were adjusted to fair market value with new useful lives as of the Acquisitiondate.  This decrease was offset by higherdepreciation and amortization in 2006 as a result of increasing property andequipment and intangibles to fair market value in connection with the Acquisition.

*Interestexpense, net*.  Interest expense, net totaled$15 million for the nine months endedSeptember 30, 2006 compared to $21.7million during the same period in 2005, a decrease of $6.7 million or 31%.  The decrease in interest expense resultedfrom lower interest rates.   In addition,there were approximately $4.4 million of accretion expenses recorded for thenine months ended September 30, 2005 relating to $35.3 million of mezzaninesecurities that were recorded on the balance sheet as of that period.  The securities were redeemed prior toDecember 31 2005, hence, there were no accretion expenses relating to mezzaninesecurities for the nines months ended September 30, 2006.

*Income taxes. *Based upon a revised projection of operating incomefor the full year period post Acquisition, the Company recorded $9.5 million ofincome tax expense for the nine months ended 2006. The company is currentlyprojecting a net operating loss for the fourth quarter.  To the extent these losses offset a portionof income from operations earned during the period ended September 30, 2006, anincome tax benefit will be recognized.

*Income (Loss) from operations. *The foregoing resulted in a loss fromoperations of $6.53 million for the nine months ended September 30, 2006and a loss of $0.03 million for the same period in 2005.

40

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**Liquidity andcapital resources**

During the nine months endedSeptember 30, 2006 and 2005, net cash provided by operating activities was$27.4 million and $19.5 million, respectively. Because our business is seasonaland involves significant levels of cash transactions, factors impacting our netoperating cash flows are the same as those impacting our cash-based revenuesand expenses discussed above.

Net cash used in investingactivities was $47.7 million and $7.4 million for the nine months endedSeptember 30, 2006 and 2005, respectively, primarily driven by funds disbursedfor the acquisition of FFP by the Company .

Net cash provided by financingactivities for the nine months ended September 30, 2006 was $34.1 millioncompared to net cash used of $7.9 million for the nine months ended September30, 2005.    The net cash provided in2006 was primarily driven by the equity contribution relating to theacquisition of FFP by the Company in April 2006 offset by repayment andissuance of debt at the acquisition date and a repayment of the revolver duringthe third quarter.   For the nine monthsending September 30, 2005, cash was used to pay debt obligations.

In connection with theacquisition of FFP, we incurred substantial amounts of debt, including amountsoutstanding under the Notes and our senior secured revolving credit facility (“Revolver”).As of the closing of the acquisition of FFP by the Company, we had total debtof approximately $163.6 million comprised of $150.0 million of Notes,$12.0 million of seasonal borrowings on the Revolver and $1.6 million ofcapital leases. Interest payments on this indebtedness will significantlyreduce our cash flow from operations. However, as a result of the refinancingof our debt in connection with the Transactions from the proceeds of the EquityContribution and the Notes, we expect our annual interest expense to decreaseand we will no longer be subject to annual debt amortization payments; net debtpayments totaled approximately $7.9 million in 2005.

Our new senior secured revolvingcredit facility consists of a $40.0 million revolving credit facility (suchavailability was reduced by the $4.3 million of issued but undrawn letters ofcredit at September 30, 2006), with $12.0 million drawn at close to fund theoperations of Festival between February 1, 2006 and the closing of theTransactions. Due to the seasonal nature of our business, we are dependent uponour revolving credit facility to fund off-season expenses with seasonalborrowings typically peaking during our fiscal second quarter. Our ability toborrow under the revolving credit facility is dependent upon compliance withcertain conditions, including satisfying certain financial ratios and theabsence of any material adverse change.  As of September 30, 2006, there was no balance outstanding on ourrevolving credit facility.

The degree to which we areleveraged could adversely affect our liquidity. Our liquidity could also beadversely affected by unfavorable weather, accidents or the occurrence of anevent or condition, including negative publicity or significant localcompetitive events that significantly reduce paid attendance and, therefore,revenue at any of our Parks. In addition, our anticipated cash flows could bematerially adversely affected by the occurrence of certain of the risksdescribed in “Risk factors.” In that case, we would need to seek additionalfinancing.

We believe, based on historicaland anticipated operating results, that cash flows from operations, availablecash and available amounts under the new senior secured revolving creditfacility will be adequate to meet our future liquidity needs, includinganticipated requirements for working capital, capital expenditures andscheduled debt requirements for the foreseeable future.

**Off balancesheet arrangements**

We have no off-balance sheetarrangements.

41

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**Contractualobligations**

The following table summarizesthe timing of our required payments due under various contractual obligationsas of September 30, 2006 on a pro forma basis, giving effect to theTransactions and the offering of the Notes:
| **($ in thousands)**               | ** ** | **Less than  One  Year** | ** ** | **One Year  to Three Years** | ** ** | **Thereafter** | ** ** | **Total** | ** ** |
|----------------------------------------------|------------|-------------------------------|------------|---------------------------------------------|------------|----------------|------------|-----------|------------|
|                                         |       |                          |       |                                        |       |           |       |      |       |
| As of September  30, 2006 (pro forma):       |       |                          |       |                                        |       |           |       |      |       |
| Long-term debt including interest            |       | $                             | 16,312     |                                        | $          | 32,624         |       | $         | 231,560    |   | $ | 280,496 |   |
| Capital lease obligations including interest |       | 925                           |       | 9                                           |       | —         |       | $         | 934        |   |
| Park and office  leases                      |       | 15,292                        |       | 27,161                                      |       | 247,985        |       | $         | 290,438    |   |
|                                         |       | $                             | 32,529     |                                        | $          | 59,794         |       | $         | 479,545    |   | $ | 571,868 |   |

 

**Impact of inflation**

Substantial increases in costsand expenses could affect our operating results to the extent it may not bepossible to pass such increases along to our guests. In particular, increasesin labor, supplies and utility expenses could have an impact on our operatingresults. The majority of our employees are seasonal and are paid hourly rates,which, although not tied directly to federal and state minimum wage laws,experience incremental increases as minimum wage rates increase. Our history ofbeing able to pass along cost increases to guests through increases inadmission, food, merchandise and other prices is limited. We believe that theeffects of inflation, if any, on our operating results and financial conditionhave been and will continue to be minor over the next 12 months.

**Recently issued accountingpronouncements**

In May 2005, the FASB issuedSFAS No. 154, *Accounting Changes andError Corrections*. SFAS No. 154 replaces APB OpinionNo. 20, *Accounting Changes*,and FASB Statement No. 3, *ReportingAccounting Changes in Interim Financial Statements*, and changes therequirements for the accounting for and reporting of a change in accountingprinciple. SFAS No. 154 applies to all voluntary changes in accountingprinciple. APB No. 20 previously required that most voluntary changes inaccounting principle be recognized by including in net income of the period ofthe change the cumulative effect of changing to the new accounting principle.SFAS No. 154 requires retrospective application to prior periods’financial statements of changes in accounting principle, unless it isimpracticable to determine either the period-specific effects or the cumulativeeffect of the change. When it is impracticable to determine the period-specificeffects of an accounting change on one or more individual prior periodspresented, SFAS No. 154 requires that the new accounting principle beapplied to the balances of assets and liabilities as of the beginning of theearliest period for which retrospective application is practicable and that acorresponding adjustment be made to the opening balance of retained earnings(or other appropriate components of equity or net assets in the statement offinancial position) for that period rather than being reported in an incomestatement. When it is impracticable to determine the cumulative effect ofapplying a change in accounting principle to all prior periods, this statementrequires that the new accounting principle be applied as if it were adoptedprospectively from the earliest date practicable. The adoption of SFASNo. 154 is not expected to have an impact on our financial statements.

In December 2005, theCompany adopted FASB Interpretation No. 47 (“FIN 47”), *Accounting for Conditional Asset RetirementObligations – an interpretation of FASB Statement No. 143*,which clarifies that the term “conditional asset retirement obligation” refersto a legal obligation to perform an asset retirement activity. Thisinterpretation also states that the fair value of a liability for theconditional asset obligation should be recognized when incurred. The initialadoption of FIN 47 was not material to the Company’s financial statements.

On December 16,2004, the FASB issued SFAS No. 123 (revised 2004), *Share-BasedPayment*, which is a revision of SFAS No. 123, *Accountingfor Stock-Based Compensation*. SFAS No. 123(R) supersedes, *Accounting for StockIssued to Employees* (APB No. 25), and amends SFAS No. 95, *Statement of Cash Flows*. Generally, the approach in SFAS No. 123(R) is similar to the approachdescribed in SFAS No. 123.  However, SFASNo. 123(R) requires all share-based payments to employees, including grants ofemployee stock options, to be recognized in the income statement based on theirfair values.  Pro forma disclosure is nolonger an alternative to financial statement recognition.  Non-public entities are required to adopt theprovisions of SFAS No. 123(R) as of the beginning of the first annual reportingperiod that began after December 15, 2005.

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In July 2006, theFASB issued FASB Interpretation No. 48 (“FIN 48”), *Accountingfor Uncertainty in Income Taxes*, which prescribes a recognitionthreshold and measurement process for recording in the financial statementsuncertain tax positions taken or expected to be taken in a tax return.  Additionally, FIN 48 provides guidance on thederecognition, classification, interest and penalties, accounting in interimperiods and disclosure requirements for uncertain tax positions.  The accounting provisions of FIN 48 areeffective for reporting periods beginning after December 15, 2006.  The Company is currently assessing the impactof the adoption of FIN 48 and its impact on the Company’s consolidatedfinancial statements.

In July 2006, theFASB issued EITF 06-3, *How Taxes Collected fromCustomers and Remitted to Governmental Authorities Should Be Presented in theIncome Statement (That Is, Gross versus Net Presentation)* thatrequires disclosure of the accounting policy related to any tax assessed by agovernment authority in a revenue pro during transaction (either gross or net)and the amount of such taxes in both interim and annual financial statements ifthe amounts are significant.  This EITFbecomes effective for reporting periods beginning after December 15, 2006. TheCompany is currently assessing the impact of the adoption of EITF 06-3 and itsimpact on the Company’s consolidated financial statements.

In September 2006, the FASB issued SFAS No. 157, FairValue Measurements. SFAS No. 157 establishes a framework for measuring fairvalue in generally accepted accounting principles (“GAAP”), and expandsdisclosures about fair value measurements. This Statement is effective forfinancial statements issued for fiscal years beginning after November 15, 2007,and interim periods within those fiscal years. Management has not yet completedits evaluation of the impact of adopting SFAS No. 157.

In September 2006,the SEC issued SAB No. 108, “Considering the Effects of Prior YearMisstatements when Quantifying Misstatements in Current Year FinancialStatements” (“SAB No. 108”). SAB 108 establishes a single quantificationframework wherein the significance measurement is based on the effects of themisstatements on each of the financial statements as well as the relatedfinancial statement disclosures. If a company’s existing methods for assessingthe materiality of misstatements are not in compliance with the provisions ofSAB No. 108, the initial application of the provisions may be adopted byrestating prior period financial statements under certain circumstances orotherwise by recording the cumulative effect of initially applying theprovisions of SAB No. 108 as adjustments to the carrying values of assets andliabilities as of January 1, 2006 with an offsetting adjustment recorded to theopening balance of retained earnings. SAB No. 108 is effective for the firstannual period ending after November 15, 2006. The Company does not expect thatthe adoption of SAB No. 108 will have a material effect on its results ofoperations or financial position.

**Criticalaccounting policies**

In the ordinary course ofbusiness, we make a number of estimates and assumptions relating to thereporting of results of operations and financial condition in the preparationof our consolidated financial statements in conformity with accountingprinciples generally accepted in the United States. Results could differsignificantly from those estimates under different assumptions and conditions.We believe that the following discussion addresses our most critical accountingpolicies, which are those that are most important in the portrayal of ourconsolidated financial condition and results and require management’s mostdifficult, subjective and complex judgments, often as a result of the need tomake estimates about the effect of matters that are inherently uncertain.

*Revenuerecognition.*  We recognize revenue at the point of sale toa customer or over the period that the customer receives the benefit. Certainof our Parks sell season tickets and annual passes. Revenue from season ticketsales is recognized on a straight-line basis over the period of time that therelated park is open and revenue from annual passes is recognized on astraight-line basis over 12 months. All other revenues are generallyrecognized on a daily basis on actual guest spending at our facilities.

*Self-insurancereserves.*  Reserves are recorded for the estimatedamounts of guest and employee claims and expenses incurred, but not paid, eachperiod that are not covered by third-party insurance. These estimates areestablished based upon historical claims data and third-party estimates ofsettlement costs for incurred claims, and are recorded only when a loss isprobable and reasonably estimatable, in accordance with SFAS No.5, *Accounting for Contingencies*. These reserves areperiodically reviewed for changes in these factors and adjustments are made asneeded.

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*Property andequipment.*  Property and equipment is recorded at costand is depreciated on a straight-line basis over the estimated useful lives ofthe assets. Changes in circumstances such as technological advances, changes toour business model or changes in our capital strategy could result in theactual useful lives differing from our estimates. In those cases in which wedetermine that the useful life of property and equipment should be shortened,we depreciate the net book value in excess of the salvage value over therevised remaining useful life, thereby increasing depreciation expense.

*Valuation oflong-lived and intangible assets and goodwill.*  Long-livedassets are carried at the lower of historical cost less accumulateddepreciation or estimated fair value. Long-lived assets are evaluated forpotential impairment whenever events or changes in circumstances indicate thattheir carrying amounts may not be recoverable. In the event that periodicassessments reflect that the carrying amount of a long-lived asset exceeds thesum of the undiscounted cash flows (excluding interest) that are expected toresult from the use and eventual disposition of the long-lived asset, werecognize an impairment loss to the extent the carrying amount exceeds the fairvalue of the long-lived asset. We estimate the fair value using available marketinformation or other industry valuation techniques such as present-valuecalculations. We did not record any impairment losses for the nine months endedSeptember 30, 2006 and 2005.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

*InterestRates.*  Our marketrisks relate primarily to changes in interest rates. Our new senior securedrevolving credit facility carries floating interest rates that are tied to theLIBOR rate and the Prime rate and therefore, the consolidated financial statementswill be exposed to changes in interest rates. A 1.0% interest rate increasewould increase interest expenses between $0 and $0.4 million annually,depending on the average carrying balance of the facility. We historically havenot engaged in interest rate hedging activities.

*CurrencyExchange Rates.*  We arenot exposed to currency exchange rate risks.

Item 4. CONTROLS AND PROCEDURES

The Company’smanagement, with the participation of the Company’s Chief Executive Officer andChief Financial Officer, has evaluated the effectiveness of the Company’sdisclosure controls and procedures as of September 30, 2006.  Based on that evaluation, the Company’s ChiefExecutive Officer and Chief Financial Officer concluded that the Company’sdisclosure controls and procedures were effective as of September 30,2006.  The Company is not required tocomply with Section 404 of the Sarbanes-Oxley Act of 2002, as amended, untilDecember 31, 2007, but has initiated significant efforts to further ensure theadequacy and effectiveness of its internal controls.  There were no material changes in the Company’sinternal control over financial reporting during the second quarter.

**PART II.OTHER INFORMATION**

Item 1. LEGAL PROCEEDINGS

From time to time,the Company is involved in litigation relating to claims arising out of itsoperations in the normal course of business. As of September 30, 2006, theCompany is not a party to any legal proceedings, the adverse outcome of which,in management’s opinion, individually or in the aggregate, would have amaterially adverse effect on the Company’s consolidated financial position orresults of operations.

The Companyreceived written notice in December 2004 concerning the Texas Departmentof Transportation’s intention to seize, through the eminent domain process, aportion of the real property leased by the Company at its Dallas SpeedZone® FECin connection with the widening of Interstate 35 E. The Company is currentlyreviewing its options and has retained legal counsel to advise and assist itthrough this process. In addition, the city of Riverside, California iscurrently in the process of seizing a portion of roadside property at theCompany’s Castle Park FEC under the doctrine of eminent domain in connectionwith the construction of a freeway access ramp. The portion of land at issue isunimproved dirt, and the Company does not believe that any of the attractionsat this FEC will be affected.  The Company has reached a stipulation withthe landlord that will extricate it from the litigation, which will continuesolely between the City and the landlord.

The Company and MidOcean Partners have been named asdefendants in a lawsuit alleging, among other things, breach of a finder’s feeagreement and tortious interference with such agreement in connection with theacquisition of FFP by the Company.  The agreement at issue is between anindividual and a company that is separate and distinct from both the Companyand MidOcean Partners.  As such, although the lawsuit seeks aggregatedamages in excess of  $3.2MM, the Company is confident that it will bedismissed from the litigation in an expeditious fashion.  The Companybelieves the lawsuit to be utterly and completely without merit and intends toseek recovery of fees and costs after a successful resolution of thelitigation.

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Item 1A. RISK FACTORS

**Risks related to our business**

There have been no material changes from the Risk Factorsdisclosed under the heading in Part II, Other Information of our QuarterlyReport on Form 10-Q for the quarter ended July 2, 2006.

Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

Item 3. DEFAULTS UPON SENIOR SECURITIES

None.

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

None.

Item 5. OTHER INFORMATION

None.

Item 6. EXHIBITS

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**SIGNATURES**

Pursuant to therequirements of the Securities Exchange Act of 1934, the Registrant has dulycaused this report to be signed on its behalf by the undersigned thereunto dulyauthorized.
|   | FESTIVAL FUN PARKS, LLC                     |
|--------|---------------------------------------------|
|   |                                        |
|   | /s/ John A. Cora                            |
|   | By: John A. Cora                            |
|   | Its: Chief  Executive Officer and President |
|   | (Principal Executive Officer)               |
|   | Dated: November  15, 2006                   |
|   |                                        |
|   |                                        |
|   | FESTIVAL FUN  PARKS, LLC                    |
|   |                                        |
|   | /s/ James A.  Burk                          |
|   | By: James A.  Burk                          |
|   | Its: Chief  Financial Officer               |
|   |                                        |
|   | Dated: November  15, 2006                   |

 

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**EXHIBIT INDEX**
| Exhibit No. | ** ** | **Description of Document**                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|-------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|        |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 1.2         |       | Joinder  Agreement, dated as of April 12, 2006, by Festival Fun Parks, LLC, Palace  Finance, Inc., Palace Entertainment Holdings, Inc., Splish Splash at  Adventureland Inc., Family Fun Center Holdings LLC, Smartparks-San Jose Inc.,  Smartparks-Riverside Inc., Smartparks-San Dimas Inc., Raging Waters Group  Inc., Wet N Wild Nevada Inc., Smartparks-Carolina Inc., Smartparks-Florida  Inc., Smartparks-Silver Springs Inc. and Palace Management Company LLC (1) |
| 3.1         |       | Certificate of  Formation of Festival Fun Parks, LLC. (1)                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 3.2         |       | Second Amended  and Restated Limited Liability Company Agreement of Festival Fun Parks, LLC  (1)                                                                                                                                                                                                                                                                                                                                                                           |
| 3.5         |       | Amended and  Restated Certificate of Incorporation of Palace Entertainment Holdings, Inc.  (1)                                                                                                                                                                                                                                                                                                                                                                             |
| 3.6         |       | By-laws of  Palace Entertainment Holdings, Inc. (1)                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 4.1         |       | Indenture, dated  as of April 12, 2006, by and among Festival Fun Parks, LLC, Palace Finance,  Inc., Palace Entertainment Holdings, Inc. and Wells Fargo Bank, National  Association. (1)                                                                                                                                                                                                                                                                                  |
| 4.2         |       | Registration  Rights Agreement, dated as of April 12, 2006, by and among Festival Fun  Parks, LLC, Palace Finance, Inc., Palace Entertainment Holdings, Inc., the  other guarantors listed in Schedule 1 thereto, J.P. Morgan Securities Inc.  and Jefferies & Company, Inc. (1)                                                                                                                                                                                       |
| 10.1        |       | License  Agreement, dated as of April 12, 2006, by and between Festival Fun Parks, LLC  and Vision Maker, LLC. (1)                                                                                                                                                                                                                                                                                                                                                         |
| 10.2        |       | Employment  Agreement, dated as of April 12, 2006, by and among Festival Fun Parks, LLC,  Palace Entertainment Holdings, Inc. and John A. Cora. (1)(2)                                                                                                                                                                                                                                                                                                                     |
| 10.3        |       | Employment  Agreement, dated as of April 12, 2006, by and among Festival Fun Parks, LLC,  Palace Entertainment Holdings, Inc. and Daniel S. Martinez. (1)(2)                                                                                                                                                                                                                                                                                                               |
| 10.4        |       | Amended and  Restated Agreement, dated as of April 12, 2006, by and between Festival Fun  Parks, LLC and James Cleary. (1)(2)                                                                                                                                                                                                                                                                                                                                              |
| 10.5        |       | Credit  Agreement, dated as of April 12, 2006, among Festival Fun Parks, LLC, as  Borrower Representative, the Borrowers signatory thereto, the other Credit  Parties signatory thereto, the Lenders party thereto from time to time and  General Electric Capital Corporation as Agent and Lender. (1)                                                                                                                                                                    |
| 10.6        |       | Professional  Services Agreement, dated as of May 30, 2006, by and among James A. Burk,  Festival Fun Parks, LLC and Palace Entertainment Holdings, Inc. (1)(2)                                                                                                                                                                                                                                                                                                            |
| 10.29       |       | Employment  Agreement, dated as of May 22, 2006, by and between Festival Fun Parks, LLC  and Todd R. Wulffson. (1)(2)                                                                                                                                                                                                                                                                                                                                                 |
| 10.30       |       | Letter  Agreement, dated as of May 22, 2006, by and between Festival Fun Parks, LLC  and Todd R. Wulffson. (1)(2)                                                                                                                                                                                                                                                                                                                                                          |
| 31.1        |       | Rule  13a-14(a)/15d-14(a) Certification by the Chief Executive Officer pursuant to  Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                                                                                          |
| 31.2        |       | Rule  13a-14(a)/15d-14(a) Certification by the Chief Financial Officer pursuant to  Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                                                                                          |
| 32.1        |       | Section 1350  Certification of Periodic Report by the Chief Executive Officer and Chief  Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002  (3)                                                                                                                                                                                                                                                                                                  |

 

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| (1)    | Incorporated by  reference to the Registration Statement on Form S-4 filed June 16, 2006, File  No. 333-135091.                                                                                                                                                                                                                                                                                                                     |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                |
| (2)    | Denotes  management contract or compensatory plan or arrangement.                                                                                                                                                                                                                                                                                                                                                                   |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                |
| (3)    | This  certification will not be deemed “filed” for purposes of Section 18 of the  Securities Exchange Act of 1934 (15 U.S.C. 78r), or otherwise subject to the  liability of that section. Such certification will not be deemed to be  incorporated by reference into any filing under the Securities Act or  Securities Exchange Act, except to the extent that the Company specifically  incorporates it by reference. |

 

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