Filed Pursuant to Rule 424(b)(3)
Registration No. 333- 169407

PROSPECTUS SUPPLEMENT

GWR Operating Partnership, L.L.L.P.		Great Wolf Finance Corp.

Exchange Offer for $230,000,000
10.875% First Mortgage Notes due 2017
Supplement to Prospectus dated October 15, 2010

     On October 15, 2010, we, GWR Operating Partnership, L.L.L.P. and Great Wolf Finance Corp., commenced an offer to exchange $230,000,000 aggregate principal amount of our outstanding 10.875% First Mortgage Notes due 2017, which were issued on April 7, 2010 and which we refer to as the initial notes, for a like aggregate principal amount of our registered 10.875% First Mortgage Notes due 2017, which we refer to as the exchange notes. Both the initial notes and the exchange notes are guaranteed on a senior unsecured basis by Great Wolf Resorts, Inc., which owns 99% of the limited partnership interests in GWR Operating Partnership, L.L.L.P., and GWR OP General Partner, LLC, which owns the 1% general partnership interest in GWR Operating Partnership, L.L.L.P., and certain of our domestic subsidiaries. Both the initial notes and the exchange notes are guaranteed on a senior secured basis by our subsidiaries that own three of our “Generation II” resorts, and those guarantees are secured by first-priority mortgages on the resorts and first-priority securities interests in the other assets of those guarantors, to the extent of the value of the collateral.

     On November 4, 2010, Great Wolf Resorts, Inc. filed a quarterly report on Form 10-Q with respect to the quarter ended September 30, 2010. That quarterly report is contained in this prospectus supplement. Investors wishing to participate in the exchange offer should read this prospectus supplement along with the prospectus relating to the exchange offer, dated October 15, 2010.

     As we stated in the October 15, 2010 prospectus relating to the exchange offer, the exchange offer will expire at 5:00 p.m., New York City time, on November 15, 2010, unless we extend it. The other terms of the exchange offer are set forth in that prospectus.

     Please see “Risk Factors” beginning on page 23 of the October 15, 2010 prospectus for a discussion of certain factors you should consider in connection with these notes.

     Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

The date of this prospectus supplement is November 5, 2010.

 

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

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

Commission File Number 000-51064

 

GREAT WOLF RESORTS, INC.

Delaware (State or other jurisdiction of incorporation or organization)		51-0510250 (I.R.S. Employer Identification No.)
525 Junction Road, Suite 6000 South Madison, Wisconsin 53717 (Address of principal executive offices)		53717 (Zip Code)

(608) 662-4700
(Registrant’s telephone number, including area code)

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o		Accelerated filer þ		Non-accelerated filer o		Smaller reporting company o
				(Do not check if a smaller reporting company)

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

The number of shares outstanding of the issuer’s common stock was 32,458,808 as of November 4, 2010.

 

 

Great Wolf Resorts, Inc.

Quarterly Report on Form 10-Q
For the Quarter Ended September 30, 2010

INDEX

		Page
		No.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Condensed Consolidated Balance Sheets as of September 30, 2010 and December 31, 2009		4
Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2010 and 2009		5
Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2010 and 2009		6
Notes to Condensed Consolidated Financial Statements		7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		34
Item 3. Quantitative and Qualitative Disclosures About Market Risk		56
Item 4. Controls and Procedures		57
PART II. OTHER INFORMATION
Item 1. Legal Proceedings		58
Item 1A. Risk Factors		59
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		59
Item 3. Defaults Upon Senior Securities		59
Item 4. [Removed and Reserved]		59
Item 5. Other Information		59
Item 6. Exhibits		59
Signatures		61

FORWARD-LOOKING STATEMENTS

     Some of the statements contained or that may be included in this report or in information we file with the Securities and Exchange Commission, or the SEC, are or may be deemed to be forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended. All statements, other than statements of historical facts, including, among others, statements regarding our future financial results or position, business strategy, projected levels of growth, projected costs and projected financing needs, are forward-looking statements. Those statements include statements regarding our intent, belief or current expectations and those of the members of our management team, as well as the assumptions on which such statements are based, and generally are identified by the use of words such as “may,” “might,” “will,” “could,” “plan,” “objective,” “predict,” “project,” “potential,” “continue,” “ongoing,” “seeks,” “anticipates,” “believes,” “estimates,” “expects,” “plans,” “intends,” “should” or similar expressions. Forward-looking statements are not guarantees of future performance and involve risks and uncertainties that actual results may differ materially from those contemplated by such forward-looking statements. Many of these factors are beyond our ability to control or predict. Such factors include, but are not limited to, competition in our market, changes in family vacation patterns and consumer spending habits, regional or national economic downturns, our ability to attract a significant number of guests from our target markets, economic conditions in our target markets, the impact of fuel costs and other operating costs, our ability to develop new resorts in desirable markets or further develop existing resorts on a timely and cost efficient basis, our ability to manage growth, including the expansion of our infrastructure and systems necessary to support growth, our ability to manage cash and obtain additional cash required for growth, the general tightening in the U.S. lending markets, potential accidents or injuries at our resorts, decreases in travel due to pandemic or other widespread illness, our ability to achieve or sustain profitability, downturns in our industry segment and extreme weather conditions, increases in operating costs and other expense items and costs, uninsured losses or losses in excess of our insurance coverage, our ability to protect our intellectual property, trade secrets and the value of our brands, and current and possible future legal restrictions and requirements. Important factors currently known to our management that could cause actual results to differ materially from those in forward-looking statements include those set forth below under the section entitled “Risk Factors” and in our other periodic SEC filings.

     We believe these forward-looking statements are reasonable; however, undue reliance should not be placed on any forward-looking statements, which are based on current expectations. All written and oral forward-looking statements attributable to us or persons acting on our behalf are qualified in their entirety by these cautionary statements. Further, forward-looking statements speak only as of the date they are made, and we undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results over time unless required by law. Past financial or operating performance is not necessarily a reliable indicator of future performance and you should not use our historical performance to anticipate results or future period trends.

     You should read this report and the documents that we reference in this report completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of our forward-looking statements by each of these cautionary statements.

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

GREAT WOLF RESORTS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share and per share amounts)

		September 30,				December 31,
		2010				2009
		(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents		$	43,103			$	20,913
Escrows			1,228				5,938
Accounts receivable, net of allowance for doubtful accounts of $107 and $101			3,383				2,192
Accounts receivable – affiliates			3,302				2,614
Inventory			6,001				4,791
Other current assets			5,074				4,252
Total current assets			62,091				40,700
Property and equipment, net			653,968				676,405
Investments in and advances to affiliates			26,445				27,484
Notes receivable			—				8,268
Other assets			33,210				29,058
Intangible assets			27,638				23,829
Total assets		$	803,352			$	805,744
LIABILITIES AND EQUITY
Current liabilities:
Current portion of long-term debt		$	70,450			$	16,126
Accounts payable			2,343				5,078
Accounts payable – affiliates			522				—
Accrued expenses			36,260				21,970
Advance deposits			9,373				7,114
Other current liabilities			5,559				5,946
Total current liabilities			124,507				56,234
Mortgage debt			390,555				441,724
Other long-term debt			91,991				92,221
Deferred compensation liability			1,161				809
Other long-term liabilities			1,048				—
Total liabilities			609,262				590,988
Commitments and contingencies
Great Wolf Resorts stockholders’ equity:
Common stock, $0.01 par value; 250,000,000 shares authorized; 32,458,808 and 31,278,889 shares issued and outstanding			325				313
Preferred stock, $0.01 par value, 10,000,000 shares authorized, no shares issued or outstanding			—				—
Additional paid-in-capital			402,095				400,930
Accumulated deficit			(208,105	)			(186,287	)
Deferred compensation			(200	)			(200	)
Total Great Wolf Resorts stockholders’ equity			194,115				214,756
Noncontrolling interest			(25	)			—
Total equity			194,090				214,756
Total liabilities and equity		$	803,352			$	805,744

See accompanying notes to condensed consolidated financial statements.

GREAT WOLF RESORTS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited; dollars in thousands, except share and per share data)

		Three months ended								Nine months ended
		September 30,								September 30,
		2010				2009				2010				2009
Revenues:
Rooms		$	47,559			$	46,214			$	128,807			$	122,869
Food and beverage			12,498				11,877				35,571				33,084
Other			13,536				11,333				34,123				30,458
Management and other fees			916				626				2,111				1,617
Management and other fees — affiliates			900				1,202				2,880				3,636
			75,409				71,252				203,492				191,664
Other revenue from managed properties — affiliates			2,725				3,966				8,178				14,486
Other revenue from managed properties			2,984				1,609				8,555				1,609
Total revenues			81,118				76,827				220,225				207,759
Operating expenses by department:
Rooms			6,488				6,332				18,561				17,309
Food and beverage			9,005				9,226				26,271				25,506
Other			9,693				8,926				26,635				24,618
Other operating expenses:
Selling, general and administrative			16,560				14,911				49,788				46,542
Property operating costs			8,926				8,201				26,130				29,657
Depreciation and amortization			13,806				15,136				44,936				42,352
Loss on disposition of property			—				11				19				202
Asset impairment loss			—				24,000				—				24,000
			64,478				86,743				192,340				210,186
Other expenses from managed properties — affiliates			2,725				3,966				8,178				14,486
Other expenses from managed properties			2,984				1,609				8,555				1,609
Total operating expenses			70,187				92,318				209,073				226,281
Net operating income (loss)			10,931				(15,491	)			11,152				(18,522	)
Gain on sale of unconsolidated affiliates			—				(962	)			—				(962	)
Investment income — affiliates			(267	)			(310	)			(832	)			(1,030	)
Interest income			(59	)			(131	)			(492	)			(467	)
Interest expense			12,313				9,671				33,971				24,715
Loss before income taxes and equity in (income) loss of unconsolidated affiliates			(1,056	)			(23,759	)			(21,495	)			(40,778	)
Income tax expense			48				13,163				417				6,380
Equity in (income) loss of unconsolidated affiliates, net of tax			(46	)			1				(69	)			1,116
Net loss			(1,058	)			(36,923	)			(21,843	)			(48,274	)
Net loss attributable to noncontrolling interest, net of tax			(65	)			—				(25	)			—
Net loss attributable to Great Wolf Resorts, Inc.		$	(993	)		$	(36,923	)		$	(21,818	)		$	(48,274	)
Basic loss per common share		$	(0.03	)		$	(1.18	)		$	(0.70	)		$	(1.55	)
Diluted loss per common share		$	(0.03	)		$	(1.18	)		$	(0.70	)		$	(1.55	)
Weighted average common shares outstanding:
Basic			31,035,048				31,291,004				30,957,698				31,179,049
Diluted			31,035,048				31,291,004				30,957,698				31,179,049

See accompanying notes to the condensed consolidated financial statements.

GREAT WOLF RESORTS, INC. AND SUBSIDIARIES

		Nine months ended
		September 30,
		2010				2009
Operating activities:
Net loss		$	(21,843	)		$	(48,274	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization			44,936				42,352
Bad debt expense			205				642
Non-cash employee compensation and professional fees expense			1,606				829
Loss on disposition of property			19				202
Asset impairment loss			—				24,000
Gain on sale of unconsolidated affiliates			—				(962	)
Equity in (income) losses of unconsolidated affiliates			(68	)			965
Deferred tax expense (benefit)			(366	)			6,535
Changes in operating assets and liabilities:
Accounts receivable and other assets			(1,905	)			(7,711	)
Accounts payable, accrued expenses and other liabilities			9,929				(4,522	)
Net cash provided by operating activities			32,513				14,056
Investing activities:
Capital expenditures for property and equipment			(7,626	)			(48,206	)
Loan repayment from unconsolidated affiliates			1,225				8,833
Investment in affiliate			(8	)			—
Investment in unconsolidated affiliates			—				(303	)
Proceeds from sale of interest in unconsolidated affiliate			—				6,000
Investment in development			(498	)			978
Proceeds from sale of assets			15				66
Cash acquired in acquisition of Creative Kingdoms, LLC			324				—
(Increase) decrease in restricted cash			(487	)			161
Decrease (increase) in escrows			4,710				(1,866	)
Net cash used in investing activities			(2,345	)			(34,337	)
Financing activities:
Principal payments on long-term debt			(216,414	)			(5,151	)
Proceeds from issuance of long-term debt			219,337				51,051
Payment of loan costs			(10,901	)			(11,856	)
Net cash (used in) provided by financing activities			(7,978	)			34,044
Net increase in cash and cash equivalents			22,190				13,763
Cash and cash equivalents, beginning of period			20,913				14,231
Cash and cash equivalents, end of period		$	43,103			$	27,994
Supplemental Cash Flow Information:
Cash paid for interest, net of capitalized interest		$	22,508			$	24,254
Cash paid for income taxes, net of refunds		$	523			$	379
Non-cash items:
Construction in process accruals		$	—			$	15
Loan cost accruals		$	1,238			$	—
Conversion of note receivable and accrued interest to equity investment		$	9,963			$	—

See accompanying notes to the condensed consolidated financial statements.

GREAT WOLF RESORTS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION

     The terms “Great Wolf Resorts,” “us,” “we” and “our” are used in this report to refer to Great Wolf Resorts, Inc. and its consolidated subsidiaries.

Business Summary

     We are the largest owner, licensor, operator and developer in North America of drive-to, destination family resorts featuring indoor waterparks and other family-oriented entertainment activities based on the number of resorts in operation. Each of our resorts features approximately 300 to 600 family suites, each of which sleeps from six to ten people and includes a wet bar, microwave oven, refrigerator and dining and sitting area. We provide a full-service entertainment resort experience to our target customer base: families with children ranging in ages from 2 to 14 years old that live within a convenient driving distance of our resorts. We operate and license resorts under our Great Wolf Lodge^® and Blue Harbor Resort^tm brand names and have entered into licensing arrangements with third parties relating to the operation of resorts under the Great Wolf Lodge brand name. Our resorts are open year-round and provide a consistent, comfortable environment where our guest can enjoy our various amenities and activities.

     We provide our guests with a self-contained vacation experience and focus on capturing a significant portion of their total vacation spending. Our resorts earn revenues through the sale of rooms (which includes admission to our indoor waterpark), and other revenue-generating resort amenities. Each of our resorts features a combination of the following revenue-generating amenities: themed restaurants, ice cream shop and confectionery, full-service adult spa, kid spa, game arcade, gift shop, miniature golf, interactive game attraction, family tech center and meeting space. We also generate revenues from licensing arrangements, management fees and other fees with respect to our operation or development of properties owned in whole or in part by third parties.

     Each of our Great Wolf Lodge resorts has a Northwoods lodge theme, designed in a Northwoods cabin motif with exposed timber beams, a massive stone fireplace, Northwoods creatures, including mounted wolves, and an animated two-story Clock Tower that provides theatrical entertainment for younger guests. All of our guest suites are themed luxury suites, ranging in size from approximately 385 square feet to 1,970 square feet.

     The indoor waterparks in our Great Wolf Lodge resorts range in size from approximately 34,000 to 84,000 square feet and are decorated consistent with our resort motif. The focus of each Great Wolf Lodge waterpark is our signature 12-level treehouse waterfort, an interactive water experience for the entire family that features over 60 water effects and is capped by an oversized bucket that dumps between 700 to 1,000 gallons of water every five minutes. Our waterparks also feature a combination of high-speed body slides and inner tube waterslides, smaller slides for younger children, zero-depth water activity pools with geysers, a water curtain, fountains and tumble buckets, a lazy river, additional activity pools for basketball, open swimming and other water activities and large free form hot tubs, including hot tubs for adults only.

     On January 13, 2010, we announced that we had signed a non-binding letter of intent related to the proposed development of a Great Wolf Lodge resort adjacent to The Galleria at Pittsburgh Mills in Tarentum, Pennsylvania, outside of Pittsburgh. The resort will be developed by Zamias Services, Inc., a real estate developer and services provider. The proposed development is subject to the execution of definitive documentation. If we enter into definitive agreements with regard to this proposed development, it is expected that we will receive license fees for use of the Great Wolf Lodge brand name and other intellectual property at the proposed resort, and will receive management fees to operate the resort on behalf of Zamias as the owner. We will also advise on certain development-related matters. The proposed resort will be

owned by a joint venture and we expect to own a small ownership percentage in this joint venture. The Pittsburgh resort will be our fourth licensed and managed resort under our licensing-based business model.

     On June 7, 2010, we acquired a 62.4% equity interest in Creative Kingdoms, LLC in exchange for all of the $8.7 million principal balance, plus accrued interest of approximately $1.3 million, of convertible indebtedness owed to us by Creative Kingdoms. Creative Kingdoms is a developer of experiential gaming products including MagiQuest, an interactive game attraction available at nine of our resorts. Creative Kingdoms also licenses or has sold to other parties several stand-along MagiQuest facilities or similar attractions.

     On June 28, 2010, we announced that we have executed license and management agreements related to the development of a new 600-suite Great Wolf Lodge resort in Garden Grove, California’s world famous International West Resort. The new resort will be located less than two miles from Disneyland, near Anaheim and Los Angeles, and will be developed by McWhinney, a diversified real estate company. We will receive license fees for use of the Great Wolf Lodge brand name and other intellectual property at the resort, and will receive management fees to operate the resort on behalf of the owner. The resort will be owned by a joint-venture, with Great Wolf Resorts receiving a minority equity interest for its development-related services. Additionally, the City of Garden Grove will contribute cash and bond proceeds to the resort, as well as establish a financing district to develop an adjacent parking structure.

     On July 14, 2010, we announced the opening of the first Scooops Kid Spa outside of a Great Wolf Resorts property. The first freestanding Scooops Kid Spa opened in August 2010 at Mall of America, a popular retail destination and entertainment complex in Bloomington, Minnesota. As the nation’s largest retail and entertainment complex, Mall of America welcomes more than 40 million visitors each year.

     The following table presents an overview of our portfolio of resorts. As of September 30, 2010, we operated, managed and/or have entered into licensing arrangements relating to the operation of 11 Great Wolf Lodge resorts (our signature Northwoods-themed resorts) and one Blue Harbor Resort (a nautical-themed property). We anticipate that most of our future resorts will be licensed and/or developed under our Great Wolf Lodge brand, but we may operate and/or enter into licensing arrangements with regard to additional nautical-themed resorts under our Blue Harbor Resort brand or other resorts in appropriate markets.

												Indoor
		Ownership						Number of		Number of		Entertainment
		Percentage				Opened		Guest Suites		Condo Units (1)		Area (2)
												(approx. sq. ft.)
Wisconsin Dells, WI (3)			—			1997		308		77			102,000
Sandusky, OH (3)			—			2001		271		—			41,000
Traverse City, MI			100	%		2003		280		—			57,000
Kansas City, KS			100	%		2003		281		—			57,000
Sheboygan, WI			100	%		2004		182		64			54,000
Williamsburg, VA (4)			100	%		2005		405		—			87,000
Pocono Mountains, PA (4)			100	%		2005		401		—			101,000
Niagara Falls, ONT (5)			—			2006		406		—			104,000
Mason, OH (4)			100	%		2006		401		—			105,000
Grapevine, TX (4)			100	%		2007		605		—			110,000
Grand Mound, WA (6)			49	%		2008		398		—			74,000
Concord, NC (4)			100	%		2009		402		—			97,000

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     General — We have prepared these unaudited condensed consolidated interim financial statements according to the rules and regulations of the Securities and Exchange Commission (SEC). Accordingly, we have omitted certain information and footnote disclosures that are normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States (GAAP). The December 31, 2009 consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP. These interim financial statements should be read in conjunction with the financial statements, accompanying notes and other information included in our Annual Report on Form 10-K for the year ended December 31, 2009.

     The accompanying unaudited condensed consolidated interim financial statements reflect all adjustments, which are of a normal and recurring nature, necessary for a fair presentation of the financial condition and results of operations and cash flows for the periods presented. The preparation of financial statements in accordance with GAAP requires us to make estimates and assumptions. Such estimates and assumptions affect the reported amounts of assets and liabilities, as well as the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Our actual results could differ from those estimates. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the entire year.

     Principles of Consolidation — Our condensed consolidated financial statements include our accounts and the accounts of our majority-owned and controlled subsidiaries. As part of our consolidation process, we eliminate all significant intercompany balances and transactions.

     Acquisition Accounting — We follow acquisition accounting for all acquisitions that meet the business combination definition. Acquisition accounting requires us to measure the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest at the acquisition-date fair value. While we use our best estimates and assumptions as a part of the purchase price allocation process to accurately value assets acquired and liabilities assumed at the acquisition date, our estimates are inherently uncertain and subject to refinement. As a result, during the measurement period, which may be up to one year from the acquisition date, we record adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are record to our consolidated statements of operations.

     Goodwill — Goodwill is measured at an acquisition date as the excess of (a) the consideration transferred and the fair value of any noncontrolling interest in the acquiree over (b) the net of the acquisition date fair values of the assets

acquired and the liabilities assumed. We are required to assess goodwill for impairment annually, or more frequently if circumstances indicate impairment may have occurred. We assess goodwill for such impairment by comparing the carrying value of our reporting units to their fair values. We determine our reporting units’ fair values using a discounted cash flow model.

     In connection with the acquisition of the majority interest in CK we have recorded $2,276 of goodwill that is included within Intangible Assets on our condensed consolidated balance sheet.

		September 30,				December 31,
		2010				2009
Goodwill		$	2,276				130,496
Accumulated impairment losses			—				(68,405	)
Goodwill related to sale of affiliate			—				(62,091	)
		$	2,276			$	—

     Noncontrolling Interests — We record the non-owned equity interests of our consolidated subsidiaries as a separate component of our consolidated equity on our condensed consolidated balance sheet. The net earnings attributable to the controlling and noncontrolling interests are included on the face of our statements of operations. Due to our acquisition of CK in June 2010 we have a consolidated subsidiary with a noncontrolling interest as of September 30, 2010.

     Income Taxes — At the end of each interim reporting period, we estimate the effective tax rate expected to be applicable for the full fiscal year. The rate determined is used in providing for income taxes on a year-to-date basis.

     Segments — We are organized into a single operating division. Within that operating division, we have two reportable segments:

	•		Resort ownership/operation-revenues derived from our consolidated owned resorts; and
	•		Resort third-party management/licensing-revenues derived from management, license and other related fees from unconsolidated resorts.

The following summarizes significant financial information regarding our segments:

														Totals per
		Resort Ownership/				Resort Third-Party								Financial
		Operation				Management/License				Other				Statements
Three months ended September 30, 2010
Revenues		$	71,147			$	7,525			$	2,446			$	81,118
Depreciation and amortization			(12,726	)			—				(1,080	)			(13,806	)
Net operating income (loss)			9,531				1,816				(416	)			10,931
Investment income — affiliates			—				—				—				(267	)
Interest income			—				—				—				(59	)
Interest expense			—				—				—				12,313
Loss before income taxes and equity in (income) loss of unconsolidated affiliates			—				—				—			$	(1,056	)
Additions to long-lived assets			911				—				486			$	1,397

														Totals per
		Resort Ownership/				Resort Third-Party								Financial
		Operation				Management/License				Other				Statements
Nine months ended September 30, 2010
Revenues		$	195,188			$	21,724			$	3,313			$	220,225
Depreciation and amortization			(42,997	)			—				(1,939	)			(44,936	)
Net operating income (loss)			8,822				4,991				(2,661	)			11,152
Investment income — affiliates			—				—				—				(832	)
Interest income			—				—				—				(492	)
Interest expense			—				—				—				33,971
Loss before income taxes and equity in (income) loss of unconsolidated affiliates			—				—				—			$	(21,495	)
Additions to long-lived assets			6,701				—				925			$	7,626
Total assets			676,400				1,863				125,089			$	803,352

														Totals per
		Resort Ownership/				Resort Third-Party								Financial
		Operation				Management/License				Other				Statements
Three months ended September 30, 2009
Revenues		$	69,424			$	7,403			$	—			$	76,827
Depreciation and amortization			(14,932	)			—				(204	)			(15,136	)
Asset impairment loss			(24,000	)			—				—				(24,000	)
Net operating (loss) income			(17,757	)			1,828				438				(15,491	)
Gain on sale of unconsolidated affiliates			—				—				(962	)			(962	)
Investment income — affiliates			—				—				—				(310	)
Interest income															(131	)
Interest expense			—				—				—				9,671
Loss before income taxes and equity in (income) loss of unconsolidated affiliates			—				—				—			$	(23,759	)
Additions to long-lived assets			2,215				—				145			$	2,360

														Totals per
		Resort Ownership/				Resort Third-Party								Financial
		Operation				Management/License				Other				Statements
Nine months ended September 30, 2009
Revenues		$	186,411			$	21,348			$	—			$	207,759
Depreciation and amortization			(41,776	)			—				(576	)			(42,352	)
Asset impairment loss			(24,000	)			—				—				(24,000	)
Net operating (loss) income			(21,416	)			5,253				(2,359	)			(18,522	)
Gain on sale of unconsolidated affiliates			—				—				(962	)			(962	)
Investment income — affiliates															(1,030	)
Interest income			—				—				—				(467	)
Interest expense			—				—				—				24,715
Loss before income taxes and equity in (income) loss of unconsolidated affiliates			—				—				—			$	(40,778	)
Additions to long-lived assets			47,834				—				372			$	48,206
Total assets (as of December 31, 2009)			707,472				2,942				95,330			$	805,744

     The Other column in the table includes items that do not constitute a reportable segment and represent corporate-level activities and the activities of other operations not included in the Resort Ownership/Operation or Resort Third-Party Management/License segments. Total assets at the corporate level primarily consist of cash, our investment in affiliates, and intangibles.

     Recent Accounting Pronouncements —In June 2009, the FASB issued guidance which changes how a reporting entity determines when an entity that is insufficiently capitalized or is not controlled through voting (or similar rights) should be consolidated. The determination of whether a reporting entity is required to consolidate another entity is based on, among other things, the other entity’s purpose and design and the reporting entity’s ability to direct the activities of the other entity that most significantly impact the other entity’s economic performance. The guidance requires a reporting entity to provide additional disclosures about its involvement with variable interest entities and any significant changes in risk exposure due to that involvement. A reporting entity will be required to disclose how its involvement with a variable interest entity affects the reporting entity’s financial statements. The adoption of this guidance is effective for fiscal years beginning after November 15, 2009, and interim periods within those fiscal years. We adopted this guidance on January 1, 2010. The adoption of this guidance did not have a material impact on our condensed consolidated financial statements.

     In October 2009, the FASB issued guidance for revenue recognition with multiple deliverables. This guidance eliminates the residual method under the current guidance and replaces it with the “relative selling price” method when allocating revenue in a multiple deliverable arrangement. The selling price for each deliverable shall be determined using vendor specific objective evidence of selling price, if it exists, otherwise third-party evidence of selling price shall be used. If neither exists for a deliverable, the vendor shall use its best estimate of the selling price for that deliverable. After adoption, this guidance will also require expanded qualitative and quantitative disclosures. The guidance is effective for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010, although early adoption is permitted. We do not expect the adoption of this guidance to have a material impact on our condensed consolidated financial statements.

     In January 2010, the FASB issued updated guidance related to fair value measurement and disclosures, which requires a reporting entity to disclose separately the amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements and to describe the reasons for the transfers. The updated guidance also requires that an entity should provide fair value measurement disclosures for each class of assets and liabilities and disclosures about the valuation techniques and inputs used to measure fair value for both recurring and non-recurring fair value measurements for Level 2 and Level 3 fair value measurements. This updated guidance became effective for interim or annual financial reporting

periods beginning after December 15, 2009. We adopted this guidance on January 1, 2010. The adoption of this guidance did not have a material impact on our condensed consolidated financial statements.

3. INVESTMENT IN AFFILIATES

   CNL Joint Venture

     On August 6, 2009, we sold our 30.26% joint venture interest to CNL for $6,000. We recognized a $962 gain on this sale.

     Summary financial data for this joint venture for periods where we still maintained an ownership interest is as follows:

		Period July 1 through				Period January 1 through
		August 5,				August 5,
		2009				2009
Operating data:
Revenue		$	5,100			$	19,750
Operating expenses		$	(4,383	)		$	(24,213	)
Net income (loss)		$	717			$	(4,463	)

   Grand Mound Joint Venture

     Our joint venture with The Confederated Tribes of the Chehalis Reservation owns the Great Wolf Lodge resort and conference center on a 39-acre land parcel in Grand Mound, Washington. This resort opened in March 2008. This joint venture is a limited liability company. We are a member of that limited liability company with a 49% ownership interest. At September 30, 2010, the joint venture had aggregate outstanding indebtedness to third parties of $98,934. As of September 30, 2010, we have made combined loan and equity contributions, net of loan repayments, of $28,475 to the joint venture to fund a portion of construction costs of the resorts.

     Summary financial data for this joint venture is as follows:

		September 30,				December 31,
		2010				2009
Balance sheet data:
Total assets		$	142,919			$	145,247
Total liabilities		$	111,507			$	114,129

		Three months ended								Nine months ended
		September 30,								September 30,
Operating data:		2010				2009				2010				2009
Revenue		$	10,531			$	11,170			$	32,307			$	31,303
Operating expenses		$	(9,120	)		$	(9,165	)		$	(28,186	)		$	(26,467	)
Net income		$	146			$	634			$	295			$	448

     We have a receivable from the joint venture of $3,302 and $2,614 that relates primarily to accrued preferred equity returns as of September 30, 2010 and December 31, 2009, respectively.

4. VARIABLE INTEREST ENTITIES

          In accordance with the guidance for the consolidation of variable interest entities, we analyze our variable interests, including equity investments and management agreements, to determine if an entity in which we have a variable interest, is a variable interest entity. Our analysis includes both quantitative and qualitative reviews. We base our quantitative analysis on the forecasted cash flows of the entity, and our qualitative analysis on our review of the design of the entity, its organization structure including decision-making ability, and relevant financial agreements. We also use our qualitative analyses to determine if we must consolidate a variable interest entity as the primary beneficiary.

          The following summarizes our analyses of entities in which we have a variable interest and that we have concluded are variable interest entities:

	•		We have equity investments in and a loan to the joint venture that owns the Great Wolf Lodge resort Grand Mound, Washington. We manage that resort and we have concluded that the joint venture is a variable interest entity because the management fees we receive represent a variable interest. The management contract, however, does not provide us with power over the activities that most significantly impact the economic performance of the joint venture. As we lack the ability to direct the activities that most significantly affect the resorts’ performance, we are not the primary beneficiary of the joint venture and, therefore, we do not consolidate this entity at September 30, 2010. During the three and nine months ended September 30, 2010 and 2009, we did not provide any support to this entity that we were not contractually obligated to do so. Our maximum exposure to loss related to our involvement with this entity as of September 30, 2010 is limited to the carrying value of our equity investments in and loans to the joint venture as of that date. The total carrying values of those items on our balance sheet as of September 30, 2010 is $26,328.
	•		We have equity investments in two subsidiaries which are Delaware statutory trusts, both of which were used to issue trust preferred securities through private offerings. We have concluded that both of these trusts are variable interest entities. As we lack the ability to direct the activities that most significantly impact the trusts’ performance, however, we are not the primary beneficiary and therefore, we do not consolidate these entities at September 30, 2010. During the three and nine months ended September 30, 2010 and 2009, we did not provide any support to these entities that we were not contractually obligated to do so. Our maximum exposure to loss related to our involvement with these entities as of September 30, 2010 is limited to the carrying value of our equity investments in the entities as of that date. The total carrying values of those items on our balance sheet as of September 30, 2010 is $2,420.

5. ACQUISTION OF CREATIVE KINGDOMS

     On June 7, 2010, we acquired a 62.4% equity interest in Creative Kingdoms (CK) in exchange for all of the $8,700 principal balance, plus accrued interest of $1,263, of convertible indebtedness owed to us by CK. CK is a developer of experiential gaming products including MagiQuest^®, an interactive game attraction available at nine of our resorts. CK also owns or has sold to other parties several stand-alone MagiQuest facilities or similar attractions.

     We have consolidated CK as we have a majority ownership interest in CK. We accounted for this business combination using the acquisition method of accounting, which requires us to measure the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest at the acquisition-date fair value. We have recorded the identifiable assets acquired, the liabilities assumed and the noncontrolling interest at amounts that approximate fair value. We have recorded $2,276 of goodwill, which represents the excess of (a) the consideration transferred and the fair value of any noncontrolling interest in the acquiree over (b) the net of the acquisition date fair values of the assets acquired and the liabilities assumed.

6. SHARE-BASED COMPENSATION

     We recognized share-based compensation expense of $545 and $1,606, net of estimated forfeitures, for the three months and nine months ended September 30, 2010, respectively. The total income tax expense recognized related to share-based compensation was $10 and $31 for the three and nine months ended September 30, 2010, respectively.

     We recognized share-based compensation expense of $360 and $828, net of estimated forfeitures, for the three and nine months ended September 30, 2009, respectively. The total income tax expense recognized related to share-based compensation was $56 and $129 for the three and nine months ended September 30, 2009, respectively.

     We recognize compensation expense on grants of share-based compensation awards on a straight-line basis over the requisite service period of each award recipient. As of September 30, 2010, total unrecognized compensation cost related to share-based compensation awards was $3,158, which we expect to recognize over a weighted average period of approximately 3.1 years.

     The Great Wolf Resorts 2004 Incentive Stock Plan (the Plan) authorizes us to grant up to 3,380,740 options, stock appreciation rights or shares of our common stock to employees and directors. At September 30, 2010, there were 115,872 shares available for future grants under the Plan.

     We anticipate having to issue new shares of our common stock for stock option exercises.

Stock Options

     We have granted non-qualified stock options to purchase our common stock under the Plan at prices equal to the fair market value of the common stock on the grant dates. The exercise price for options granted under the plans may be paid in cash, shares of common stock or a combination of cash and shares. Stock options expire ten years from the grant date and vest ratably over three years.

     We recorded stock option expense of $8 and $22 for the three and nine months ended September 30, 2009, respectively. We recorded no stock option expense for the three and nine months ended September 30, 2010. We have not granted any stock options in 2010 or 2009.

     A summary of stock option activity during the nine months ended September 30, 2010 is:

Weighted

Weighted

Average

Average

Remaining

Exercise

Contractual

Shares

Price

Life

Number of shares under option:

Outstanding at beginning of period

441,000

$

17.53

4.34 years

Exercised

—

Forfeited

—

Outstanding at end of period

441,000

$

17.53

4.34 years

Exercisable at end of period

441,000

$

17.53

4.34 years

     Our outstanding or exercisable stock options had no intrinsic value at September 30, 2010 or 2009.

Market Condition Share Awards

     Certain employees are eligible to receive shares of our common stock in payment of market condition share awards granted to them in accordance with the terms thereof.

     We granted 515,986 and 541,863 market condition share awards during the nine months ended September 30, 2010 and 2009, respectively. We recorded share-based compensation expense of $159 and $546 for the three and nine months ended September 30, 2010, respectively. We recorded share-based compensation expense of $82 and $285 for the three and nine months ended September 30, 2009, respectively.

     Of the 2010 market condition shares granted:

•

333,060 were based on our common stock’s performance in 2010 relative to a stock index, as designated by the Compensation Committee of the Board of Directors. These shares vest ratably over a three-year period, 2010-2012. The per share fair value of these market condition shares was $2.43 as of the grant date.

          The fair value of these market condition shares was determined using a Monte Carlo simulation and the following assumptions:

Dividend yield			—
Weighted average, risk free interest rate			0.26	%
Expected stock price volatility			108.06	%
Expected stock price volatility (small-cap stock index)			40.92	%

     We used an expected dividend yield of 0%, as we do not currently pay a dividend and do not contemplate paying a dividend in the foreseeable future. The weighted average, risk free interest rate was based on the 9-month treasury constant maturity. Our expected stock price volatility was estimated using daily returns data of our stock for a two-year period ending on the grant date. The expected stock price volatility for the small cap stock index was estimated using daily returns data for a two-year period ending on the grant date.

•

91,463 were based on our common stock’s absolute performance during the three-year period 2010-2012. For shares that are earned, half of the shares vest on December 31, 2012, and the other half vest on December 31, 2013. The per share fair value of these market condition shares was $2.53 as of the grant date.

     The fair value of these market condition shares was determined using a Monte Carlo simulation and the following assumptions:

Dividend yield			—
Weighted average, risk free interest rate			1.27	%
Expected stock price volatility			95.21	%

     We used an expected dividend yield of 0%, as we do not currently pay a dividend and do not contemplate paying a dividend in the foreseeable future. The weighted average, risk free interest rate was based on the 2.75-year treasury constant maturity. Our expected stock price volatility was estimated using daily returns data of our stock for the period June 29, 2007 through March 30, 2010.

•

91,463 were based on our common stock’s performance in 2010-2012 relative to a stock index, as designated by the Compensation Committee of the Board of Directors. For shares that are earned, half of the shares vest on December 31, 2012, and the other half vest on December 31, 2013. The per share fair value of these market condition shares was $2.61 as of the grant date.

     The fair value of these market condition shares was determined using a Monte Carlo simulation and the following assumptions:

Dividend yield			—
Weighted average, risk free interest rate			1.27	%
Expected stock price volatility			95.21	%
Expected stock price volatility (small-cap stock index)			37.51	%

     We used an expected dividend yield of 0%, as we do not currently pay a dividend and do not contemplate paying a dividend in the foreseeable future. The weighted average, risk free interest rate was based on the 2.75-year treasury constant maturity. Our expected stock price volatility and the expected stock price volatility for the small cap stock index was estimated using daily returns data of our stock for the period June 29, 2007 through March 30, 2010.

Of the 2009 market condition shares granted:

•

541,863 were based on our common stock’s performance in 2009 relative to a stock index, as designated by the Compensation Committee of the Board of Directors. These shares vest ratably over a three-year period, 2009-2011. The per share fair value of these market condition shares was $1.26 as of the grant date.

     The fair value of these market condition shares was determined using a Monte Carlo simulation and the following assumptions:

Dividend yield			—
Weighted average, risk free interest rate			0.62	%
Expected stock price volatility			96.51	%
Expected stock price volatility (small-cap stock index)			37.89	%

     We used an expected dividend yield of 0%, as we do not currently pay a dividend and do not contemplate paying a dividend in the foreseeable future. The weighted average, risk free interest rate was based on the one-year T-bill rate. Our expected stock price volatility was estimated using daily returns data of our stock for a two-year period ending on the grant date. The expected stock price volatility for the small cap stock index was estimated using daily returns data for a two-year period ending on the grant date.

     Based on our common stock performance in 2009, employees earned all of these market condition shares.

     Of the 2007 market condition shares awards granted:

•

81,293 are based on our common stock’s absolute performance during the three-year period 2007-2009. Half of these shares vested on December 31, 2009, and the other half vest on December 31, 2010. The per share fair value of these market condition shares was $6.65.

     The fair value of these market condition shares was determined using a Monte Carlo simulation and the following assumptions:

Dividend yield			—
Weighted average, risk free interest rate			4.73	%
Expected stock price volatility			42.13	%

     We used an expected dividend yield of 0%, as we do not currently pay a dividend and do not contemplate paying a dividend in the foreseeable future. The weighted average, risk free interest rate is based on the four-year T-bill rate. Our expected stock price volatility was estimated using daily returns data of our stock for a two-year period ending on the grant date. Due to the resignation of two senior officers in 2008, 58,628 shares were forfeited.

     In March 2010, our Compensation Committee of the board of directors determined that based on our common stock performance during the three year period 2007-2009, employees did not earn any of these market condition shares. Therefore, the remaining unamortized expense related to these shares of $19 was expensed in the nine months ended September 30, 2010.

•

81,293 were based on our common stock’s performance in 2007-2009 relative to a stock index, as designated by the Compensation Committee of the Board of directors. Half of these shares vested December 31, 2009, and the other half vest on December 31, 2010. The per share fair value of these market condition shares was $8.24.

     The fair value of these market condition shares was determined using a Monte Carlo simulation and the following assumptions:

Dividend yield			—
Weighted average, risk free interest rate			4.73	%
Expected stock price volatility			42.13	%
Expected stock price volatility (small-cap stock index)			16.64	%

     We used an expected dividend yield of 0%, as we do not currently pay a dividend and do not contemplate paying a dividend in the foreseeable future. The weighted average, risk free interest rate is based on the four-year T-bill rate. Our expected stock price volatility was estimated using daily returns data of our stock for a two-year period ending on the grant date. The expected stock price volatility for the small cap stock index was estimated using daily returns data for a two-year period ending on the grant date. Due to the resignation of two senior officers in 2008, 58,628 shares were forfeited.

     In March 2010, our Compensation Committee of the board of directors determined that based on our common stock performance during the three year period 2007-2009, employees did not earn any of these market condition shares. Therefore, the remaining unamortized expense related to these shares of $23 was expensed in the nine months ended September 30, 2010.

Performance Share Awards

     Certain employees are eligible to receive shares of our common stock in payment of performance share awards granted to them. Grantees of performance shares are eligible to receive shares of our common stock based on the achievement of certain individual and departmental performance criteria during the calendar year in which the shares were granted. We granted 111,020 and 180,622 performance shares during the nine months ended September 30, 2010 and 2009, respectively. Shares granted in 2010 vest over a three year period, 2010-2012; and shares granted in 2009 vest over a three year period, 2009-2011.

     The per share fair value of performance shares granted during the nine months ended September 30, 2010 and 2009 was $3.18 and $1.54, respectively, which represents the fair value of our common stock on the grant date. We recorded share-based compensation expense of $61 and $183 for the three and nine months ended September 30, 2010, respectively. We recorded share-based compensation expense of $46 and $138 for the three and nine months ended September 30, 2009, respectively. Since all shares originally granted were not earned, we recorded a reduction in expense of $9 and $2 during the nine months ended September 30, 2010 and 2009, respectively.

     Based on their achievement of certain individual and departmental performance goals:

	•		Employees earned and were issued 162,559 performance shares in March 2010 related to 2009 grants and
	•		Employees earned and were issued 18,084 performance shares in February 2009 related to the 2008 grants.

Deferred Compensation Awards

     Pursuant to their employment arrangements, certain executives received bonuses upon completion of our initial public offering. Executives receiving bonus payments totaling $2,200 elected to defer those payments pursuant to our deferred compensation plan. To satisfy this obligation, we contributed 129,412 shares of our common stock to the trust that holds the assets to pay obligations under our deferred compensation plan. The fair value of that stock at the date of contribution was $2,200. We have recorded the fair value of the shares of common stock, at the date the shares were contributed to the

trust, as a reduction of our stockholders’ equity. We account for the change in fair value of the shares held in the trust as a charge to compensation cost. We recorded negative share-based compensation expense of $2 and $5, for the three and nine months ended September 30, 2010, respectively. We recorded share-based compensation expense of $18 and $(334), for the three and nine months ended September 30, 2009, respectively.

     In 2008, one of the executives who had deferred a bonus payment as discussed above resigned from our company. As a result, we have reclassified $2,000 previously recorded as deferred compensation to additional paid-in-capital.

Non-vested Shares

     We have granted non-vested shares to certain employees and our directors. Shares vest over time periods between three and five years. We valued the non-vested shares at the closing market value of our common stock on the date of grant.

     A summary of non-vested shares activity for the nine months ended September 30, 2010 is as follows:

						Weighted
						Average
						Grant Date
		Shares				Fair Value
Non-vested shares balance at beginning of period			483,468			$	5.13
Granted			1,306,653			$	2.10
Forfeited			(11,400	)		$	4.47
Vested			(366,952	)		$	2.98
Non-vested shares balance at end of period			1,411,769			$	2.73

     We recorded share-based compensation expense of $290 and $833 for the three and nine months ended September 30, 2010, respectively, related to these shares. We recorded share-based compensation expense of $186 and $645 for the three and nine months ended September 30, 2009, respectively, related to these shares.

     Our non-vested shares had an intrinsic value of $268 and $280 at September 30, 2010 and 2009, respectively.

Vested Shares

     We have an annual short-term incentive plan for certain employees, in which they are provided the potential to earn cash bonus payments. In 2008 and 2009, certain of these employees had the option to elect to have some or all of their annual bonus compensation paid in the form of shares of our common stock rather than cash. Employees making this election received shares having a market value equal to 125% of the cash they would otherwise receive. Shares issued in lieu of cash bonus payments are fully vested upon issuance.

	•		In connection with the elections related to 2008 bonus amounts, we issued 17,532 shares in February 2009. We valued these shares at $32 based on the closing market value of our common stock on the date of the grant.
	•		There were no shares issued in the nine months ended September 30, 2010 related to 2009 bonus amounts.

     In 2010 and 2009, our directors had the option to elect to have some or the entire cash portion of their annual fees paid in the form of shares of our common stock rather than cash. Directors making this election received shares having a market value equal to 125% of the cash they would otherwise receive. Shares issued in lieu of cash fee payments are fully vested upon issuance. We recorded non-cash professional fees expense of $38 and $58 for the three and nine months ended September 30, 2010, respectively, related to these elections to receive shares in lieu of cash. We issued 19,119 and 26,693 shares in the three and nine months ended September 30, 2010, respectively. We recorded non-cash professional fees expense of $20 and $74 for the three and nine months ended September 30, 2009, respectively, related to these

elections to receive shares in lieu of cash. We issued 9,061 and 31,347 shares in the three and nine months ended September 30, 2009, respectively.

7. PROPERTY AND EQUIPMENT

Property and equipment consist of the following:

		September 30,				December
		2010				31, 2009
Land and improvements		$	60,718			$	60,718
Building and improvements			430,669				427,602
Furniture, fixtures and equipment			359,950				341,529
Construction in process			176				327
			851,513				830,176
Less accumulated depreciation			(197,545	)			(153,771	)
Property and equipment, net		$	653,968			$	676,405

Depreciation expense was $12,633 and $37,141 for the three months and nine months ended September 30, 2010, respectively. Depreciation expense was $13,001 and $37,481 for the three and nine months ended September 30, 2009, respectively.

8. LONG-TERM DEBT

     Long-term debt consists of the following:

		September 30,				December 31,
		2010				2009
Long-Term Debt:
Traverse City/Kansas City mortgage loan		$	67,633			$	68,773
Mason mortgage loan			—				73,800
Pocono Mountains mortgage loan			94,583				95,458
Williamsburg mortgage loan			—				63,125
Grapevine mortgage loan			—				77,909
Concord mortgage loan			78,464				78,549
First mortgage notes (net of discount of $9,961)			220,039				—
Junior subordinated notes			80,545				80,545
Other Debt:
City of Sheboygan bonds			8,564				8,544
City of Sheboygan loan			3,113				3,290
Other			55				78
			552,996				550,071
Less current portion of long-term debt			(70,450	)			(16,126	)
Total long-term debt		$	482,546			$	533,945

     Traverse City/Kansas City Mortgage Loan — This non-recourse loan is secured by our Traverse City and Kansas City resorts. The loan bears interest at a fixed rate of 6.96%, is subject to a 25-year principal amortization schedule, and matures in January 2015. The loan has customary financial and operating debt compliance covenants. The loan also has customary restrictions on our ability to prepay the loan prior to maturity. We were in compliance with all covenants under this loan at September 30, 2010.

     While recourse under the loan is limited to the property owner’s interest in the mortgaged property, we have provided limited guarantees with respect to certain customary non-recourse provisions and environmental indemnities relating to the loan.

          The loan also contains limitations on our ability, without lender’s consent, to (i) make payments to our affiliates if a default exists; (ii) enter into transactions with our affiliates; (iii) make loans or advances; or (iv) assume, guarantee or become liable in connection with any other obligations.

     The loan requires us to maintain a minimum debt service coverage ratio (DSCR) of 1.35, calculated on a quarterly basis. This ratio is defined as the two collateral properties’ combined trailing twelve-month net operating income divided by the greater of (i) the loan’s twelve-month debt service requirements and (ii) 8.5% of the amount of the outstanding principal indebtedness under the loan. Failure to meet the minimum DSCR is not an event of default and does not accelerate the due date of the loan. Not meeting the minimum DSCR, however, subjects the two properties to a lock-box cash management arrangement, at the discretion of the loan’s servicer. The loan also contains a similar lock-box requirement if we open any Great Wolf Lodge or Blue Harbor Resort within 100 miles of either resort, and the two collateral properties’ combined trailing twelve-month net operating income is not at least equal to 1.8 times 8.5% of the amount of the outstanding principal indebtedness under the loan

     For the twelve-month period ended September 30, 2010, the DSCR for this loan was 0.84. In September 2010 the loan’s master servicer implemented the lock-box cash management arrangement. That lock-box cash management arrangement currently requires substantially all cash receipts for the two resorts to be moved each day to a lender-controlled bank account, which the loan servicer then uses monthly to fund debt service and operating expenses for the two resorts, with excess cash flow being deposited in a reserve account and held as additional collateral for the loan. We believe that this arrangement currently constitutes a traditional lock-box arrangement as discussed in authoritative accounting guidance. Based on that guidance, since the loan’s master servicer has now established the traditional lock-box arrangement currently permitted under the loan, we have classified the entire outstanding principal balance of the loan as a current liability as of September 30, 2010, since the lock-box arrangement requires us to use the properties’ working capital to service the loan, and we do not presently have the ability to refinance this loan to a new, long-term loan.

     At our request, in October 2010 the loan was transferred to its special servicer. The DSCR for this loan has been below 1.00 on a trailing twelve-month basis since second quarter 2007. We have informed the special servicer that, given the current and expected performance of the two properties securing this loan, we may elect to cease the subsidization of debt service on this non-recourse loan. If we were to elect to cease the subsidization of debt service, that would likely result in a default under the loan agreement. We believe the combined market value of the two properties securing this loan is now significantly less than the principal amount of the loan. We are working with the loan’s special servicer to discuss a potential modification of this loan, but we cannot provide any assurance that we will achieve such a result. Absent a satisfactory modification of this loan, we expect to choose among several possible courses of action, including electing to continue the subsidization of debt service on this loan, attempting to refinance the existing loan (which we believe would result in materially lower proceeds than the current loan balance, thus requiring a significant paydown on the existing loan balance), or surrendering the two properties to the lender or a lender-appointed receiver. The properties had a combined net book value of $66,552 as of September 30, 2010, and the amount of debt outstanding under the mortgage was $67,633 as of that date.

     Mason Mortgage Loan — This loan was secured by our Mason resort. In April 2010, we used a portion of the proceeds from the issuance of new first mortgage notes to repay this loan in its entirety.

     Pocono Mountains Mortgage Loan — This loan is secured by a mortgage on our Pocono Mountains resort. The loan bears interest at a fixed rate of 6.10% and matures in January 2017. The loan is currently subject to a 30-year principal amortization schedule. The loan has customary covenants associated with an individual mortgaged property. The loan also has customary restrictions on our ability to prepay the loan prior to maturity. We were in compliance with all covenants under this loan at September 30, 2010.

     The loan requires us to maintain a minimum DSCR of 1.25, calculated on a quarterly basis. Subject to certain exceptions, the DSCR is increased to 1.35 if we open up a waterpark resort within 75 miles of the property or incur mezzanine debt secured by the resort. This ratio is defined as the property’s combined trailing twelve-month net operating

income divided by the greater of (i) the loan’s twelve-month debt service requirements and (ii) 7.25% of the amount of the outstanding principal indebtedness under the loan. Failure to meet the minimum DSCR is not an event of default and does not accelerate the due date of the loan. Not meeting the minimum DSCR, however, subjects the property to a lock-box cash management arrangement, at the discretion of the loan’s servicer. We believe that lock-box arrangement would require substantially all cash receipts for the resort to be moved each day to a lender-controlled bank account, which the loan servicer would then use to fund debt service and operating expenses for the resort, with excess cash flow being deposited in a reserve account and held as additional collateral for the loan. While recourse under the loan is limited to the property owner’s interest in the mortgage property, we have provided limited guarantees with respect to certain customary non-recourse provisions and environmental indemnities relating to the loan.

     The loan also contains limitations on our ability, without lender’s consent, to (i) make payments to our affiliates if a default exists; (ii) enter into transactions with our affiliates; (iii) make loans or advances; or (iv) assume, guarantee or become liable in connection with any other obligations.

     Williamsburg Mortgage Loan — This loan was secured by our Williamsburg resort. In April 2010, we used a portion of the proceeds from the issuance of new first mortgage notes to repay this loan in its entirety.

     Grapevine Mortgage Loan — This loan was secured by our Grapevine resort. In April 2010, we used a portion of the proceeds from the issuance of new first mortgage notes to repay this loan in its entirety.

     Concord Mortgage Loan — This loan is secured by our Concord resort. The loan bears interest at a floating annual rate of LIBOR plus a spread of 310 basis points, with a minimum rate of 6.50% per annum (effective rate of 6.50% as of September 30, 2010). This loan matures in April 2012 and requires interest only payments until the one-year anniversary of the conversion date of the property and then requires monthly principal payments based on a 25-year amortization schedule. However, if the resort owner’s net income available to pay debt service on this loan for four consecutive quarters is less than $10,000, or if maximum principal amount of the loan exceeds 75% of the fair market value of the property, then we are required to post cash collateral or partially repay the loan in an amount sufficient to remedy such deficiency. This loan has customary financial and operating debt compliance covenants associated with an individual mortgaged property, including a minimum consolidated tangible net worth provision. We were in compliance with all covenants under this loan at September 30, 2010.

     Great Wolf Resorts has provided a $78,464 payment guarantee of the Concord mortgage loan and a customary environmental indemnity.

     The loan also contains restrictions on our ability to make loans or capital contributions or any other investments in affiliates.

     First Mortgage Notes — In April 2010, we completed a private placement of $230,000 in aggregate principal amount of our 10.875% first mortgage notes (the Notes) due April 2017. The Notes were sold at a discount that provides an effective yield of 11.875% before transaction costs. We are amortizing the discount over the life of the Notes using the straight-line method, which approximates the effective interest method. The proceeds of the Notes were used to retire the outstanding mortgage debt on our Mason, Williamsburg, and Grapevine properties and for general corporate purposes.

     The Notes are senior obligations of GWR Operating Partnership, LLLP and Great Wolf Finance Corp (“Issuers”). The Notes are guaranteed by Great Wolf Resorts, Inc. and by our subsidiaries that own three of our resorts and those guarantees are secured by first priority mortgages on those three resorts. The Notes are also guaranteed by certain of our other subsidiaries on a senior unsecured basis.

     The Notes require that we satisfy certain tests in order to: (i) incur additional indebtedness except to refinance maturing debt with replacement debt, as defined under our indentures; (ii) pay dividends; (iii) repurchase capital stock;

(iv) make investments or (v) merge. We are currently restricted from these activities with certain carve-outs as defined under our indentures.

     Junior Subordinated Notes — In March 2005 we completed a private offering of $50,000 of trust preferred securities (TPS) through Great Wolf Capital Trust I (Trust I), a Delaware statutory trust which is our subsidiary. The securities pay holders cumulative cash distributions at an annual rate which is fixed at 7.80% through March 2015 and then floats at LIBOR plus a spread of 310 basis points thereafter. The securities mature in March 2035 and are callable at no premium after March 2010. In addition, we invested $1,500 in Trust I’s common securities, representing 3% of the total capitalization of Trust I.

          Trust I used the proceeds of the offering and our investment to purchase from us $51,550 of junior subordinated notes with payment terms that mirror the distribution terms of the TPS. The indenture governing the notes contains limitations on our ability, without the consent of holders of notes to make payments to our affiliates or for our affiliates to make payments to us, if a default exists. The costs of the TPS offering totaled $1,600, including $1,500 of underwriting commissions and expenses and $100 of costs incurred directly by Trust I. Trust I paid these costs utilizing an investment from us. These costs are being amortized over a 30-year period. The proceeds from our notes sale, net of the costs of the TPS offering and our investment in Trust I, were $48,400. We used the net proceeds to retire a construction loan.

     In June 2007 we completed a private offering of $28,125 of TPS through Great Wolf Capital Trust III (Trust III), a Delaware statutory trust which is our subsidiary. The securities pay holders cumulative cash distributions at an annual rate which is fixed at 7.90% through June 2012 and then floats at LIBOR plus a spread of 300 basis points thereafter. The securities mature in June 2017 and are callable at no premium after June 2012. In addition, we invested $870 in the Trust’s common securities, representing 3% of the total capitalization of Trust III.

     Trust III used the proceeds of the offering and our investment to purchase from us $28,995 of junior subordinated notes with payment terms that mirror the distribution terms of the trust securities. The costs of the TPS offering totaled $932, including $870 of underwriting commissions and expenses and $62 of costs incurred directly by Trust III. Trust III paid these costs utilizing an investment from us. These costs are being amortized over a 10-year period. The proceeds from these notes sales, net of the costs of the TPS offering and our investment in Trust III, were $27,193. We used the net proceeds for development costs.

     Issue trusts, like Trust I and Trust III (collectively, the Trusts), are generally variable interests. We have determined that we are not the primary beneficiary under the Trusts, and accordingly we do not include the financial statements of the Trusts in our consolidated financial statements.

     Based on the foregoing accounting authority, our consolidated financial statements present the notes issued to the Trusts as long-term debt. Our investments in the Trusts are accounted as cost investments and are included in other assets on its consolidated balance sheet. For financial reporting purposes, we record interest expense on the corresponding notes in our condensed consolidated statements of operations.

     City of Sheboygan Bonds — The City of Sheboygan bonds represent the face amount of bond anticipation notes (“BANs”) issued by the City in November 2003 in conjunction with the construction of the Blue Harbor Resort in Sheboygan, Wisconsin. We have recognized as a liability the obligations for the BANs. We have an obligation to fund certain minimum guaranteed amounts of room tax payments to be made by the Blue Harbor Resort through 2028, which obligation is indirectly related to the payments by the City on the BANs.

     City of Sheboygan Loan — The City of Sheboygan loan amount represents a loan made by the City in 2004 in conjunction with the construction of the Blue Harbor Resort in Sheboygan, Wisconsin. The loan is noninterest bearing and matures in 2018. There are restrictions on the ability of the borrower under the loan to enter into transactions with affiliates without the consent of the lender. Our obligation to repay the loan will be satisfied by certain minimum guaranteed amounts of real and personal property tax payments to be made by the Blue Harbor Resort through 2018.

     Future Maturities — Future principal requirements on long-term debt are as follows:

Through
September 30,
2011		$	4,434
2012			80,514
2013			3,606
2014			3,892
2015			62,548
Thereafter			407,963
Total		$	562,957

      As discussed above, the Traverse City/Kansas City mortgage loan is classified as a current liability as of September 30, 2010, due to the implementation of a traditional lock-box arrangement. The future maturities table above, however, reflects future cash principal repayments currently required under the provisions of that loan of $1,617 in 2011, $1,717 in 2012, $1,851 in 2013, $1,981 in 2014 and $60,467 in 2015.

9. FAIR VALUE OF FINANCIAL INSTRUMENTS

     Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price). GAAP outlines a valuation framework and creates a fair value hierarchy in order to increase the consistency and comparability of fair value measurements and the related disclosures. Certain assets and liabilities must be measured at fair value, and disclosures are required for items measured at fair value.

     We measure our financial instruments using inputs from the following three levels of the fair value hierarchy. The three levels are as follows:

Level 1 inputs are unadjusted quoted prices in active markets for identical assets or liabilities that we have the ability to access at the measurement date.

Level 2 inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (that is, interest rates, yield curves, etc.), and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs).

Level 3 includes unobservable inputs that reflect our assumptions about the assumptions that market participants would use in pricing the asset or liability. We develop these inputs based on the best information available, including our own data.

     The following table summarizes the Company’s financial assets measured at fair value on a recurring basis as of:

September 30, 2010

Level 1

Level 2

Level 3

Total

Interest rate caps

$

—

$

—

$

—

$

—

December 31, 2009

		Level 1				Level 2				Level 3				Total
Interest rate caps		$	—			$	133			$	—			$	133

     Level 2 assets consist of our interest rate caps and our long-term debt. To determine the estimated fair value of our interest rate caps we use market information provided by the banks from whom the interest rate caps were purchased.

     As of September 30, 2010, we estimate the total fair value of our long-term debt to be $58,861 less than its total carrying value due to the terms of the existing debt being different than those terms currently available to us for indebtedness with similar risks and remaining maturities. These fair value estimates have not been comprehensively revalued for purposes of these consolidated financial statements since that date, and current estimates of fair values may differ significantly.

     The carrying amounts for cash and cash equivalents, other current assets, escrows, accounts payable, gift certificates payable and accrued expenses approximate fair value because of the short-term nature of these instruments.

10. EARNINGS PER SHARE

     We calculate our basic earnings per common share by dividing net loss available to common shareholders by the weighted average number of shares of common stock outstanding excluding non-vested shares. Our diluted earnings per common share assume the issuance of common stock for all potentially dilutive stock equivalents outstanding using the treasury stock method. In periods in which we incur a net loss, we exclude potentially dilutive stock equivalents from the computation of diluted weighted average shares outstanding as the effect of those potentially dilutive items is anti-dilutive.

     The trust that holds the assets to pay obligations under our deferred compensation plan has 11,765 shares of our common stock. We treat those shares of common stock as treasury stock for purposes of our earnings per share computations and therefore we exclude them from our basic and diluted earnings per share calculations.

     Options to purchase 441,000 shares of common stock were not included in the computations of diluted earnings per share for the three and nine months ended September 30, 2010, because the exercise prices of the options were greater than the average market price of the common shares during that period. There were 627,006 shares of common stock that were not included in the computation of diluted earnings per share for the three and nine months ended September 30, 2010, because the market and/or performance criteria related to these shares had not been met at September 30, 2010.

Basic and diluted earnings per common share are as follows:

		Three months ended								Nine months ended
		September 30,								September 30,
		2010				2009				2010				2009
Net loss attributable to Great Wolf Resorts, Inc.		$	(993	)		$	(36,923	)		$	(21,818	)		$	(48,274	)
Weighted average common shares outstanding — basic			31,035,048				31,291,004				30,957,698				31,179,049
Weighted average common shares outstanding — diluted			31,035,048				31,291,004				30,957,698				31,179,049
Net loss attributable to Great Wolf Resorts, Inc. per share — basic		$	(0.03	)		$	(1.18	)		$	(0.70	)		$	(1.55	)
Net loss attributable to Great Wolf Resorts, Inc. per share — diluted		$	(0.03	)		$	(1.18	)		$	(0.70	)		$	(1.55	)

11. SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS

      On April 7, 2010, our subsidiaries, GWR Operating Partnership, LLLP and Great Wolf Finance Corp. were co-issuers (the “Issuers”) with respect to $230,000 in principal amount of 10.875% first mortgage notes. In connection with the issuance, certain of our subsidiaries (the “Subsidiary Guarantors”) have guaranteed the first mortgage notes. Certain of our other subsidiaries (the “Non-Guarantor Subsidiaries”) have not guaranteed the first mortgage notes.

     The following tables present the condensed consolidating balances sheets of the Company (“Parent”), the Issuers, the Subsidiary Guarantors and the Non-Guarantor Subsidiaries as of September 30, 2010 and December 31, 2009, the condensed consolidating statements of operations for the three and nine months ended September 30, 2010 and 2009 and the condensed consolidating statements of cash flows for the nine months ended September 30, 2010 and 2009.

     The accompanying condensed consolidating financial information has been prepared and presented pursuant to SEC Regulation S-X Rule 3-10, Financial statements of guarantors and issuers of guaranteed securities registered or being registered. Each of the Subsidiary Guarantors is 100% owned, directly or indirectly, by Great Wolf Resorts, Inc. There are significant restrictions on the Subsidiary Guarantors’ ability to pay dividends or obtain loans or advances. The Company’s and the Issuers’ investments in their consolidated subsidiaries are presented under the equity method of accounting.

UNAUDITED CONDENSED CONSOLIDATING BALANCE SHEET

September 30, 2010
(Dollars in thousands)

										Subsidiary				Non Guarantor				Consolidating
		Parent				Issuers				Guarantors				Subsidiaries				Adjustments				Consolidated
ASSETS
Current assets:
Cash and cash equivalents		$	10,043			$	32,678			$	(3,661	)		$	4,043			$	—			$	43,103
Escrows			—				—				—				1,228				—				1,228
Accounts receivable			69				—				1,573				1,741				—				3,383
Accounts receivable — affiliates			—				—				1,130				2,172				—				3,302
Accounts receivable — consolidating entities			11,464				467,486				278,438				145,893				(903,281	)			—
Inventory			—				—				2,364				3,637				—				6,001
Other current assets			138				—				2,284				2,652				—				5,074
Total current assets			21,714				500,164				282,128				161,366				(903,281	)			62,091
Property and equipment, net			—				—				358,151				295,817				—				653,968
Investment in consolidating entities			243,722				283,532				—				—				(527,254	)			—
Investment in and advances to affiliates			—				—				—				26,445				—				26,445
Other assets			10,619				8,466				7,052				7,073				—				33,210
Intangible assets			2,276				—				4,668				20,694				—				27,638
Total assets		$	278,331			$	792,162			$	651,999			$	511,395			$	(1,430,535	)		$	803,352
LIABILITIES AND EQUITY
Current liabilities:
Current portion of long-term debt		$	—			$	—			$	32			$	70,418			$	—			$	70,450
Accounts payable			16				294				749				1,284				—				2,343
Accounts payable — affiliates			—				514				5				3				—				522
Accounts payable — consolidating entities			—				314,252				488,357				100,672				(903,281	)			—
Accrued expenses			1,465				13,341				12,958				8,496				—				36,260
Advance deposits			—				—				4,111				5,262				—				9,373
Other current liabilities			2,190				—				766				2,603				—				5,559
Total current liabilities			3,671				328,401				506,978				188,738				(903,281	)			124,507
Mortgage debt			—				220,039				—				170,516				—				390,555
Other long-term debt			80,545				—				23				11,423				—				91,991
Deferred compensation liability			—				—				1,161				—				—				1,161
Other long-term liabilities			—				—				—				1,048				—				1,048
Total liabilities			84,216				548,440				508,162				371,725				(903,281	)			609,262
Commitments and contingencies
Great Wolf Resorts stockholders’ equity:
Common stock			325				—				—				—				—				325
Preferred stock			—				—				—				—				—				—
Additional paid-in-capital			402,095				456,893				163,514				293,379				(913,786	)			402,095
Accumulated deficit			(208,105	)			(213,171	)			(19,677	)			(153,684	)			386,532				(208,105	)
Deferred compensation			(200	)			—				—				—				—				(200	)
Total Great Wolf Resorts stockholders’ equity			194,115				243,722				143,837				136,695				(527,254	)			194,115
Noncontrolling interest			—				—				—				(25	)			—				(25	)
Total equity			194,115				243,722				143,837				139,670				(527,254	)			194,090
Total liabilities and equity		$	278,331			$	792,162			$	651,999			$	511,395			$	(1,430,535	)		$	803,352

CONDENSED CONSOLIDATING BALANCE SHEET
December 31, 2009
(Dollars in thousands)

										Subsidiary				Non Guarantor				Consolidating
		Parent				Issuers				Guarantors				Subsidiaries				Adjustments				Consolidated
ASSETS
Current assets:
Cash and cash equivalents		$	5,023			$	14,538			$	(1,590	)		$	2,942			$	—			$	20,913
Escrows			—				—				4,430				1,508				—				5,938
Accounts receivable			33				—				1,177				982				—				2,192
Accounts receivable — affiliates			—				—				1,079				1,535				—				2,614
Accounts receivable — consolidating entities			23,800				459,146				183,648				151,521				(818,115	)			—
Inventory			—				—				2,230				2,561				—				4,791
Other current assets			792				—				1,991				1,469				—				4,252
Total current assets			29,648				473,684				192,965				162,518				(818,115	)			40,700
Property and equipment, net			—				—				373,879				302,526				—				676,405
Investment in consolidated entities			251,217				277,475				—				—				(528,692	)			—
Investment in and advances to affiliates			—				—				—				27,484				—				27,484
Notes receivable			8,268				—				—				—				—				8,268
Other assets			10,965				—				9,333				8,760				—				29,058
Intangible assets			—				—				4,668				19,161				—				23,829
Total assets		$	300,098			$	751,159			$	580,845			$	520,449			$	(1,346,807	)		$	805,744
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt		$	—			$	—			$	12,731			$	3,395			$	—			$	16,126
Accounts payable			—				—				3,132				1,946				—				5,078
Accounts payable — consolidating entities			—				499,931				205,954				112,230				(818,115	)			—
Accrued expenses			1,498				11				13,351				7,110				—				21,970
Advance deposits			—				—				2,457				4,657				—				7,114
Gift certificates payable			3,299				—				830				1,817				—				5,946
Total current liabilities			4,797				499,942				238,455				131,155				(818,115	)			56,234
Mortgage debt			—				—				202,103				239,621				—				441,724
Other long-term debt			80,545				—				78				11,598				—				92,221
Deferred compensation liability			—				—				809				—				—				809
Total liabilities			85,342				499,942				441,445				382,374				(818,115	)			590,988
Commitments and contingencies Stockholders’ Equity:
Common stock			313				—				—				—				—				313
Preferred stock			—				—				—				—				—				—
Additional paid-in-capital			400,930				448,562				163,514				285,048				(897,124	)			400,930
Accumulated deficit			(186,287	)			(197,345	)			(24,114	)			(146,973	)			368,432				(186,287	)
Deferred compensation			(200	)			—				—				—				—				(200	)
Total stockholders’ equity			214,756				251,217				139,400				138,075				(528,692	)			214,756
Total liabilities and stockholders’ equity		$	300,098			$	751,159			$	580,845			$	520,449			$	(1,346,807	)		$	805,744