Table of Contents

 

 

 

**UNITED STATES**

**SECURITIES AND EXCHANGECOMMISSION**

**Washington,D.C. 20549**

 

**FORM 10-K**

** **
| **x** | ** ** | **ANNUAL REPORT UNDER SECTION 13 OR  15(D) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|-------|------------|-----------------------------------------------------------------------------------------------|

 

**For the fiscal year ended  December 31,2008**

 
| **o** | ** ** | **TRANSITION REPORT UNDER SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|-------|------------|---------------------------------------------------------------------------------------------------|

 

**For the transition periodfrom           to          **

 

**Commission file number  333-124924**

** **

**155 East Tropicana, LLC**

**155 East Tropicana Finance Corp.**

(Exact name ofregistrant as specified in its charter)

 

| **Nevada  Nevada**                                             | ** ** | **20-1363044  20-2546581**           |
|----------------------------------------------------------------|------------|--------------------------------------|
| (State or other jurisdiction of incorporation or organization) |       | (I.R.S. Employer Identification No.) |

 

**115 East Tropicana Avenue, Las Vegas, NV89109**

(Address and telephone number of principalexecutive offices) (Zip Code)

 

Registrant’s telephone number, including areacode:  **(702) 597-6076**

 

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

 

| **Title of  each class** | ** ** | **Name of  each exchange on which registered** |
|--------------------------|------------|------------------------------------------------|
| None.                    |       |                                           |

 

Securitiesregistered pursuant to Section 12(g) of the Act:

 

**None.**

(Title of each class)

 

 

(Title of each class)

 

Indicate by check mark if theregistrant is a well-known seasoned issuer, as defined in Rule 405 of theSecurities Act.

Yes o  No x

 

Indicate by check mark if theregistrant is not required to file reports pursuant to Section 13 or Section 15(d) ofthe Act.

Yes o  No x

 
| Indicate by  check mark whether the registrant (1) has filed all reports required to  be filed by Section 13 or 15(d) of the Securities Exchange Act of  1934 during the preceding 12 months (or for such shorter period that the  registrant was required to file such reports), |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| and  (2) has been subject to such filing requirements for the past 90 days.                                                                                                                                                                                                                 | Yes x  No o |
|                                                                                                                                                                                                                                                                                             |
| Indicate by  check mark if disclosure of delinquent filers pursuant to Item 405 of  Regulation S-K (§229.405 of this chapter) is not contained herein, and will  not be contained, to the best of registrant’s knowledge, in definitive proxy  or information statements               |
| incorporated  by reference in Part III of this Form 10-K or any amendment to this  Form 10-K.                                                                                                                                                                                     | Yes x  No o |
|                                                                                                                                                                                                                                                                                                  |  |  |

 

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

 
| Large  accelerated filer o |   | Accelerated  filer o         |
|----------------------------|--------|------------------------------|
| Non-Accelerated  filer x   |   | Smaller reporting  company o |

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

 
| State the  aggregate market value of the voting and non-voting common equity held by  non-affiliates computed by reference to the price at which the common equity  was last sold, or the average bid and asked price of such common equity, as  of the last business day |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| of the  registrant’s most recently completed second fiscal quarter.                                                                                                                                                                                                  | Not Applicable. |

 

**DOCUMENTS INCORPORATED BY REFERENCE**

 

Notapplicable.

 

 

 

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**TABLE OF CONTENTS**

 
|              |       |                                                                                                                              | **Page**   |
|-------------------|------------|-----------------------------------------------------------------------------------------------------------------------------------|------------|
| **PART I**   | ** ** | ** **                                                                                                                        | ** ** |
| ITEM 1.           |       | Business                                                                                                                          | 2          |
| ITEM 1A.          |       | Risk Factors                                                                                                                      | 13         |
| ITEM 1B.          |       | Unresolved Staff Comments                                                                                                         | 27         |
| ITEM 2.           |       | Properties                                                                                                                        | 27         |
| ITEM 3.           |       | Legal Proceedings                                                                                                                 | 27         |
| ITEM 4.           |       | Submission of Matters to a Vote of Security  Holders                                                                              | 28         |
| **PART II**  |       |                                                                                                                              |       |
| ITEM 5.           |       | Market for Registrant’s Common Equity,  Related Stockholder Matters and Issuer Purchases of Equity Securities                | 28         |
| ITEM 6.           |       | Selected Financial Data                                                                                                           | 29         |
| ITEM 7.           |       | Management’s Discussion and Analysis of  Financial Condition and Results of Operation                                        | 31         |
| ITEM  7A.         |       | Quantitative  and Qualitative Disclosures About Market Risk                                                                       | 47         |
| ITEM  8.          |       | Financial  Statements and Supplementary Data                                                                                      | 48         |
| ITEM 9.           |       | Changes in and Disagreements with  Accountants on Accounting and Financial Disclosure                                             | 73         |
| ITEM 9A(T)        |       | Controls and Procedures                                                                                                           | 73         |
| ITEM 9B.          |       | Other Information                                                                                                                 | 74         |
| **PART III** |       |                                                                                                                              |       |
| ITEM 10.          |       | Directors, Executive Officers and Corporate  Governance                                                                           | 75         |
| ITEM 11.          |       | Executive Compensation                                                                                                            | 78         |
| ITEM 12.          |       | Security Ownership of Certain Beneficial  Owners and Management and Related Stockholder Matters                                   | 81         |
| ITEM 13.          |       | Certain Relationships and Related  Transactions and Director Independence                                                         | 83         |
| ITEM 14.          |       | Principal Accounting Fees and Services                                                                                            | 85         |
| **PART IV**  |       |                                                                                                                              |       |
| ITEM 15.          |       | Exhibits, Financial Statement Schedules                                                                                           | 86         |
| SIGNATURES        | 87         |
|              |       |
| EXHIBIT INDEX     | 91         |
| Exhibit 12   |       | Computation of Ratio Earnings to Fixed Charges                                                                                    |       |
| Exhibit 31.1 |       | Certification Pursuant to Section 302 of the Sarbanes-Oxley Act  of 2002                                                     |       |
| Exhibit 31.2 |       | Certification Pursuant to Section 302 of the Sarbanes-Oxley Act  of 2002                                                     |       |
| Exhibit 32.1 |       | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted  Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |       |
| Exhibit 32.2 |       | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted  Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |       |

 

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# **Table of Contents**

 

# **PART I**

# ** **

## ***ITEM 1.***                             BUSINESS.

## *** ***

Unless the contextindicates otherwise, all references to the “Company”, “155”, “we”, “our”, “ours”and “us” refer to 155 East Tropicana, LLC.

 

**Liquidityand Financial Position**

 

For discussion ofour liquidity and financial position, please see “Management’s Discussion and Analysisof Financial Condition and Results of Operations-Executive Overview-Liquidityand Financial Position” and Note 2 to the accompanying consolidated financialstatements.

 

**Forward-lookingStatements**

 

Certain information includedherein contains statements that may be considered forward-looking, such asstatements relating to projections of future results of operations or financialcondition, expectations for our casino, and expectations of the continuedavailability of capital resources. Any forward-looking statement made by usnecessarily is based upon a number of estimates and assumptions that, whileconsidered reasonable by us, is inherently subject to significant business,economic and competitive uncertainties and contingencies, many of which are beyondour control, and are subject to change. Actual results of our operations may vary materially from anyforward-looking statement made by us or on our behalf.  Forward-looking statements should not beregarded as representation by us or any other person that the forward-lookingstatements will be achieved.  Readers arecautioned not to place undue reliance on any forward-looking statements, whichspeak only as of the date thereof. We undertake no obligation to publiclyrelease any revisions to such forward-looking statements to reflect events orcircumstances after the date hereof. Some of the contingencies and uncertainties to which any forward-lookingstatement contained herein are subject to include, but are not limited to,those set forth below in the heading “ITEM 1A. Risk Factors.”

 

**CorporateOrganization**

** **

We were formed in June 2004 to acquire the Hôtel San Rémo Casinoand Resort (the “Hôtel San Rémo”), a casino hotel located in Las Vegas, Nevada,from Eastern & Western Hotel Corporation (“Eastern & Western”).  The Hôtel San Rémo was renovated andre-branded and is now known as Hooters Casino Hotel.  Our common membership interests are heldtwo-thirds through Florida Hooters LLC and one-third through EW Common LLC.

 

Florida Hooters LLC is a joint venture between Hooters Gaming LLC andLags Ventures, LLC.  Hooters Gaming LLCis owned by the holders of licenses to operate Hooters restaurants in the TampaBay, Chicago and Manhattan areas as well as for wholesale foods, calendars andNevada hotel/gaming and includes most of the original founders of the Hootersbrand.  Lags Ventures, LLC is owned by aholder of the license rights to Hooters restaurants in south Florida.  Pursuant to these license rights, the ownersof Florida Hooters LLC operate 39 Hooters restaurants, publish Hooterscalendars, and operate a Hooters food business. The owner of Lags Ventures, LLC is also the founder of the Dan Marinoconcept restaurants and owns and operates 2 Dan Marino concept restaurants.

 

EW Common LLC was formed to hold Eastern & Western’smembership interest in us.  Eastern &Western owns 90% of EW Common LLC while our President owns the balance.  Eastern & Western is beneficiallyowned by Sukeaki and Toyoroku Izumi. Eastern & Western and its affiliates owned the Hôtel San Rémofrom November 1988 until our acquisition of the hotel casino in August 2004.

 

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Our affiliates have granted us assignments of certain licensespertaining to the use of the Hooters brand as well as the Dan Marino, “13”Martini Bar and Pete & Shorty’s concept restaurants, solely for thepurposes of allowing us to operate a Hooters Casino Hotel located at ourproperty.  Pursuant to the Hooterslicense assignment, we are required to pay the owner of the Hooters trademark,HI Limited Partnership, a royalty fee. For more information, see “Item 1. Business—Intellectual Property” and “Item13. Certain Relationships and Related Transactions.”  Hooters of America, Inc. is the generalpartner of HI Limited Partnership and we refer to HI Limited Partnership andHooters of America, Inc. collectively as “Hooters of America.”  The original founders of the Hooters brandsold the trademark rights (excluding certain rights they retained forthemselves) to Hooters of America in 2001. As a result, Hooters of America is the trademark owner of the Hootersbrand and the operator and franchisor of Hooters restaurants.  We are not affiliated with Hooters ofAmerica.

 

Before we received our necessary gaming licenses and prior to November 1,2005, the Hôtel San Rémo was operated by Eastern & Western pursuant totwo separate leases with us.  Theseleases were terminated when we received our gaming license.  The following chart illustrates our corporatestructure:

 

 

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(1)          155 East Tropicana Finance Corp., which has no assets or operations,was formed for the sole purpose of facilitating the issuance of our 8 3⁄4 %Senior Secured Notes due 2012.

 

**Asset Purchase Agreement**

** **

During 2007, the Companyentered into a definitive Asset Purchase Agreement with Hedwigs Las Vegas TopTier, LLC (“Hedwigs”), an affiliate of the investment group led by NTH AdvisoryGroup,

 

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LLC, and subsequently entered into a first,second and third amendment to the Asset Purchase Agreement (collectively, the “PurchaseAgreement”). In connection with the third amendment to the Purchase Agreement,Hedwigs was required to make a $0.5 million payment to the Company on or beforeJune 6, 2008 or the Purchase Agreement automatically terminated. Hedwigsdid not make the payment. Accordingly, the Purchase Agreement terminated on June 6,2008.

 

Under the terms of thePurchase Agreement, Hedwigs offered to purchase essentially all of the assetsof the Company for a purchase price of $98 million in cash, the payment ofcertain accrued royalties, and the assumption of certain outstandingliabilities of the Company. The Purchase Agreement also provided that Hedwigswould be responsible for the Company’s $130 million in principal amount of 8 3⁄4%Senior Secured Notes due 2012. In connection with the Purchase Agreement,Hedwigs paid a total of $5.5 million in deposits and extension fees to theCompany, which were non-refundable and were fully earned on the dates ofpayment.  The deposits and extension feeswere taken to income in June 2008.

** **

**Hooters CasinoHotel**

** **

We purchased the former Hôtel San Rémo in August 2004 andcommenced renovations in   March 2005.  On February 3, 2006, we opened theHooters Casino Hotel to the public.  Ourproperty is located one-half block east of the intersection of Tropicana Avenueand Las Vegas Boulevard, a major intersection on the Las Vegas strip (“TheStrip”) that is within walking distance to approximately 25,000 hotel rooms.

 

The Hooters Casino Hotel features the famous Hooters décor, and theHooters brand is a prominent component of the facility. Our renovations haverefreshed and upgraded the property, and provided several new restaurantofferings.  The Hooters Casino Hotelfeatures:

 

·             anapproximately 29,000 square foot “Hooters” themed casino floor withapproximately 633 state-of-the-art slot and video poker machines and 28 tablegames;

 

·             696 hotelrooms, including 17 suites;

 

·             a tropical poolarea featuring beach sand, palm trees, lagoon style waterfall, and Nippers PoolBar;

 

·             distinctivedining and entertainment options, including:

 

·             a world famousHooters restaurant containing two hundred seats;

 

·             Dan Marino’s, arestaurant featuring American cuisine which has offered 24 hour dining since October 24,2007;

 

·             Night OwlShowroom featuring nightly entertainment.

 

·             Porch Dogs, aCaribbean themed casual indoor-outdoor club offering music and cocktails;

 

·             Pete &Shorty’s Tavern, a casual and comfortable bar featuring a sports book and a poker room;

 

·             The Lobby Bar,a 24-hour bar located at the entrance to the casino, featuring service by theworld famous Hooters girls.

 

·    Dixie’s DamCountry Bar

 

·             Splurge andBait Shoppe retail stores selling Hooters branded merchandise.

 

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·             SASS, a dayspa, salon and workout facility.

 

**The Renovation**

** **

The renovation of the Hooters Casino Hotel commenced in March 2005,and the Hooters Casino Hotel opened to the public on February 3,2006.  Our strategy is to build onHooters’ reputation as a casual, relaxed, fun, and welcoming environment.  We believe that Hooters’ strong brand namerecognition and our favorable location will generate visitor traffic.  The key elements of our renovation of theproperty are:

 

*Main Entrance.*  Werenovated the main entrance to adopt the Hooters décor of natural wood, tin,and orange.  The Hooters brand is aprominent component of the main entrance and we replaced the existing doorswith new 12-foot high clear glass doors to make the casino area clearly visiblefrom the outside and the immediate entrance area.  We also made improvements to the traffic flowaround the entrance areas that we expect will improve pedestrian traffic intothe casino.  In addition, we added significantnew signage to the property, including a large marquee in front of theproperty.  We anticipate that theseimprovements will result in more walk-in visitors to the casino and our otherattractions and amenities.

 

*Casino.*  We expandedand renovated our casino from approximately 24,000 square feet to approximately29,000 square feet and designed the casino to be more inviting and to betteruse the available space, allowing us to add new gaming equipment.  We now feature 679 state-of-the-art slot andvideo poker machines, 30 table games, sports book, and a poker room.  To make the casino more inviting, we raisedthe elevation of the ceiling in some areas for a more open feeling, updated theceiling with décor of natural wood, tin, and orange, re-carpeted the gamingarea with new Hooters-themed carpet and installed wood floor in the surroundingarea.  In addition, adjacent to theentrance, we added a Hooters bar, serving beer and cocktails to casino guests,and a retail store, selling Hooters branded merchandise.

 

*Dining and Entertainment Options.*  We offer distinctive dining and entertainmentoptions, including the 200-seat Hooters Restaurant, the 287-seat Dan Marino’s24-Hour Restaurant, the 100-seat Pete & Shorty’s Tavern, the 200-seatPorch Dogs, and a 350 person occupancy Nippers Pool Bar. The “13” Martini Barand Dam Restaurant were both closed in 2007 and the Night Owl Showroom and Dixie’s DamCountry Bar opened. To house our new Dan Marino’s restaurant, webuilt a new building adjacent to the main entrance.  The restaurant is visible from both outsideand inside the property.  In addition,Dan Marino’s restaurant features a bar that serves customers from both thecasino floor and the restaurant.

 

*Hotel.*  Wesignificantly remodeled our hotel rooms. The 696 newly renovated rooms feature a Caribbean/Florida theme and newfurniture, carpets, painted textured walls, lighting, art-work andbedspreads.  We also renovated thebathrooms with new paint, fixtures, and upgraded amenities.  The common hotel areas were updated with newcarpet, paint, doors and signage.

 

*Pool Area.*  We expandedand upgraded the existing pool area to include tropical heated pools with beachsand, palm trees, three in-ground Jacuzzis, lagoon style waterfalls and NippersPool Bar.

 

We spent approximately $53.0 million in cash expenditures forrenovations and operating equipment and $10.1 million in pre-openingexpenditures in 2005 and 2006.  Duringthe renovation, we continued to keep the existing Hôtel San Rémo operationsopen, although only on a limited basis from late October 2005 until thegrand opening of the Hooters Casino Hotel on February 3, 2006.

 

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**Competition**

** **

We face competition in the market in which we are located as well as inor near any geographic area from which we attract or expect to attract asignificant number of our customers.  Asa result, our casino property faces direct competition from all other casinosand hotels in Las Vegas, NV and to a lesser extent, in the Mesquite, Laughlin,Reno and Lake Tahoe areas of Nevada and in Atlantic City, New Jersey, and inthe California gaming market, as well as from other forms of gaming.

 

*Las Vegas, Nevada.*  The hotel casino industry in Las Vegas ishighly competitive.  In response torecent economic downturn, many competing properties have significantly reducedtheir room rates, which has increased competition.  The Hooters Casino Hotel competes on thebasis of overall atmosphere, range of amenities, level of service, price,location, entertainment offered, theme and size.  The Hooters Casino Hotel competes withnumerous resorts and hotel casinos on The Strip and in downtown Las Vegas, aswell as a large number of hotels and motels in and near Las Vegas.  Many competing properties have themes andattractions which draw a significant number of visitors and compete with ourproperty for hotel and gaming customers. Some of these facilities are operated by companies that have more thanone operating facility, and many have greater name recognition and financialand marketing resources than us and market to the same target demographic groupas we do. Additional major hotel casinos and significant expansion of existingproperties, containing a significant number of hotel rooms and attractions, areexpected to open in Las Vegas within the coming years.  We seek to differentiate the Hooters CasinoHotel from other major Las Vegas hotel casino resorts by concentrating on thedesign, atmosphere, personal service and amenities that we provide and theadded value of the Hooters brand.

 

*California Gaming Market.*  Voters in California approved an amendment tothe California constitution in 2000 that gave Native American tribes inCalifornia the right to offer a limited number of slots machines and a range ofhouse-banked card games.  A number ofNative American tribes have already signed, and others have begun signing,gaming compacts with the State of California. According to the National Indian Gaming Commission, as of February 2009,there are approximately 62 operating tribal casinos in California.  In addition, several Native American tribesin California have reached agreements with the State of California that allowfor an increased number of gaming machines within the facilities operated bysuch tribes in exchange for a revenue-based payment to the state.  The competitive impact on our gamingestablishments from the continued growth of gaming in California cannot bedefinitively determined but, depending on the nature, extent and location ofthe growth, the impact could be material.

 

*Other Forms of Gaming.*  We also compete, to some extent, with otherforms of gaming on both a local and national level, including state-sponsoredlotteries, Internet gaming, dockside casinos, riverboat casinos, on- andoff-track wagering and card parlors.  Therecent and continued expansion of legalized casino gaming into newjurisdictions throughout the United States has increased competition faced byus and will continue to do so in the future. Additionally, if gaming were legalized or expanded in jurisdictions nearany geographic area from which we attract or expect to attract a significantnumber of our customers, we could face additional competition which could havea significant adverse impact on our business, financial condition and resultsof operations.  There can be no assurancethat we will be able to continue to compete successfully in our existingmarkets or that we will be able to compete successfully against any such futurecompetition.

 

**IntellectualProperty**

** **

We have entered into an assignment agreement with Florida Hooters, LLCwhich grants us the right to use certain intellectual property in connectionwith the operation of the Hooters Casino Hotel. The intellectual property covered by these agreements is describedbelow.  Additionally, we have been 

 

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granted a royalty-free license to the Pete &Shorty’s mark.  For more detailedinformation, see “Item 13. Certain Relationships and Related Transactions.”

 

*Hooters Trademark.*  The Hooters trademark and logo insignia arethe exclusive property of Hooters of America. We have an exclusive license to use the Hooters brand in connection withgaming, casino or combined hotel, gaming and casino operations solely at theHooters Casino Hotel property.  FloridaHooters, LLC originally obtained the license through an assignment from HootersGaming Corporation, an affiliated entity under common ownership with HootersGaming LLC.  The underlying licenseagreement was executed between Hooters of America and Hooters GamingCorporation, and granted to Hooters Gaming Corporation an exclusive license touse the licensed intellectual property in connection with gaming, casino orcombined hotel, gaming and casino operations within the State of Nevada.Hooters Gaming Corporation retained any and all rights and obligations in thelicensed intellectual property pursuant to the license agreement for alllocations within Nevada other than the Hooters Casino Hotel.  Under an Affirmation and Acknowledgementagreement between Hooters Gaming Corporation and 155 East Tropicana, LLC,Hooters Gaming Corporation has agreed not to operate (or license or assign itsrights to operate) another Hooters Casino Hotel on The Strip, until such timeas none of the Notes is outstanding. Additionally, under the agreement, Hooters Gaming Corporation agreed notto operate (or license or assign its rights to operate) another Hooters CasinoHotel in Clark County, Nevada for a period of four years from the issuance ofthe Notes or such earlier time as none of the Notes is outstanding.

 

Combined hotel, gaming and casino operations contemplated under thelicense agreement include, but are not limited to, the right to provide thefollowing within the facility: (i) room service; (ii) restaurantoperations; (iii) retail sales facilities in which third parties arepermitted to conduct retail sales of all kinds; and (iv) entertainmentfacilities, subject to certain quality standards.  In connection with such operations, we havethe right to (i) sell approved merchandise bearing some or all of thelicensed intellectual property, (ii) use the licensed intellectualproperty and Hooters Girls to promote, market, and advertise such facilitiesworldwide, and (iii) include Hooters Girls as part of any facility staff.

 

We are required to pay Hooters of America an annual fee equal to$500.  In addition, we pay to Hooters ofAmerica a royalty in an amount equal to two percent (2%) of all net revenuesgenerated in connection with licensed activities (which includes net revenuesgenerated in connection with hotel, casino, and restaurant operations).  We are also required by the license agreementto maintain certain quality standards for the use of the Hooters brand.

 

*Hooters Restaurant Concept.*  Pursuant to a consent received in 2004 fromLas Vegas Wings, Inc., we have the right to use the Hooters restaurantconcept at the hotel casino.  The consentpermits worldwide promotion, marketing and advertising of the hotel casino andits services.

 

*Dan Marino Concept Restaurants.*  We have an exclusive license to use certainintellectual property to operate and promote restaurants, taverns, lounges andbars using the marks “Dan Marino’s Fine Food & Spirits” and “‘13’Martini Bar,” which was closed in 2007 and reopened as Night Owl Showroom.Florida Hooters LLC was granted the license from Lags Ventures, Inc., anaffiliated entity under common ownership with Lags Ventures, LLC.  The initial term of the agreement is20 years but may be extended for an additional ten years.  See “Item 13. Certain Relationships andRelated Transactions.”

 

*Pete & Shorty’s.*  Pete & Shorty’s, Inc. has grantedus a nonexclusive, royalty-free license to use the Pete & Shorty’smark in connection with a restaurant, bar and lounge at the Hooters CasinoHotel.  Pursuant to the licenseagreement, we can also use the mark in connection with affiliated merchandise, entertainmentand casino services.  However, Pete &Shorty’s, Inc. maintains the right to obtain federal 

 

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and/or state registrations for any and alladditional services, other than restaurant, bar and cocktail lounge services,which we provide at the Hooters Casino Hotel.

** **

**Employees**

** **

As of December 31, 2008, we had 874 employees.  None of our employees are covered bycollective bargaining agreements.

 

**Regulation and Licensing**

** **

The ownership and operation of casino gaming facilities in Nevada aresubject to the Nevada Gaming Control Act and the regulations promulgatedthereunder (“Nevada Act”), and various local regulations.  In addition, our gaming operations aresubject to the licensing and regulatory control of the Nevada GamingCommission (“Nevada Commission”), the Nevada State Gaming Control Board (“NevadaBoard”), and the Clark County Liquor and Gaming Licensing Board (“CCLGLB”together with the Nevada Commission and the Nevada Board, the “Nevada GamingAuthorities”).  We receivedour license from the Nevada Gaming Authorities as a limited-liability companylicensee in October 2005 and are registered with the Nevada Commission asa publicly traded corporation, referred to as a “Registered Corporation”.  In addition, Florida Hooters LLC and EWCommon LLC are registered with the Nevada Gaming Authorities as intermediarycompanies and licensed as the members of 155 East Tropicana, LLC.  Hooters Gaming LLC, Lags Ventures, LLC, andEastern & Western are registered with the Nevada Gaming Authorities asholding companies and were found suitable as members of Florida Hooters LLC andEW Common LLC, respectively.  Also, Messrs. Lageschulte,DiGiannantonio, Ranieri, Droste, Johnson, Blakely, S. Izumi, T. Izumi andHessling are individually licensed as our managers.  Neil Kiefer, Deborah Pierce and Gary Greggalso hold individual licenses as our officers. Finally, because we pay a percentage of our net profits directly earnedfrom our gaming activities to Hooters Gaming Corporation, it is licensed by theNevada Gaming Authorities as well.

 

The laws, regulations and supervisory procedures of the Nevada GamingAuthorities are based upon declarations of public policy which are concernedwith, among other things:

 

·             the preventionof unsavory or unsuitable persons from having a direct or indirect involvementwith gaming at any time or in any capacity;

 

·             theestablishment and maintenance of responsible accounting practices andprocedures;

 

·             the maintenanceof effective controls over the financial practices of licensees, including theestablishment of minimum procedures for internal fiscal affairs and thesafeguarding of assets and revenues, providing reliable record keeping andrequiring the filing of periodic reports with the Nevada Gaming Authorities;

 

·             the preventionof cheating and fraudulent practices; and

 

·             providing asource of state and local revenues through taxation and licensing fees.

 

Changes in these laws, regulations and procedures could have an adverseeffect on our business, financial condition and results of operations.

 

Corporations and other entities that operate casinos in Nevada arerequired to be licensed by the Nevada Gaming Authorities.  A gaming license for such activities requiresthe periodic payment of fees and taxes and is not transferable.  As a Registered Corporation, we are requiredto periodically submit detailed financial and operating reports to the NevadaCommission and to furnish any other information that the Nevada Commission mayrequire.

 

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The Nevada Gaming Authorities may investigate any individual who has amaterial relationship to or material involvement with us in order to determinewhether such individual is suitable or should be licensed as a businessassociate of a gaming licensee.  Ourowners, officers, managers and certain key employees are required to belicensed by the Nevada Gaming Authorities. The Nevada Gaming Authorities may deny an application for licensing forany cause that they deem reasonable.  Afinding of suitability is comparable to licensing, and both require submissionof detailed personal and financial information followed by a thoroughinvestigation.  Changes in licensedpositions must be reported to the Nevada Gaming Authorities and, in addition totheir authority to deny an application for a finding of suitability orlicensure, the Nevada Gaming Authorities have jurisdiction to disapprove achange in a corporate position.

 

If the Nevada Gaming Authorities were to find an owner, officer,manager or key employee unsuitable for licensing or unsuitable to continuehaving a relationship with us, we would have to sever all relationships withthat person.  In addition, the NevadaCommission may require us to terminate the employment of any person who refusesto file appropriate applications. Determinations of suitability or of questions pertaining to licensingare not subject to judicial review in Nevada.

 

As licensees, we are required to submit detailed financial andoperating reports to the Nevada Commission. Substantially all material loans, leases, sales of securities andsimilar financing transactions by us must be reported to the Nevada Commission.

 

If it were determined that we violated the Nevada gaming laws, ourgaming licenses and registrations with the Nevada Commission could be limited,conditioned, suspended or revoked, subject to compliance with certain statutoryand regulatory procedures.  In addition,we and the persons involved could be subject to substantial fines for eachseparate violation of the Nevada laws at the discretion of the NevadaCommission.  Further, the NevadaCommission could appoint a supervisor to operate our gaming properties and,under certain circumstances, earnings generated during the supervisor’sappointment (except for the reasonable rental value of our gaming properties)could be forfeited to the State of Nevada. Limitation, conditioning or suspension of any gaming license or theappointment of a supervisor could (and revocation of any gaming license would)materially adversely affect our operations.

 

Since we do not intend to register or sell any of our equitysecurities, every holder of our equity securities is required to be licensed bythe Nevada Gaming Authorities.  Inaddition, as 155 East Tropicana, LLC has been licensed by the Nevada GamingAuthorities and has become a Registered Corporation, none of its membershipinterests can be issued, sold, assigned, transferred, pledged, or otherwisedisposed of without the prior approval of the Nevada Board and the NevadaCommission.  In addition, the pledge ofour equity interests as security for the Notes was approved by the Nevada Boardand the Nevada Commission at the time 155 East Tropicana, LLC was licensed byand registered with the Nevada Commission, which was necessary in order forsuch pledge to remain effective.

 

If certain exemptions are granted under the Nevada Act to a RegisteredCorporation, then any person who acquires more than 5% of a RegisteredCorporation’s voting securities is required to report the acquisition to theNevada Commission.  The Nevada Actrequires that beneficial owners of more than 10% of a registered corporation’svoting securities apply to the Nevada Commission for a finding of suitabilitywithin 30 days after the Chairman of the Nevada Board mails the writtennotice requiring the filing for a finding of suitability.  Under certain circumstances, an “institutionalinvestor,” as defined in the regulations of the Nevada Commission, whichacquires more than 10%, but not more than 15%, of our voting securities mayapply to the Nevada Commission for a waiver of such finding of suitability ifthat institutional investor holds the voting securities for investment purposesonly.  An institutional investor will notbe deemed to hold voting securities for investment purposes unless the votingsecurities were acquired and are held in the ordinary course of business as aninstitutional investor and not for the

 

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purpose of causing, directly or indirectly,the election of a majority of the members of our board of managers, any changein our corporate charter, bylaws, management, policies or operations, or any ofour gaming affiliates, or any other action which the Nevada Commission finds tobe inconsistent with holding our voting securities for investment purposesonly.  Activities which are not deemed tobe inconsistent with holding voting securities for investment purposes onlyinclude:

 

·             voting on allmatters voted on by stockholders;

 

·             makingfinancial and other inquiries of management of the type normally made bysecurities analysts for informational purposes and not to cause a change in itsmanagement, policies or operations; and

 

·             otheractivities as the Nevada Commission may determine to be consistent with suchinvestment intent.

 

If the beneficial holder of voting securities who must be foundsuitable is a corporation, partnership or trust, it must submit detailedbusiness and financial information including a list of beneficial owners.  The applicant is required to pay all costs ofinvestigation.

 

Under the Nevada Act, under certain circumstances, an institutionalinvestor as defined in the Nevada Act, which intends to acquire not more than15% of any class of securities of a privately-held corporation, limitedpartnership or limited-liability company that is also a registered holder orintermediary company of the holder of a gaming license, may apply to the NevadaCommission for a waiver of the usual prior licensing or finding of suitabilityrequirements if such institutional investor holds such securities only forinvestment purposes.  An institutionalinvestor shall not be deemed to hold securities only for investment purposesunless the securities were acquired and are held in the ordinary course ofbusiness as an institutional investor, do not give the institutional investormanagement authority, and do not, directly or indirectly, allow theinstitutional investor to vote for the election or appointment of members ofthe board of directors, a general partner or manager, cause any change in thearticles of organization, operating agreement, other organic document,management, policies or operations, or cause any other action that the NevadaCommission finds to be inconsistent with holding securities only for investmentpurposes.  Activities that are not deemedto be inconsistent with holding securities only for investment purposesinclude:

 

·             nominating anycandidate for election or appointment to the entity board of directors orequivalent in connection with a debt restructuring;

 

·             makingfinancial and other inquiries of management of the type normally made by securitiesanalysts for informational purposes and not to cause a change in the entitymanagement, policies or operations; and

 

·             such otheractivities as the Nevada Commission may determine to be consistent with suchinvestment intent.

 

Any person who fails or refuses to apply for a finding of suitabilityor a license within 30 days after being ordered to do so by the NevadaCommission or the Chairman of the Nevada Board, may be found unsuitable.  The same restrictions apply to a record ownerif the record owner, after request, fails to identify the beneficialowner.  Any stockholder found unsuitableand who holds, directly or indirectly, any beneficial ownership of the commonstock of a registered corporation beyond the period of time as may beprescribed by the Nevada Commission may be guilty of a criminal offense.  We may become subject to disciplinary actionif, after receipt of notice that a person is unsuitable to be a stockholder orto have any other relationship with us, we:

 

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·             pay that personany dividend or interest upon voting securities;

 

·             allow thatperson to exercise, directly or indirectly, any voting right conferred throughsecurities held by that person;

 

·             payremuneration in any form to that person for services rendered or otherwise; or

 

·             fail to pursueall lawful efforts to require the unsuitable person to relinquish his votingsecurities for cash at fair market value.

 

Additionally, the CCLGLB has taken the position that it has theauthority to approve all persons owning or controlling the stock of anycorporation controlling a gaming license.

 

We may be required to disclose to the Nevada Board and the NevadaCommission the identities of all holders of our Notes.  The Nevada Commission may, in its discretion,require the holder of any debt security of a Registered Corporation, includingour Notes, to file applications, be investigated and be found suitable to ownthe debt security of a Registered Corporation. If the Nevada Commission determines that a person is unsuitable to own adebt security, then pursuant to the Nevada Act, the Registered Corporation canbe sanctioned, including the loss of its approvals, if without the priorapproval of the Nevada Commission, it:

 

·             pays to theunsuitable person any dividend, interest, or any distribution whatsoever;

 

·             recognizes anyvoting right by the unsuitable person in connection with debt securities;

 

·             pays theunsuitable person remuneration in any form; or

 

·             makes anypayment to the unsuitable person by way of principal, redemption, conversion,exchange, liquidation or similar transaction.

 

We are required to maintain a current membership ledger in Nevada,which may be examined by the Nevada Gaming Authorities at any time.  If any securities are held in trust by anagent or by a nominee, the record holder may be required to disclose theidentity of the beneficial holder to the Nevada Gaming Authorities.  A failure to make such disclosure may begrounds for finding the record holder unsuitable.  We are also required to render maximumassistance in determining the identity of the beneficial owner.  The Nevada Commission has the power torequire our securities to bear a legend indicating that the securities aresubject to the Nevada Act.  However, todate, the Nevada Commission has not imposed such a requirement on us.

 

We may not make a public offering of securities without the priorapproval of the Nevada Commission if the securities or proceeds from thesecurities are intended to be used to construct, acquire or finance gamingfacilities in Nevada, or to retire or extend obligations incurred for thepurposes of constructing, acquiring or financing gaming facilities.  Furthermore, any approval, if granted, doesnot constitute a finding, recommendation or approval by the Nevada Commissionor the Nevada Board as to the accuracy or adequacy of the prospectus or theinvestment merits of the securities offered. Any representation to the contrary is unlawful.  Pursuant to the Nevada Act, any entity whichis not an “affiliated company,” as such term is defined in the Nevada Act, orwhich is not otherwise subject to the provisions of the Nevada Act, includingus, which plans to make a public offering of securities intending to use suchsecurities or the proceeds from the sale thereof for the construction oroperation of gaming facilities in Nevada, or to retire or extend obligationsincurred for such purposes, may apply to the Nevada Commission for priorapproval of such public offering.  The NevadaCommission may find an applicant unsuitable based solely on the fact that itdid not submit such an application, unless upon a written request for a ruling,the Chairman of the Nevada Board has ruled that it is not necessary to submitsuch an application.

 

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Changes in control of a Registered Corporation through merger,consolidation, stock or asset acquisitions, management or consultingagreements, or any act or conduct by a person whereby that person obtainscontrol (including foreclosure on pledged shares), may not occur without theprior approval of the Nevada Commission. Entities seeking to acquire control or ownership of a RegisteredCorporation must satisfy the Nevada Board and Nevada Commission in a variety ofstringent standards prior to assuming control of such RegisteredCorporation.  The Nevada Commission mayalso require the stockholders, officers, managers and other persons having amaterial relationship or involvement with the entity proposing to acquirecontrol, to be investigated and licensed as part of the approval processrelating to the transaction.

 

The Nevada legislature has declared that some corporate acquisitionsopposed by management, repurchases of voting securities and corporate defensetactics affecting Nevada gaming licensees, and Registered Corporations that areaffiliated with those operations, may be injurious to stable and productivecorporate gaming.  The Nevada Commissionhas established a regulatory scheme to ameliorate the potentially adverseeffects of these business practices upon Nevada’s gaming industry and tofurther Nevada’s policy to:

 

·             assure thefinancial stability of corporate gaming operators and their affiliates;

 

·             preserve thebeneficial aspects of conducting business in the corporate form; and

 

·             promote aneutral environment for the orderly governance of corporate affairs.

 

Approvals are, in certain circumstances, required from the NevadaCommission before we can make exceptional repurchases of voting securitiesabove the current market price thereof and before a corporate acquisitionopposed by management can be consummated. The Nevada Act also requires prior approval of a plan ofrecapitalization proposed by the board of directors in response to a tenderoffer made directly to the Registered Corporation’s owners for the purposes ofacquiring control of the Registered Corporation.

 

License fees and taxes, computed in various ways depending on the type ofgaming or activity involved, are payable to the State of Nevada and to thecounties and cities in which the Nevada licensee’s respective operations areconducted.  Depending upon the particularfee or tax involved, these fees and taxes are payable monthly, quarterly orannually and are based upon either:

 

·             a percentage ofthe gross revenues received;

 

·             the number ofgaming devices operated; or

 

·             the number oftable games operated.

 

Any person who is licensed, required to be licensed, registered,required to be registered, or is under common control with such persons, or “licensees,”and who is or who proposes to become involved in a gaming venture outside ofNevada, is required to deposit with the Nevada Board, and thereafter maintain,a revolving fund in the amount of $10,000 to pay the expenses of investigationby the Nevada Board of the licensees’ participation in foreign gaming.  The revolving fund is subject to increase ordecrease in the discretion of the Nevada Commission.  Thereafter, licensees are also required to complywith certain reporting requirements imposed by the Nevada Act.  Licensees are also subject to disciplinaryaction by the Nevada Commission if they knowingly violate any laws of theforeign jurisdiction pertaining to a foreign gaming operation, fail to conductthe foreign gaming operation in accordance with the standards of honesty andintegrity required of Nevada gaming operations, engage in activities or enterinto associations that are harmful to the State of Nevada or its ability tocollect gaming 

 

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taxes and fees, or employ, contract with orassociate with a person in the foreign operation who has been denied a licenseor a finding of suitability in Nevada on the ground of personal unsuitability.

 

**Potential Changesin Tax and Regulatory Requirements**

** **

In the past, federal and state legislators and officials have proposedchanges in tax law, or in the administration of the laws, affecting the gamingindustry.  Regulatory commissions andstate legislatures sometimes consider limitations on the expansion of gaming injurisdictions where we operate and other changes in gaming laws andregulations.  Proposals at the nationallevel have included a federal gaming tax and limitations on the federal incometax deductibility of the cost of furnishing complimentary promotional items tocustomers, as well as various measures which would require withholding onamounts won by customers or on negotiated discounts provided to customers onamounts owed to gaming companies.  It isnot possible to determine with certainty the likelihood of possible changes intax or other laws or in the administration of the laws.  The changes, if adopted, could have amaterial adverse effect on our financial results.

 

**Compliance withOther Laws and Regulations**

** **

In addition to the regulations described above, our operations are alsosubject to extensive state and local laws, regulations and ordinances thatapply to non-gaming businesses generally, and, on a periodic basis, we mustobtain various other licenses and permits, including those required to sellalcoholic beverages.  We have notincurred, and do not expect to incur, material expenditures with respect tothese laws and regulations.  There can beno assurances, however, that we will not incur material liability under theselaws and regulations in the future. See also “Item 1A. Risk Factors—RisksRelated to Our Business—Governmental Regulations” and “—Factors Beyond Our Control.”

 

## ***ITEM 1A.  RISK FACTORS.***

## *** ***

The following risks, if any one or more occurs, could materially harmour business, financial condition or future results of operations.

 

**Risks Related to Our Business**

** **

**Going Concern—*There is substantial doubt about our ability to continue as a goingconcern.***

** **

Uncertainties related to (1) our ability tomeet our payment obligations under the Notes and our other indebtedness and (2) ourreoccurring losses raise a substantial doubt about our ability to continue as agoing concern. The accompanying consolidated financial statements do notinclude any adjustments to reflect the possible future effects on therecoverability and classification of assets or the amounts and classificationsof liabilities that may result should we be unable to continue as a goingconcern. As a result, the report of our independent registered publicaccounting firm on our consolidated financial statements for the year ended December 31,2008 contains an explanatory paragraph with respect to our ability to continueas a going concern. We can provide no assurance that we will be able to securea waiver or amendment related to potential noncompliance under the Notes or theCredit Facility in such a way as to be able to continue as a going concern.

 

**Recent Economic Developments — *Recent instability in thefinancial markets may continue to impact our business.***

 

Recently, the residential real estate market in LasVegas and the U.S. has experienced a significant downturn due to declining realestate values, substantially reducing mortgage loan originations and 

 

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securitizations, and precipitating more generalizedcredit market dislocations and a significant contraction in available liquidityglobally. These factors, combined with fluctuating oil prices, decliningbusiness and consumer confidence and increased unemployment, have precipitatedan economic recession. Individual consumers are experiencing higher delinquencyrates on various consumer loans and defaults on indebtedness of all kinds haveincreased. Further declines in real estate values in Las Vegas and the U.S. orelsewhere and continuing credit and liquidity concerns could have an adverseaffect on our results of operations and are likely to continue until such timeas these aforementioned conditions improve.

 

**Dependence Upon Cash Flow ofProperty—*With our Credit Facility fully drawn,* o*ur cash flow to meet our payment obligations under the Notes and ourother indebtedness and to fund our operations is dependent solely on the hotelcasino.***

** **

Currently our CreditFacility is fully extended and we have no additional availability to borrowagainst the Credit Facility.  As aresult, we now rely exclusively on cash flow generated by the hotel casino tomeet our payment obligations under the Notes and our other indebtedness and tofund our operations and planned or committed capital expenditures, includingany renovation of our existing property. If adverse regional and national economic conditions persist, worsen, orfail to improve significantly, we could experience decreased revenues from ouroperations attributable to decreases in consumer spending levels and could failto generate sufficient cash to fund our liquidity needs or fail to meet ourpayment obligations under the Notes for future interest payments and our otherindebtedness. We cannot provide assurance that our business will generatesufficient cash flow from operations to enable us to pay our indebtedness or tofund our other liquidity needs.  See “Item1A. Risk Factors—Risks Related to the Notes and Other Company Debt—Ability toService Debt.”

 

**Sensitivity to Consumer Spending**—***Ourbusiness is particularly sensitive to reductions in discretionary consumerspending as a result of downturns in the economy.***

 

Consumer demand for casinohotel properties, such as ours, are particularly sensitive to downturns in theeconomy and the corresponding impact on discretionary spending on leisureactivities. Changes in discretionary consumer spending or consumer preferencesbrought about by factors such as perceived or actual general economicconditions, the current housing crisis and the credit crisis, the impact ofhigh energy and food costs, the increased cost of travel, the potential forcontinued bank failures, perceived or actual disposable consumer income andwealth, effects of the current recession and changes in consumer confidence inthe economy, or fears of war and future acts of terrorism could further reducecustomer demand for the amenities that we offer, thus imposing practical limitson pricing and harming our operations.

 

**Domestic and International Events— *Our business may be adversely impacted by domesticand international events.***

 

The terrorist attacks that took place in the UnitedStates on September 11, 2001, were unprecedented events that createdeconomic and business uncertainties, especially for the travel and tourismindustry.  The potential for future terroristattacks, the national and international responses, and other acts of war orhostility, including the ongoing conflicts in Iraq and Afghanistan, havecreated economic and political uncertainties that could materially adverselyaffect our business, results of operations and financial condition in ways wecannot predict.

 

**Gaming Taxes and Fees— *If the State of Nevada or Clark County increasesgaming taxes and fees, our results of operations could be adversely affected.***

 

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** **

State and local authorities raise a significantamount of revenue through taxes and fees on gaming activities. From time totime, legislators and officials have proposed changes in tax laws, or in theadministration of such laws, affecting the gaming industry. In addition,worsening economic conditions could intensify the efforts of state and localgovernments to raise revenues through increases in gaming taxes.  If the State of Nevada or Clark County,Nevada were to increase gaming taxes and fees, our results of operations couldbe adversely affected.  There are severalgaming tax increase proposals currently circulating in Nevada.  One such proposal, a 3% increase in the roomtax, was recently approved by Nevada legislature.  These proposals would take the form of voterreferendum.  If successfully implemented,such an increase would have a material adverse effect on our financialcondition, results of operations or cash flows.

 

**License Agreement—*We are required to pay numerous royalty and other fees to thelicensors, some of whom are our affiliates, for the right to use certainintellectual property.***

** **

The Hooters trademark and logo insignia are the exclusive property ofHooters of America.   Pursuant to certainlicenses and an assignment of those license rights to us, we have aroyalty-bearing license to use certain intellectual property related to the Hootersbrand solely for purposes of the operation of a Hooters Casino Hotel located atour property.  Our operation of theHooters Casino Hotel is conditioned on payment of certain royalty fees toHooters of America and some of our affiliates based on percentages of revenuesand sales generated by our gaming and restaurant activities, as described under“Item 1. Business—Intellectual Property” and “Item 13. Certain Relationshipsand Related Transactions,” and satisfaction of other conditions under thelicense.  Failure to satisfy theconditions could result in termination of the license.  Furthermore, in a bankruptcy of a licensor,the bankruptcy court could conclude that the trademark license agreements areexecutory contracts and, subject to certain legal requirements, may approverejection of the license agreements. Although we would take the position that our license agreement withHooters of America is perpetual and not an executory contract, there can be noassurance that a bankruptcy court would so conclude in a bankruptcy of Hootersof America.  Rejection would give rise toa claim for damages for breach of the license and might prevent us fromcontinuing to use the trademark or on the same terms.  The loss of our license rights could preventus from operating as the Hooters Casino Hotel, which would have a materialadverse effect on our business, financial condition and results of operations.

 

**Use of Hooters Brand—*Use of the Hooters brand by entities other than us, including in LasVegas and other areas of Nevada, could adversely affect our business, financialcondition and results of operations.***

** **

We believe we benefit from the name recognition and reputationgenerated by the Hooters restaurants that are operated worldwide.  We have the right to use the Hooters brandand certain related intellectual property solely for purposes of the HootersCasino Hotel. Hooters Gaming Corporation, an affiliate under common ownershipwith Hooters Gaming LLC, is the sole owner of the right to use the Hootersbrand in connection with the conduct of gaming and the operation of hotelselsewhere in the state of Nevada. Hooters Gaming Corporation has agreed not tooperate (or license or assign its rights to operate) another Hooters CasinoHotel on The Strip until our Notes are no longer outstanding.  Additionally, Hooters Gaming Corporation hasagreed not to operate (or license or assign its rights to operate) anotherHooters Casino Hotel in Clark County, Nevada for a period of four years fromthe issuance of our Notes or such earlier time as none of our Notes are outstanding.  However, Hooters Gaming Corporation or itsassignee can exploit the Hooters brand and logo in connection with hotelcasinos and casinos in other areas of Nevada and elsewhere, including marketingworldwide, and once the Notes are no longer outstanding, on The Strip.  For example, other Hooters Casino Hotelscould be opened in areas (other than The Strip) in Las Vegas and Nevada andthroughout the world where gaming 

 

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operations are permitted. We cannot assurethat the development of other hotel casinos, casinos or restaurants using theHooters brand in Nevada or elsewhere will not adversely affect our business,financial condition and results of operations. Nor can we assure that our business, financial condition and results ofoperations will not be adversely affected by the management of the Hootersbrand or any negative public image or other adverse event that becomesassociated with the Hooters brand.

 

**Licensing—*We are required to maintain gaming, liquor and other licenses tooperate the Hooters Casino Hotel. The gaming industry is highly regulated.***

** **

Our operation of the Hooters Casino Hotel is contingent upon themaintenance of various regulatory licenses, permits, approvals, registrations,findings of suitability, orders and authorizations.  The laws, regulations, and ordinancesrequiring these licenses, permits and other approvals generally relate to theresponsibility, financial suitability and character of the owners and managersof our gaming operations, as well as persons financially interested or involvedin our gaming operations, almost all of whom had never been licensedpreviously.  The scope of the approvalsrequired to operate a facility were extensive. Failure to maintain the necessary approvals could adversely affect ourability to operate the Hooters Casino Hotel. See “Item 1. Business—Regulationand Licensing.”

 

**Risk of a New Venture—*We have a limited operating history or history of earnings as theHooters Casino Hotel.***

** **

We were formed to acquire, operate, renovate and re-brand the Hôtel SanRémo.  While the Hôtel San Rémo has ahistory of operations and a history of earnings, our operating history islimited.  Moreover, our hotel/casino isidentified by the Hooters brand which has not been associated with other hotelsor casinos.  Consequently, we cannot becertain that we will ultimately attract the number and type of hotel and casinocustomers and other visitors we desire to achieve our objective of improvingthe profitability of the hotel casino.

 

We are subject to significant business, economic, regulatory andcompetitive uncertainties frequently encountered by new businesses in competitiveenvironments, many of which are beyond our control.  Because we have a limited operating history,it may be more difficult for us to prepare for and respond to these types ofrisks, and the other types of risks described herein, as compared with anestablished business.  Our businessprospects should be evaluated in light of the difficulties frequentlyencountered by companies in the early stages of gaming projects and the risksinherent in the establishment of a new business enterprise.  There can be no assurance that we will beable to successfully operate the hotel casino or manage these riskssuccessfully, that the hotel casino will be profitable or that we will generatesufficient cash flow to meet our payment obligations under the Notes and ourother indebtedness, which would in turn negatively affect our business,financial condition and results of operations.

 

**Competition—*We are subject to intense local competition as well as competition inthe gaming industry that could hinder our ability to operate profitably.***

** **

Competition in Las Vegas has increased over the last several years as aresult of significant increases in hotel rooms, casino sizes and convention,trade show and meeting facilities.  Inresponse to the recent economic downturn, many competing properties havesignificantly reduced their room rates, which has increased competition.  Our success is dependent upon the success ofthe hotel casino and its continuing ability to attract visitors and operateprofitably.  The hotel casino, locatedone-half block east of The Strip, competes with high-quality Las Vegas resortsand other Las Vegas hotel casinos, including those located on The Strip and indowntown Las Vegas, on the basis of overall atmosphere, range of amenities,level of service, price, location, entertainment offered, theme and size.  Currently, there are 

 

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approximately 37 major gaming propertieslocated on or near The Strip, 13 additional major gaming properties in thedowntown area and additional gaming properties located in other areas of LasVegas.  Some of these facilities areoperated by companies that have more than one operating facility, and many havegreater name recognition and financial and marketing resources than us andmarket to the same target demographic group as we do.  Furthermore, additional major hotel casinosand significant expansion of existing properties, containing a significantnumber of hotel rooms and attractions, are expected to open in Las Vegas withinthe coming years.  There can be noassurance that the Las Vegas market will continue to grow or that hotel casinoresorts will continue to be popular.  Adecline or leveling off of the growth or popularity of such facilities wouldadversely affect our business, financial condition and results ofoperations.  See “Item 1.Business—Competition.”

 

There also is substantial competition among gaming companies in the gamingindustry generally, which includes land-based casinos, dockside casinos,riverboat casinos, casinos located on Native American land, including inCalifornia, and other forms of legalized gambling.  If other casinos operate more successfully,if existing properties are enhanced or expanded, or if additional hotels andcasinos are established in and around the locations where we conduct business,we may lose market share.  We alsocompete, to some extent, with other forms of gaming on both a local and nationallevel, including state-sponsored lotteries, Internet gaming, on- and off-trackwagering and card parlors.  Inparticular, the legalization of gaming or the expansion of legalized gaming inor near any geographic area from which we attract or expect to attract asignificant number of our customers could have a significant adverse effect onour business, financial condition and results of operations.

 

Increased competition may also require us to make substantial capitalexpenditures to maintain and enhance the competitive position of our hotelcasino.  Because we are highly leveraged,after satisfying our obligations under our outstanding indebtedness, there canbe no assurance that we will have sufficient financing to make suchexpenditures.  If we are unable to makesuch expenditures, our competitive position and our results of operations couldbe materially adversely affected.

 

**Governmental Regulations—*We face extensive regulation from gaming and other governmentauthorities.***

** **

As owners and operators of gaming facilities, we are subject toextensive Nevada state and local regulation. Nevada state and local government authorities require us and oursubsidiaries to maintain gaming licenses and require our officers and keyemployees to demonstrate suitability to hold gaming licenses.  The Nevada state and local government maylimit, condition, suspend or revoke a license for any cause deemed reasonableby the respective licensing agency.  Theymay also levy substantial fines against us or the individuals involved inviolating gaming laws or regulations. The occurrence of any of these events could have a material adverseeffect on our business, financial condition and results of operations.

 

No assurances can be given that any new licenses, registrations,findings of suitability, permits and approvals, including for any proposedexpansion of our hotel casino, will be renewed when they expire.  Any failure to renew or maintain our licensesor receive new licenses when necessary would have a material adverse effect onus.

 

We are subject to a variety of other rules and regulations,including zoning, environmental, construction and land-use laws and regulationsgoverning the serving of alcoholic beverages. We also pay substantial taxes and fees in connection with our operationsas a gaming company, which taxes and fees are subject to increase or otherchange at any time.  Any changes to theselaws could have a material adverse effect on our business, financial condition andresults of operations.

 

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The compliance costs associated with these laws, regulations andlicenses are significant.  A change inthe laws, regulations and licenses applicable to our business or a violation ofany current or future laws or regulations or our gaming licenses could requireus to make material expenditures or could otherwise materially adversely affectour business, financial condition or results of operations.  For more detailed information, see “Item 1.Business—Regulation and Licensing.”

 

**Union Efforts to OrganizeEmployees—*Our business, financial condition, and results ofoperations may be harmed by union efforts to organize our employees.***

** **

Our employees were not covered by collective bargaining agreements asof December 31, 2008.  All 22employees in our engineering department voted on March 9, 2007 to berepresented by Operating Engineers Local #501 and Teamsters #995 jointly incollective bargaining.  However, theyvoted to terminate that election in April of 2008.

 

Unionization of our employees could result in disruption in ourbusiness and could incur significant costs, both of which could have a materialadverse effect on our results of operation and financial condition.  We could experience significant increases inour labor costs which could also have a material adverse effect on ourbusiness, financial condition, and results of operations.

** **

**Possible Conflicts ofInterest—*The relationship of our chief executive officer toHooters Inc. and related entities creates potential for conflicts ofinterest.***

** **

Neil Kiefer, our chief executive officer is the President, ChiefExecutive Officer and director of Hooters Inc. and related entities, whichare based in Florida, and some of which may have interests adverse to us.  Due to Mr. Kiefer’s responsibilities toserve both companies, there is potential for conflicts of interest.  At any particular time, the needs ofHooters Inc. could cause Mr. Kiefer to devote attention toHooters Inc. at the expense of devoting attention to us.  In addition, matters may arise that place Mr. Kieferin conflicting positions.  No assurancecan be given that material conflicts will not arise which could be detrimentalto our business, financial condition and results of operations.

 

**Factors Beyond Our Control—*Our business, financial condition and results of operations aredependent in part on a number of factors that are beyond our control.***

** **

The economic health of our business is generally affected by a numberof factors that are beyond our control, including:

 

·             continuedincreases in healthcare costs;

 

·             generaleconomic conditions and economic conditions specific to our primary markets;

 

·             inaccessibilityto our property due to construction on adjoining or nearby properties, streetsor walkways;

 

·             levels of disposableincome of casino customers;

 

·             increasedtransportation costs;

 

·             localconditions in key gaming markets, including seasonal and weather-relatedfactors;

 

·             increase ingaming taxes or fees;

 

·             decline intourism and travel due to occurrences or threats of terrorism or otherdestabilizing events;

 

·             substantialincrease in the cost of electricity, natural gas and other forms of energy;

 

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·             competitiveconditions in the gaming industry, including the effect of such conditions onthe pricing of our games and products;

 

·             the relativepopularity of entertainment alternatives to casino gaming that compete for theleisure dollar;

 

·             the adoption ofanti-smoking regulations; and

 

·             an outbreak orsuspicion of an outbreak of an infectious communicable disease.

 

Any of these factors could negatively impact our property or geographiclocation in particular or the casino industry generally, and as a result, ourbusiness, financial condition and results of operations.

** **

**Environmental Matters—*We are subject to environmental laws and potential exposure toenvironmental liabilities. This may cause us to incur costs or affect ourability to develop, sell or rent our property or to borrow money using suchproperty as collateral.***

** **

We are subject to various federal, state and local environmental laws,ordinances and regulations, including those governing discharges to air and water,the generation, handling, management and disposal of petroleum products,asbestos containing materials and other hazardous substances, and the healthand safety of our employees.  Permits maybe required for our operations and these permits are subject to renewal,modification and, in certain cases, revocation. In addition, as a property owner and operator, we may be liable for thecosts of investigating and remediating these substances or products on, underor in our property, without regard to whether we knew of, or caused, thepresence of the contaminants, and regardless of whether the practices thatresulted in the contamination were legal at the time they occurred.  The presence of, or failure to remediate properly,the substances may adversely affect our ability to sell or lease our propertyor to borrow funds using it as collateral. Additionally, we may be subject to claims by third parties based ondamages and costs resulting from environmental contamination emanating from ourproperty.

 

We have not identified any such issues associated with our propertythat could reasonably be expected to have an adverse effect on us or theresults of our operations.  However, itis possible that historical or neighboring activities have affected ourproperty and, as a result, there can be no assurance that material obligationsor liabilities under environmental laws will not arise in the future which mayhave a material adverse effect on us. Moreover, it is also possible that future developments could lead tomaterial environmental compliance costs or other liabilities for us and thatthese costs could have a material adverse effect on our business and financialcondition.

 

**Uninsured Losses—*We may incur losses that are not adequately covered by insurance whichmay harm our financial condition and results of operations.***

** **

Although we maintain insurance that we believe is customary andappropriate for our business, we cannot assure you that insurance will beavailable or adequate to cover all loss and damage to which our business andour assets might be subjected.  Inconnection with insurance renewals subsequent to the terrorist events of September 11,2001, the insurance coverage for certain types of damages or occurrences havebeen diminished substantially and is unavailable at commercial rates.  The lack of adequate insurance for certaintypes or levels of risk could expose us to significant losses in the event thata catastrophe or lawsuit occurred for which we are underinsured.  Any losses we incur that are not adequatelycovered by insurance may decrease our future operating income, require us tofind a replacement for or repair destroyed property and reduce the fundsavailable for payment of our obligations on the Notes and our otherindebtedness.

 

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**Risks Related to the Notes and Other Company Debt**

** **

**Substantial debt- *our substantial level ofdebt could adversely affect our finanacial condition and prevent us fromfulfilling our obligations under the Notes and our other debt.***

** **

We have substantial debt.   Oursubstantial level of debt could adversely affect our financial condition andprevent us from fulfilling our obligations under the Notes and our other debt.As of December 31, 2008, we have total debt of $141.4 million and $144.8at March 3, 2009.  Due to economicconditions and our results of operations, we will not be able to make ourscheduled interest payment on our Notes on April 1, 2009.   If we are unable to make the interestpayment within the 30-day grace period, an event of default will exist.  A default under the indenture governing ourNotes permits the lenders under our Credit Facility to declare a default underthe Credit Agreement.  See “Risks Relatedto the Notes and Other Company Debt” regarding limitations on collateral andability to exercise remedies.  Oursubstantial debt could have important consequences and significant effects onour business. For example, it could:

 

·             make it moredifficult for us to satisfy our obligations under the Notes and our other debt;

 

·             result in anevent of default if we fail to satisfy our obligations under the Notes or ourother debt or fail to comply with the financial and other restrictive covenantscontained in the indenture governing the Notes or our Credit Facility, whichevent of default could result in all of our debt becoming immediately due andpayable and could permit our lenders to foreclose on our assets securing suchdebt;

 

·             require us todedicate a substantial portion of our cash flow from our business operations topay our debt, thereby reducing the availability of cash flow to fund workingcapital, capital expenditures, development projects, general operationalrequirements and other purposes;

 

·             limit ourability to obtain additional financing for working capital, capitalexpenditures and other activities;

 

·             limit ourflexibility in planning for, or reacting to, changes in our business and theindustry in which we operate;

 

·             increase ourvulnerability to general adverse economic and industry conditions or a downturnin our business; and

 

·             place us at acompetitive disadvantage compared to competitors that are not as highlyleveraged.

 

Any of the above-listed factors could have a material adverse effect onour business, financial condition and results of operations and our ability tomeet our payment obligations under the Notes and our other debt.

 

**Ability to Service Debt—*To service our debt, we will require a significant amount of cash.Based on current operations we are currently unable to service our Notes.***

** **

With our Credit Agreementfully extended, we will rely exclusively on funds generated from our operationsto pay our expenses and to pay the amounts due under the Notes, our CreditFacility and our other debt. Due to our current cash and anticipated cash flowfrom operations, we will not make the $5.7 million interest payment due on April 1,2009.  if we are unable to make thisinterest payment within the 30-day grace period, an event of default under ourindenture will occur and a default under our indenture will also be a defaultunder our Credit Agreement.  Our abilityto meet our expenses and pay additional amounts due under the Notes and otherdebt will depend on our future performance, which will be 

 

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affected by financial, business, economic and otherfactors, many of which we cannot control. If adverse regional and national economic conditions persist, worsen, orfail to improve significantly, we could experience decreased revenues from ouroperations attributable to decreases in consumer spending levels and could failto generate sufficient cash to pay additional amounts due under our debt,including the Notes, or to fund other liquidity needs, such as future capitalexpenditures.  If recent economicconditions, including the availability of credit, persist, worsen, or fail toimprove significantly, we also may be unable to refinance all or part of ourdebt, sell assets, reduce or delay capital expenditures or borrow moremoney.  In addition, the terms ofexisting or future debt agreements, including our Credit Facility and theindenture governing the Notes, may restrict us from adopting any of thesealternatives.

 

**Limitations on Collateral—*The collateral securing the Notes does not include any of our gamingassets or certain other excluded assets.***

** **

The Notes and any subsidiary guarantees thereof are secured by asecurity interest in substantially all of our and any subsidiary guarantors’existing and future assets (other than certain excluded assets), a pledge ofour equity interests and the equity interests in any subsidiaryguarantors.  As of December 31,2008, there are no subsidiary guarantors. The collateral does not include gaming licenses or any gaming equipmentor other assets securing furniture, fixtures and equipment financing, and thereare no restrictions on the amount of gaming equipment financed in thismanner.  The collateral also does notinclude contracts, agreements, licenses (including gaming and liquor licenses)and other rights that by their express terms prohibit the assignment thereof orthe grant of a security interest therein. Some of these may be material to us and such exclusion could have amaterial adverse effect on the value of the collateral.

 

**Value of Collateral Securingthe Notes—*The fair market value of the collateral securingthe Notes may not be sufficient to pay the amounts owed under the Notes.***

** **

The proceeds of any sale of collateral following an event of defaultwith respect to the Notes may not be sufficient to satisfy, and may besubstantially less than, amounts due on the Notes.  No appraisal has been made of thecollateral.  The total value of thecollateral is likely less than the amount due on the Notes.

 

The value of the collateral in the event of liquidation will dependupon market and economic conditions, the availability of buyers and similar factors.  By its nature, some or all of the collateralmay not have a readily ascertainable market value or may not be saleable or, ifsaleable, there may be substantial delays in its liquidation.  To the extent that liens, security interestsand other rights granted to other parties (including the lenders under ourCredit Facility) encumber assets owned by us, those parties have or mayexercise rights and remedies with respect to the property subject to theirliens that could adversely affect the value of that collateral and the abilityof the trustee under the indenture governing the Notes or the holders of theNotes to realize or foreclose on that collateral.  Consequently, we cannot give assurance thatliquidating the collateral securing the Notes would produce proceeds in anamount sufficient to pay any amounts due under the Notes after also satisfyingthe obligations to pay any creditors with prior claims on the collateral.

 

In addition, under the intercreditor agreement between the trusteesunder the indenture governing the Notes and the lenders under our CreditFacility, the right of the lenders to exercise remedies with respect to thecollateral could delay liquidation of the collateral.  The gaming licensing process, along withbankruptcy laws and other laws relating to foreclosure and sale, as discussedbelow, also could substantially delay or prevent the ability of the trustee orany holder of the Notes to obtain the benefit of 

 

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any collateral securing the Notes.  Such delays could have a material adverseeffect on the value of the collateral.

 

The indenture governing the Notes also permits us to designate one ormore of our restricted subsidiaries as an unrestricted subsidiary.  If we designate a restricted subsidiary as anunrestricted subsidiary, all of the liens on any collateral owned by theunrestricted subsidiary or any of its subsidiaries and any guarantees of theNotes by the unrestricted subsidiary or any of its subsidiaries will bereleased under the indenture but not necessarily under our CreditFacility.  Designation of an unrestrictedsubsidiary will reduce the aggregate value of the collateral securing the Notesto the extent that liens on the assets of the unrestricted subsidiary and itssubsidiaries are released.  In addition,the creditors of the unrestricted subsidiary and its subsidiaries will have aprior claim (ahead of the Notes) on the assets of such unrestricted subsidiaryand its subsidiaries.

 

If the proceeds of any sale of collateral are not sufficient to repayall amounts due on the Notes, the holders of the Notes (to the extent notrepaid from the proceeds of the sale of the collateral), would have only anunsecured claim against our remaining assets.

 

**Lien Subordination of Notes—*The lien on the collateral securing the Notes are contractuallysubordinated pursuant to the intercreditor agreement to the liens securing ourCredit Facility.***

** **

The security interests securing the Notes and any guarantees, ifapplicable, of the Notes are contractually subordinated to up to$15.0 million principal amount of debt (plus related interest, fees,indemnities, costs and expenses) that may be incurred under our CreditFacility, pursuant to an intercreditor agreement between the trustee under theindenture governing the Notes and the lenders under our Credit Facility.  In addition, lenders of furniture, fixtures andequipment financing and other purchase money debt have a security interest inthe assets securing that debt, although those assets, so long as they secureonly such debt, will not secure the Notes. The indenture permits unlimited gaming furniture, fixtures and equipmentfinancing and up to $2.5 million of other secured purchase moneyfinancing.  As a result, upon anydistribution to our creditors, whether or not in bankruptcy, liquidation,reorganization or similar proceedings, or following acceleration of our debt oran event of default under such debt, the lenders under our Credit Facility willbe entitled to be repaid in full from the proceeds of the assets securing suchdebt before any payment is made to holders of Notes from such proceeds and thelenders of furniture, fixtures and equipment financing and other purchase moneydebt will be entitled to be repaid in full from the proceeds of the assetssecuring such debt before any payment is made to holders of Notes from suchproceeds.

 

Consequently, the liquidation of the collateral securing the Notes maynot produce proceeds in an amount sufficient to pay the amounts due on theNotes after also satisfying the obligations to pay our Credit Facility lendersand purchase money lenders, even if the fair market value of the collateralsecuring the Notes would be sufficient, absent our Credit Facility and purchasemoney debt, to pay all amounts due on the Notes.  If the proceeds of any sale of collateral arenot sufficient to repay all amounts due on the Notes, the holders of the Notes(to the extent not repaid from the proceeds of the sale of the collateral),would have only an unsecured claim against our remaining assets.

** **

**Limited Ability of Holdersof the Notes to Exercise Remedies—*The rights of the trusteeand holders of Notes to exercise remedies under the indenture governing theNotes are limited by an intercreditor agreement between the trustee and thelenders under our Credit Facility.***

** **

A number of the rights and remedies of the trustee and the holders ofthe Notes are significantly limited under the intercreditor agreement.  For instance, if the Notes become due andpayable prior to the stated maturity or are not paid in full at the statedmaturity at a time during which we have debt 

 

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outstanding under our Credit Facility, thetrustee will not have the right to foreclose upon the collateral that alsosecures the obligations under our Credit Facility unless and until the lendersunder our Credit Facility fail to take steps to exercise remedies with respectto or in connection with such collateral within 90 days following notice tosuch lenders of the occurrence of an event of default under the indenturegoverning the Notes.  In addition, theintercreditor agreement prevents the trustee and the holders of the Notes frompursuing remedies with respect to certain of the collateral in an insolvencyproceeding.

 

The rights and remedies of the trustee also are subject to additionalpractical limitations with respect to certain collateral so long as suchcollateral also secures our Credit Facility. The trustee does not and will not have possession (if certificated) ofour equity interests in any subsidiary guarantors or the equity interests of155 East Tropicana, LLC and 155 East Tropicana Finance Corp. (even though suchequity interests will constitute collateral), so long as such equity interestsalso secure our Credit Facility.  As aresult, so long as such equity interests also secure our Credit Facility, thetrustee (although it will have a perfected security interest in such equityinterests) will not be able to take possession of such equity interests uponthe occurrence of an event of default under the indenture governing theNotes.  In addition, the trustee does nothave a perfected security interest in certain other portions of thecollateral—including deposit accounts—that consist of assets that are notperfected by filing a Uniform Commercial Code financing statement, or thatrequire that the issuers or any subsidiary guarantor, as applicable, to causethe trustee to obtain “control” (as defined in the Uniform Commercial Code) orpossession of such assets (and, after commercially reasonable efforts, theissuers or any such guarantor, as applicable, are unable to cause the trusteeto obtain such control or possession).

 

**Limited Ability of Holdersof Notes to Realize on Collateral—*Gaming laws, bankruptcylaws and other factors may delay or otherwise impede the trustee’s ability toforeclose on the collateral securing the Notes.***

** **

In addition to our intercreditor arrangements with lenders under ourCredit Facility, the gaming laws of the State of Nevada and the licensingprocesses, along with other laws relating to foreclosure and sale, couldsubstantially delay or prevent the ability of the trustee or any holder of theNotes to obtain the benefit of any collateral securing the Notes.  For example, if the trustee sought tooperate, or retain an operator for, any of our gaming properties, the trusteewould be required to obtain Nevada gaming licenses.  Potential purchasers of our gaming propertiesor the gaming equipment would also be required to obtain a Nevada gaming license.  This could limit the number of potentialpurchasers in a sale of our gaming properties or gaming equipment, which maydelay the sale of and reduce the price paid for the collateral.

 

In addition, the trustee’s ability to repossess and dispose ofcollateral is subject to the procedural and other restrictions of state realestate, commercial and gaming law, as well as the prior approval of the lendersunder our Credit Facility.  Among otherthings, if the trustee did conduct a foreclosure sale, and if the proceeds ofthe sale were insufficient, after expenses, to pay all amounts due on theNotes, the trustee might, under certain circumstances, be permitted to assert adeficiency claim against us.  There canbe no assurance that the trustee would be able to obtain a judgment for thedeficiency or that we would have sufficient other assets to pay a deficiencyjudgment.

 

Federal bankruptcy law also could impair the trustee’s ability toforeclose upon the collateral.  If we ora guarantor become a debtor in a case under the United States Bankruptcy Code,as amended, or the Bankruptcy Code, if any, the automatic stay, imposed by theBankruptcy Code upon the commencement of a case, would prevent the trustee fromforeclosing upon the collateral or (if the trustee has already taken control ofthe collateral) from disposing of it, without prior bankruptcy court approval.

 

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The bankruptcy court might permit us to continue to use the collateralwhile the bankruptcy case was pending, even if the Notes were then indefault.  Under the Bankruptcy Code,holders of Notes and the trustee may be entitled to “adequate protection” ofthe interest of holders of Notes in the collateral as provided for in Section 361of the Bankruptcy Code, if necessary to protect against any diminution in valueduring the case.  There can be noassurance that the court would require us to provide holders of Notes with anyform of “adequate protection,” or that any protection so ordered would, infact, be adequate.

 

In a bankruptcy case, the court would allow a claim for all amounts dueunder the Notes, including all accrued and unpaid interest through the date ofbankruptcy.  Under the Bankruptcy Code,interest stops accruing on the date of bankruptcy except under certainspecified circumstances, and there can be no assurance that the court wouldallow a claim for post-bankruptcy interest. If the court held that the value of the collateral securing the Noteswas less than the amount due, the trustee would be permitted to assert asecured claim in an amount equal to the collateral’s value and an unsecuredclaim for the deficiency.

 

For these and other reasons, if we or our subsidiaries, if any, becomedebtors in cases under the Bankruptcy Code, there can be no assurance:

 

·             whether anypayments under the Notes would be made;

 

·             whether or whenthe trustee could foreclose upon or sell the collateral;

 

·             whether theterm or other conditions of the Notes or any rights of the holders could bealtered in a bankruptcy case without the trustee’s or the investors’ consent;

 

·             whether thetrustee or investors would be able to enforce the investors’ rights against theguarantors under their guarantees; or

 

·             whether or towhat extent holders of the Notes would be compensated for any delay in paymentor decline in the collateral’s value.

 

Finally, the trustee’s ability to foreclose on the collateral on behalfof the holders of Notes may be subject to the consent of third parties, priorliens (as discussed above) and practical problems associated with therealization of the trustee’s security interest in the collateral.

 

**Restrictive Covenants—*The indenture governing the Notes and our Credit Facility containcovenants that significantly restrict our operations.***

** **

The indenture governing the Notes and the agreement governing ourCredit Facility contain, and any other future debt agreements may contain,numerous covenants imposing financial and operating restrictions on ourbusiness.  These restrictions may affectour ability to operate our business, may limit our ability to take advantage ofpotential business opportunities as they arise and may adversely affect theconduct of our current business.  Thesecovenants place restrictions on our ability and the ability of our restrictedsubsidiaries to, among other things:

 

·             manage our cash;

 

·             pay dividends,redeem stock or make other distributions or restricted payments;

 

·             incur debt orissue preferred equity interests;

 

·             make certaininvestments;

 

·             create liens;

 

·             agree topayment restrictions affecting the guarantors;

 

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·             consolidate ormerge;

 

·             sell orotherwise transfer or dispose of assets, including equity interests of ourrestricted subsidiaries;

 

·             enter intotransactions with our affiliates;

 

·             designate oursubsidiaries as unrestricted subsidiaries; and

 

·             use theproceeds of permitted sales of our assets.

 

Our failure to comply with our debt-related obligations could result inan event of default under the Notes and our other debt.

 

**Ability to Repurchase Notes—*Our ability to repurchase the Notes upon a change of control or anasset sale may be limited.***

** **

Upon the occurrence of specific “change of control” events and “assetsale” events, in each case as defined in the indenture governing the Notes, wewill be required to offer to repurchase all outstanding Notes at 101% of theprincipal amount (in the case of a change of control) and 100% of the principalamount (in the case of an asset sale), in each case, plus accrued and unpaidinterest to the date of repurchase.  Thelenders under our Credit Facility will have a similar right to be repaid upon achange of control.  Any of our futuredebt agreements may contain similar provisions with respect to a change ofcontrol or asset sale.  However, we maynot have sufficient funds at the time of the change of control or asset sale tomake the required repurchase of Notes or repayment of our other debt.  The terms of our Credit Facility also willlimit our ability to purchase Notes until all debt under our Credit Facility ispaid in full.  Any of our future debtagreements may contain similar restrictions. If we fail to repurchase any Notes submitted in a change of control orasset sale offer, it would constitute an event of default under the indenturewhich would, in turn, constitute an event of default under our Credit Facilityand could constitute an event of default under our other debt, even if the changeof control itself would not cause a default.

 

Important corporate events, such as takeovers, recapitalizations orsimilar transactions, may not constitute a change of control under theindenture governing the Notes and thus not permit the holders of the Notes torequire us to repurchase or redeem the Notes.

 

**Required RegulatoryRedemption—*Note holders may be required to be licensed by agaming authority and, if not so licensed, their Notes will be subject toredemption.***

** **

We are required to notify the Nevada Board as to the identity of, andmay be required to submit background information regarding, each record orbeneficial owner of the Notes.  Forpurposes of these rules, “beneficial interest” includes all direct and indirectforms of ownership or control, voting power or investment power held throughany contract, lien, lease, partnership, stockholding, syndication, jointventure, understanding, relationship, present or reversionary right, title orinterest, or otherwise.  The Nevada Boardmay determine that holders of the Notes have a “beneficial interest” in theissuers.

 

If the Nevada Gaming Authorities require any person, including a recordor beneficial owner of the Notes, to be licensed, qualified or found suitable,that person must apply for a license, qualification or finding of suitabilitywithin the time period specified by the gaming authority.  The person would be required to pay all costsof obtaining a license, qualification or finding of suitability.  If a holder of the Notes is unable orunwilling to obtain such license, qualification or finding of suitability, suchagencies and authorities may not grant us or, if already granted, may suspendor revoke our licenses unless we terminate our relationship with the holder.  Under these circumstances, we would berequired to 

 

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repurchase such Notes.  There can be no assurance that we will havesufficient funds or otherwise will be able to repurchase any or all of theNotes.  See “Item 1. Business—Regulationand Licensing.”

 

**Fraudulent Transfer—*Under certain circumstances, a court could cancel the obligations underthe Notes or any guarantees and the liens that secure the Notes and guarantees.***

** **

Unless designated as an unrestricted subsidiary, each and any domesticsubsidiary we form or acquire will be required to guarantee the Notes and granta security interest in certain of its assets (junior to the security interestgranted to the lenders under our Credit Facility) to secure its guarantee.  Under federal bankruptcy law and comparableprovisions of state fraudulent transfer laws, under certain circumstances acourt could avoid (i.e., cancel) a guarantee and the security interest in theguarantor’s assets, and order the return of any payments made hereunder to theguarantor or to a fund for the benefit of its other creditors.

 

A court might take these actions if it found that when the guarantorentered into its guarantee (or, in some jurisdictions, when payments became dueon its guarantee), (i) it received less than reasonably equivalent valueor fair consideration for its guarantee, and (ii) any of the followingconditions was then satisfied:

 

·             the guarantorwas insolvent or rendered insolvent by reason of incurring its obligationsunder its guarantee or granting a security interest in its assets;

 

·             the guarantorwas engaged in a business or transaction for which its remaining assetsconstituted unreasonably small capital; or

 

·             the guarantorintended to incur, or believed (or reasonably should have believed) that itwould incur, debts beyond its ability to pay as those debts matured.

 

In applying these factors, a court would likely find that a subsidiary guarantordid not receive fair consideration or reasonably equivalent value for itsguarantee, except to the extent that it benefited directly or indirectly fromthe Notes’ issuance.  The determinationof whether a subsidiary was or was rendered “insolvent” would vary depending onthe law of the jurisdiction being applied. Generally, an entity would be considered insolvent if the sum of itsdebts (including contingent or unliquidated debts) is greater than all of its propertyat a fair valuation or if the present fair salable value of its assets is lessthan the amount that will be required to pay its probable liability on itsexisting debts (including contingent or unliquidated debts) as they becomeabsolute and matured.

 

A court might also avoid a guarantor’s guarantee and the securityinterest in its assets, if the court concluded that the guarantor entered intothe guarantee with actual intent to hinder, delay, or defraud creditors.  If a court avoided a guarantor’s guarantee,you would no longer have a claim against that subsidiary, and the claims ofcreditors of the subsidiary generally would be entitled to payment in fullbefore the subsidiary paid any dividends or made any distributions to us forthe purpose of our satisfying any claims under the Notes.

 

Similarly, under federal bankruptcy law and comparable provisions ofstate fraudulent transfer laws, under certain circumstances a court could avoid(i.e., cancel) the Notes and the security interest in an issuer’s assets, andorder the return of any payments made there under to the issuer or to a fundfor the benefit of its other creditors subject to certain safe-harborprovisions.

 

A court might take these actions if it found that when an issuer issuedthe Notes, (i) it received less than reasonably equivalent value or fairconsideration, and (ii) any of the following conditions was thensatisfied:

 

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·             the issuer wasinsolvent or rendered insolvent by reason of incurring obligations under theNotes or granting a security interest in its assets;

 

·             the issuer wasengaged in a business or transaction for which its remaining assets constitutedunreasonably small capital; or

 

·             the issuerintended to incur, or believed (or reasonably should have believed) that itwould incur, debts beyond its ability to pay as those debts matured.

 

In 2005, we used a substantial portion of the proceeds from the Notesto repay amounts due under our then existing indebtedness.  To the extent that we used the proceeds ofthat indebtedness to make payments to Eastern & Western (the parent ofone of our members), in connection with our acquisition of our hotel casino, acourt might find that we did not receive reasonably equivalent value or fairconsideration for incurring our debt obligations under the Notes to repay ourexisting indebtedness.  Alternatively, acourt might find that repayment of the existing indebtedness, which isguaranteed by certain of our affiliates, was for the benefit of theseaffiliates.

 

Regardless of the factors identified above, a court might also avoidthe obligations of the issuers under the Notes and the security interest intheir assets and order the return of any payments made under the Notes eitherto the issuers or to a fund for the benefit of the issuers’ other creditors ifthe court found that the issuers incurred the obligations under the Notes withactual intent to hinder, delay, or defraud creditors of the issuers.

 

## ***ITEM1B.       UNRESOLVED STAFF COMMENTS.***

 

Not applicable.

 

## ***ITEM2.          PROPERTIES.***

 

Our principal properties currently consist of the following:

 

*Hooters Casino Hotel.*  We own the approximately seven-acre site onwhich the Hooters Casino Hotel is located in Las Vegas, Nevada.  The Hooters Casino Hotel consists of anapproximately 29,000 square-foot casino with 696 guest rooms located in thehotel casino building and within two towers. In addition, a six-level, 556-space parking garage is located adjacentto the hotel casino, and 202 additional surface parking spaces are located onthe site.

 

*Executive Offices and Conference Facility.*  We own an approximately two-acre siteconsisting of a one-level, 17,472 square-foot executive office building andconference facility and a 183-space parking lot.

 

Our Credit Facility and our Notes are secured by liens on all of ourreal property.

 

## ***ITEM3.          LEGAL PROCEEDINGS.***

 

From time to time, we are a party to various claims arising in thenormal course of business.  Managementbelieves, however, that there are no proceedings pending or threatened againstus which, if determined adversely, would have a material adverse effect on ourfinancial condition, results of operations or liquidity.

 

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## ***ITEM4.***                             SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

 

Not applicable.

 

# **PART II**

# ** **

## ***ITEM 5.***                           MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERSAND ISSUER PURCHASES OF EQUITY SECURITIES.

 

Not applicable.

 

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## ***ITEM6.***                              SELECTED FINANCIAL DATA.

## *** ***

Thehistorical selected financial data of 155 East Tropicana, LLC and of the HôtelSan Rémo Casino and Resort set forth below should be read in conjunction with “Item7. Management’s Discussion and Analysis of Financial Condition and Results ofOperations” and “Item 8. Financial Statements and Supplementary Data.”  The statement of operations data for theperiods ended December 31, 2008, 2007 and 2006, and the balance sheet dataat December 31, 2008 and 2007 of 155 East Tropicana, LLC are derived from,and are qualified by reference to, the audited financial statements included in“Item 8. Financial Statements and Supplementary Data.”

 

**155EAST TROPICANA, LLC**

 
| ** **                          | ** ** | **As of or for the periods ended** | ** ** |
|-------------------------------------|------------|------------------------------------------------------------------|------------|
| ** **                          | ** ** | **December 31,**                                            | ** ** |
| ** **                          | ** ** | **2008**                                                         | ** ** | **2007** | ** ** | **2006** | ** ** | **2005 (1) (2)** | ** ** |
| ** **                          | ** ** | **(dollars in thousands)**                             | ** ** |
| **Results of Operations:**          |       |                                                             |       |   |   |   |   |   |   |
| Net revenues (3)                    |       | $                                                                | 60,095     |   | $ | 66,480 |   | $ | 67,956 |   | $ | 8,001 |   |
| Operating expenses (4)              |       | 54,282                                                           |       | 59,804 |   | 60,357 |   | 4,314 |   |
| Depreciation                        |       | 6,544                                                            |       | 6,250 |   | 5,842 |   | 1,956 |   |
| Intangible assets impairment charge |       | 3,458                                                            |       | — |   | — |   | — |   |
| Pre-opening expense                 |       | —                                                           |       | — |   | 5,293 |   | 4,825 |   |
| Related party royalties expense     |       | 1,362                                                            |       | 1,387 |   | 1,459 |   | — |   |
| Loss on disposal of assets          |       | —                                                           |       | — |   | 1,199 |   | — |   |
| Total operating loss                |       | (5,551                                                           | )          | (962 | ) | (6,194 | ) | (3,094 | ) |
| Interest expense, net (5)           |       | (13,200                                                          | )          | (13,157 | ) | (12,247 | ) | (8,526 | ) |
| Purchase deposit and extension fee  |       | 5,500                                                            |       | — |   | — |   | — |   |
| Loss on extinguishment of debt      |       | —                                                           |       | — |   | — |   | (2,247 | ) |
| Net loss                            |       | $                                                                | (13,251    | ) | $ | (14,119 | ) | $ | (18,441 | ) | $ | (13,867 | ) |
| **Balance Sheet:**                  |       |                                                             |       |   |   |   |   |   |   |
| Cash and cash equivalents           |       | $                                                                | 4,980      |   | $ | 5,862 |   | $ | 6,164 |   | $ | 14,191 |   |
| Total assets                        |       | 126,427                                                          |       | 139,147 |   | 145,593 |   | 163,159 |   |
| Total debt (6)                      |       | 141,362                                                          |       | 138,587 |   | 134,940 |   | 130,000 |   |
| Total liabilities                   |       | 152,686                                                          |       | 152,154 |   | 144,482 |   | 143,607 |   |
| Members’ (deficit) equity      |       | (26,259                                                          | )          | (13,007 | ) | 1,111 |   | 19,553 |   |

 

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| (1)    |   | We  obtained our gaming and liquor licenses, thereby completing the final stage  of the acquisition of substantially all the assets and certain liabilities of  the hotel casino, in October 2005. The results of operation reflect the  casino and hotel operations from November 1, 2005 through  December 31, 2005. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                  |
| (2)    |   | We  were considered a development stage company until November 1, 2005.                                                                                                                                                                                                                                                          |
|   |   |                                                                                                                                                                                                                                                                                                                                  |
| (3)    |   | Net  revenues for 2005 include related party lease income of $5.4 million received  from Eastern & Western for the lease of the hotel casino from  January 1, 2005 through October 31, 2005.                                                                                                                       |
|   |   |                                                                                                                                                                                                                                                                                                                                  |
| (4)    |   | Excludes  depreciation expense, intangible assets impairment charge, pre-opening  expense, related party royalties expense, and loss on disposal of assets.                                                                                                                                                                           |
|   |   |                                                                                                                                                                                                                                                                                                                                  |
| (5)    |   | Interest  expense, net of interest income.                                                                                                                                                                                                                                                                                            |
|   |   |                                                                                                                                                                                                                                                                                                                                  |
| (6)    |   | Total  debt is classified as current.                                                                                                                                                                                                                                                                                                 |

 

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Thefollowing historical information of the Hôtel San Rémo Casino and Resort isderived from its audited financial statements for 2004 through 2005.

 

**HÔTEL SAN RÉMO CASINO AND RESORT**

 
| ** **                           | ** ** | **Ten Months Ended  October 31,** | ** ** | ** ** | ** ** |
|--------------------------------------|------------|--------------------------------------------------|------------|------------|------------|
| ** **                           | ** ** | **2005 (1)**                                | ** ** | **2004**   | ** ** |
| ** **                           | ** ** | **(dollars in thousands)**             | ** ** | ** ** | ** ** |
| **Results of Operations:**           |       |                                             |       |       |       |
| **Revenues:**                        |       |                                             |       |       |       |
| Casino                               |       | $                                                | 8,947      |       | $          | 12,725 |   |
| Food and beverage                    |       | 5,557                                            |       | 7,969      |       |
| Hotel and other                      |       | 12,217                                           |       | 14,826     |       |
| Gross revenues                       |       | 26,721                                           |       | 35,520     |       |
| Promotional allowances               |       | (1,770                                           | )          | (2,414     | )          |
| Net revenues                         |       | $                                                | 24,951     |       | $          | 33,106 |   |
|                                 |       |                                             |       |       |       |
| **Operating expenses:**              |       |                                             |       |       |       |
| Casino                               |       | $                                                | 5,275      |       | $          | 6,796 |   |
| Food and beverage                    |       | 4,977                                            |       | 6,360      |       |
| Hotel and other                      |       | 3,628                                            |       | 4,377      |       |
| General and administrative           |       | 6,678                                            |       | 7,860      |       |
| Depreciation                         |       | 335                                              |       | 1,419      |       |
| Related party lease expense (2)      |       | 5,439                                            |       | 2,150      |       |
| Restructuring costs                  |       | —                                           |       | 514        |       |
| Total operating expense              |       | $                                                | 26,332     |       | $          | 29,476 |   |
|                                 |       |                                             |       |       |       |
| Operating (loss) income              |       | $                                                | (1,381     | )          | $          | 3,630 |   |
|                                 |       |                                             |       |       |       |
| **Other income (expenses):**         |       |                                             |       |       |       |
| Interest income from affiliate       |       | $                                                | 346        |       | $          | 444 |   |
| Interest expense                     |       | (7                                               | )          | (1,944     | )          |
| Loss on sale of assets               |       | —                                           |       | (2         | )          |
| Foreign currency translation         |       | —                                           |       | 660        |       |
| Total other income (expenses)        |       | 339                                              |       | (842       | )          |
| (Loss) income before income taxes    |       | (1,043                                           | )          | 2,788      |       |
| Benefit (provision) for income taxes |       | 397                                              |       | (867       | )          |
| Net (loss) income                    |       | $                                                | (646       | )          | $          | 1,921 |   |
|                                 |       |                                             |       |       |       |
| **Balance sheet**                    |       |                                             |       |       |       |
| Cash and cash equivalents            |       | $                                                | 2,903      |       | $          | 4,471 |   |
| Total assets                         |       | 8,215                                            |       | 12,297     |       |
| Total debt                           |       | —                                           |       | 236        |       |
| Total liabilities                    |       | 4,355                                            |       | 4,824      |       |
| Division equity                      |       | 3,860                                            |       | 7,473      |       |

 

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(1)          The completion of the final stage of the acquisition of the Hôtel SanRémo Casino and Resort occurred in October 2005, upon receipt of ourgaming and liquor licenses.  The resultsof operation reflect the casino and hotel operations from January 1, 2005through October 31, 2005 when the Hôtel San Rémo Casino and Resort ceasedoperations.

 

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(2)          In connection with the August 3, 2004 contribution of the HôtelSan Rémo Casino and Resort real property and non-gaming assets to us, Eastern &Western entered into lease arrangements to lease back the hotel casino until wereceived all of the necessary government and regulatory approvals to operatethe hotel casino.  In October 2005,we received the necessary gaming and liquor licenses; therefore, the leasearrangements were terminated on October 31, 2005.

 

The following selected quarterly financial data of155 East Tropicana, LLC for the years ended December 31, 2008 and 2007 isderived from the quarterly condensed consolidated financial statements of 155East Tropicana, LLC . The financial data for the fourth quarter of 2008 and2007 are derived from the annual consolidated financial statements of 155 EastTropicana, LLC included in “Item 8 Financial Statements and Supplementary Data.

 

**155 EAST TROPICANA, LLC**

 
| ** **              | ** ** | **For the fiscal quarter ended** | ** ** | ** **                           | ** ** |
|-------------------------|------------|------------------------------------------------------|------------|--------------------------------------|------------|
| ** **              | ** ** | **March 31,  2008**                             | ** ** | **June 30,  2008**              | ** ** | **September 30,  2008** | ** ** | **December 31,  2008** | ** ** | **Total** | ** ** |
| ** **              | ** ** | ** **                                           | ** ** | **(dollars in thousands)** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net revenues            |       | $                                                    | 16,441     |                                 | $          | 16,123 |   | $ | 14,212 |   | $ | 13,319 |   | $ | 60,095 |   |
| Operating (loss) income |       | 1,071                                                |       | 259                                  |       | (1,942 | ) | (4,939 | ) | (5,551 | ) |
| Net income (loss) (1)   |       | (2,195                                               | )          | 2,443                                |       | (5,261 | ) | (8,238 | ) | (13,251 | ) |
|                         |            |                                                      |            |                                      |            |  |  |  |  |  |  |  |  |  |  |  |

 

**155 EAST TROPICANA, LLC**

 
| ** **              | ** ** | **For the fiscal quarter ended** | ** ** | ** **                           | ** ** |
|-------------------------|------------|------------------------------------------------------|------------|--------------------------------------|------------|
| ** **              | ** ** | **March 31,  2007**                             | ** ** | **June 30,  2007**              | ** ** | **September 30,  2007** | ** ** | **December 31,  2007** | ** ** | **Total** | ** ** |
| ** **              | ** ** | ** **                                           | ** ** | **(dollars in thousands)** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net revenues            |       | $                                                    | 17,542     |                                 | $          | 17,540 |   | $ | 16,229 |   | $ | 15,169 |   | $ | 66,480 |   |
| Operating (loss) income |       | 366                                                  |       | (832                                 | )          | (356 | ) | (140 | ) | (962 | ) |
| Net loss                |       | (2,868                                               | )          | (4,127                               | )          | (3,637 | ) | (3,487 | ) | (14,119 | ) |
|                         |            |                                                      |            |                                      |            |  |  |  |  |  |  |  |  |  |  |  |

 

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(1) Netincome for the second quarter of 2008 includes the $5.5 million income from theforfeited purchase deposit and extension fees related to the cancelled sale toHedwigs and net loss for the fourth quarter of 2008 includes the intangibleassets impairment charge of $3.5 million.

 
| ***ITEM 7.*** | *** *** | ***MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL  CONDITION AND RESULTS OF OPERATION.*** |
|---------------|--------------|---------------------------------------------------------------------------------------------------|

## *** ***

Thefollowing discussion should be read in conjunction with, and is qualified inits entirety by, the financial statements and related notes thereto and otherfinancial information included in “Item 8. Financial Statements andSupplementary Data.”  Certain statementsin this Management’s Discussion and Analysis of Financial Condition and Resultsof Operations are forward-looking.

 

ExecutiveOverview

 

***Liquidity and Financial Position***

 

Wehave significant indebtedness and financial commitments in 2009.  As of December 31, 2008, we had $141.4million in debt.  In the first quarter of2009 we borrowed an additional $3.4 million on our Credit Facility, bringingour debt to $144.8 million at March 3, 2009.  Currently, the Credit Facility is fullyextended and we have no additional availability to borrow against the CreditFacility.  We have no other additionalsources of borrowing available, except for certain equipment financing asallowed under our Notes and Credit Facility.

 

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Inaddition to commitments under contractual agreements (see “ContractualObligations”), our financial commitments and estimated capital expenditures in2009 (as of December 31 2008) totaled approximately $14.5 million.  These financial commitments for 2009 consistof contractual maturities of long-term debt totaling $0.2 million, interestpayments on long-term debt, estimated at $13.3 million, and $1.0 million ofestimated capital expenditures.  Inaddition, we entered into a contract in 2009 to purchase a new slot accountingand marketing system for $2.5 million, which is being financed over 3years.  The payments are $78,000 permonth.  To fund our anticipated 2009financial commitments we have the following sources of funds in 2009: (1) availableborrowings under the Credit Facility of $3.4 million, which were borrowedduring the first quarter of 2009, (2) limited equipment financing, (3) operatingcash flow.  Our current expectations for2009 indicate that operating cash flow will be lower than in 2008.  In 2008, we generated approximately $7.4million in cash from operating activities excluding income from forfeitedpurchase deposit and extension fees related to the cancelled sale to Hedwigsand before deducting cash paid for interest, which commitments are included inthe list above.

 

Basedon our anticipated future operations, we do not believe that cash on hand andexpected cash flows will be adequate to meet our anticipated operationalexpenses, debt service on equipment leases and Credit Facility, capitalexpenses, and scheduled payments of interest on our Notes.  As a result, we will be unable to make theinterest payment on the Notes due April 1, 2009.  The note holders could declare a defaultfollowing the expiration of the 30 day grace period provided under theindenture governing the Notes.  An eventof default under the Notes indenture would allow the Credit Facility lender todeclare a default under the Credit Facility. The Notes indenture and Credit Facility contain significant restrictionson our operations.  See Risk Factors –Restrictive Covenants.  Failure to complywith any restriction of the Notes indenture or the Credit Facility by us willcause a default, subject to any applicable grace periods, under the Notesindenture and/or the Credit Facility.  Weexpect to enter into discussions with the note holders and the Credit Facilitylender to attempt to negotiate forbearance agreements pursuant to which theywould agree not to declare, for a specified period of time, an event of defaultunder the indenture or the Credit Facility. We have engaged Jefferies & Company, Inc. as our financialadvisor to assist us with our evaluation of financial and strategicalternatives, which may include a recapitalization, refinancing, restructuringor reorganization of our obligations or a sale of some or all of our business.  We and our advisors are actively workingtoward such a transaction.  We cannotassure you that we will be successful in negotiating a forbearance with thenote holders or Credit Facility lender or in undertaking any such alternativein the near term.

 

Ifwe were not successful in obtaining a forbearance or entering into atransaction to address our liquidity and capital structure, the note holderswould have the ability to accelerate repayment of all amounts outstanding underthe indenture ($135.7 million at March 31, 2009) and the Credit Facilitylender would have the ability to accelerate repayment of all amountsoutstanding under the Credit Facility ($14.5 million at March 31,2009).  If either the Notes indebtednessor the Credit Facility indebtedness were to be accelerated upon a default, wewould be required to refinance or restructure the payments on that debt.  We cannot assure you that we would besuccessful in completing a refinancing or restructuring, if necessary.  If we were unable to do so, we may berequired to seek protection under Chapter 11 of the U. S. Bankruptcy Code.

 

Theconditions and events described above raise a substantial doubt about ourability to continue as a going concern. We have classified all of the debt at December 31, 2008 as currentin the accompanying financial statements, but they do not include alladjustments to reflect the possible future effects on the recoverability andclassification of assets or the amounts and classifications of liabilities thatmay result should we be unable to continue as a going concern.

 

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***Overview for 155 East Tropicana, LLC***

 

155East Tropicana, LLC (“we”, “us”, “our”, or “155”) was formed on June 17,2004 to acquire the Hôtel San Rémo Casino and Resort (“Hôtel San Rémo”), fromEastern & Western Hotel Corporation (“Eastern & Western”).Our common membership interests are held two-thirds through Florida Hooters LLCand one-third through EW Common LLC.

 

FloridaHooters LLC is a joint venture between Hooters Gaming LLC and Lags Ventures,LLC. The owners of Hooters Gaming LLC, which include most of the originalfounders of the Hooters brand, hold licenses to sell wholesale foods and calendarsand to operate hotel casinos in Nevada and Hooters restaurants in Tampa Bay,Florida, Chicago, Illinois, and downtown Manhattan in New York. Lags Ventures,LLC is owned by a holder of the license rights to certain Hooters restaurantsin South Florida and the State of Nevada. Pursuant to these license rights, theowners of Florida Hooters LLC operate 39 Hooters restaurants, publish Hooterscalendars, and operate a Hooters foods business. The owner of Lags Ventures,LLC is also the founder of the Dan Marino concept restaurants and owns andoperates 2 Dan Marino concept restaurants.

 

Eastern &Western owns 90% of EW Common LLC, while our President owns the balance.Eastern & Western owned the Hôtel San Rémo from November 1988until our acquisition of the Hôtel San Rémo in 2004.

 

Ouraffiliates have granted us assignments of certain license agreements pertainingto the use of the Hooters brand as well as the Dan Marino, “13” Martini Bar andPete & Shorty’s concept restaurants, which will allow us to operatethe Hooters Casino Hotel. The original founders of the Hooters brand sold thetrademark rights (excluding certain rights they retained for themselves) toHooters of America in 2001. As a result, Hooters of America is the trademarkowner of the Hooters brand and the operator and franchisor of Hootersrestaurants. Pursuant to the Hooters license assignment; we are required to payHooters of America a royalty fee, which totaled approximately $1.1 million forthe year ending December 31, 2008. Aside from the abovementioned royaltyfee, we are not otherwise affiliated with Hooters of America.

 

InAugust 2004, we agreed to the acquisition of the real property and otherassets of the Hôtel San Rémo for approximately $74.6 million includingtransaction costs and expenses, and as adjusted for final purchase priceadjustments.

 

OnMarch 29, 2005, we issued $130.0 million aggregate principal amountof 83⁄4% Senior Secured Notes due 2012, or the old notes, in a private placement.The old notes were subsequently exchanged with new notes, or (“Notes”),registered under the Securities Act of 1933 on Form S-4. Interest paymentson the Notes are due semi-annually, on each April 1 and October 1. Weused the proceeds from the offering to refinance existing indebtedness, and usedthe remaining proceeds (together with cash from operations and proceeds fromequipment financing) to renovate the hotel casino and to provide workingcapital.

 

Inconnection with the offering, we formed a wholly owned subsidiary, 155 EastTropicana Finance Corp., solely for facilitating the offering as a co-issuer ofthe old notes.

 

Wealso entered into a $15.0 million senior secured credit facility (“CreditFacility”) concurrently with the offering. At December 31, 2008, $11.1million was outstanding on the Credit Facility. As of March 3, 2009, $14.5 million was outstanding on the CreditFacility, which, together with a letter of credit in the amount of $0.5million, represents all of the funds available under the Credit Facility.

 

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Priorto November 1, 2005 we conducted no business operations other than inconnection with the acquisition and subsequent leasing of the Hôtel San Rémo.Through October 31, 2005, Eastern & Western held the gaminglicense in Nevada and owned all gaming assets by the Hôtel San Rémo. Under acasino lease and hotel lease, Eastern & Western operated the Hôtel SanRémo. After obtaining the necessary gaming and liquor licenses to operate thehotel casino in October 2005, we assumed operations of the hotel casino onNovember 1, 2005 and the leases with Eastern & Western wereterminated.

 

Casinorevenue is derived primarily from patrons wagering on slot machines, tablegames and other gaming activities. Table games include blackjack, craps,roulette, and specialty games. Casino revenue is defined as the win from gamingactivities, computed as the difference between gaming wins and losses, not thetotal amount wagered. “Table game drop” and “slot handle” are casino industryspecific terms used to identify the amount wagered by patrons for a casinotable game or slot machine, respectively. “Table game hold” and “slot hold”represent the percentage of the total amount wagered by the patron that thecasino has won. Hold is derived by dividing the amount won by the casino (“tablegame win” and “slot win”) by the amount wagered by the patron. Casino revenueis recognized at the end of each gaming day.

 

Casinorevenues vary from time to time due to general economic conditions, table gamehold, slot hold, and occupancy percentages at the Hooters Casino Hotel andother hotels in Las Vegas. Casino revenues also vary depending upon the amountof gaming activity as well as variations in the odds for different games ofchance. Casino revenues, room revenues, food and beverage revenues, and otherrevenues vary due to general economic conditions and competition.

 

Room revenueis derived from rooms and suites rented to guests. “Average daily rate” is anindustry specific term used to define the average amount of revenue per rentedroom per day. “Occupancy percentage” defines the total percentage of roomsoccupied, and is computed by dividing the number of rooms occupied by the totalnumber of rooms available. Room revenue is recognized at the time the roomis provided to the guest.

 

Food,beverage and entertainment revenues are derived from food and beverage sales inthe food, bar and entertainment outlets of the hotel casino, includingrestaurants, room service, bars, entertainment showroom and banquets. Food,beverage, and entertainment revenue is recognized at the time food and/orbeverage is provided to the guest. “Covers” are the number of patrons served ina food outlet. “Average check” is the average amount of food and beveragerevenue charged to patrons on their restaurant checks.

 

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Thefollowing table summarizes the results of operations of 155 East Tropicana, LLC(in thousands):

 
| ** **                                | ** ** | **155 E. Tropicana, LLC**     | ** ** | **155 E. Tropicana, LLC**           | ** ** | ** **                           | ** ** | **155 E. Tropicana, LLC**     | ** ** | ** **                           | ** ** |
|-------------------------------------------|------------|----------------------------------------------|------------|----------------------------------------------------|------------|--------------------------------------|------------|----------------------------------------------|------------|--------------------------------------|------------|
| ** **                                | ** ** | **Year Ended  December 31,  2008** | ** ** | **Year Ended   December 31,  2007** | ** ** | **%  Change  2008 - 2007** | ** ** | **Year Ended  December 31,  2006** | ** ** | **%  Change  2007 - 2006** | ** ** |
| ** **                                | ** ** | **(dollars in thousands)**         | ** ** |
| Casino revenues                           |       | $                                            | 24,951     |                                               | $          | 24,993                               |       | -0.2                                         | %          | $                                    | 27,075     |   | -7.7 | % |
| Casino expenses                           |       | 14,572                                       |       | 14,883                                             |       | -2.1                                 | %          | 14,349                                       |       | 3.7                                  | %          |
| Profit margin                             |       | 41.6                                         | %          | 40.5                                               | %          | 47.0                                 | %          |                                         |       |                                 |       |
|                                      |       |                                         |       |                                               |       |                                 |       |                                         |       |                                 |       |
| Food, beverage and entertainment revenues |       | $                                            | 22,137     |                                               | $          | 23,318                               |       | -5.1                                         | %          | $                                    | 23,621     |   | -1.3 | % |
| Food, beverage and entertainment expenses |       | 14,501                                       |       | 17,722                                             |       | -18.2                                | %          | 18,974                                       |       | -6.6                                 | %          |
| Profit margin                             |       | 34.5                                         | %          | 24.0                                               | %          |                                 |       | 19.7                                         | %          |                                 |       |
|                                      |       |                                         |       |                                               |       |                                 |       |                                         |       |                                 |       |
| Hotel and other revenues                  |       | $                                            | 20,686     |                                               | $          | 24,484                               |       | -15.5                                        | %          | $                                    | 22,696     |   | 7.9 | % |
| Hotel and other expenses                  |       | 8,066                                        |       | 9,222                                              |       | -12.5                                | %          | 8,786                                        |       | 5.0                                  | %          |
| Profit margin                             |       | 61.0                                         | %          | 62.3                                               | %          |                                 |       | 61.3                                         | %          |                                 |       |
|                                      |       |                                         |       |                                               |       |                                 |       |                                         |       |                                 |       |
| Promotional allowances                    |       | $                                            | 7,678      |                                               | $          | 6,316                                |       | 21.6                                         | %          | $                                    | 5,436      |   | 16.2 | % |
| Percent of gross revenues                 |       | 11.3                                         | %          | 8.7                                                | %          |                                 |       | 7.5                                          | %          |                                 |       |
|                                      |       |                                         |       |                                               |       |                                 |       |                                         |       |                                 |       |
| General and administrative expenses       |       | $                                            | 17,143     |                                               | $          | 17,978                               |       | -4.6                                         | %          | $                                    | 18,248     |   | -1.5 | % |
| Percent of net revenues                   |       | 28.4                                         | %          | 27.0                                               | %          |                                 |       | 26.9                                         | %          |                                 |       |
|                                      |       |                                         |       |                                               |       |                                 |       |                                         |       |                                 |       |
| Depreciation expense                      |       | $                                            | 6,544      |                                               | $          | 6,250                                |       | 4.7                                          | %          | $                                    | 5,842      |   | 7.0 | % |
|                                      |       |                                         |       |                                               |       |                                 |       |                                         |       |                                 |       |
| Intangible assets impairment charge       |       | $                                            | 3,458      |                                               | $          | —                               |       |                                         |       | $                                    | —     |   |   |   |
|                                      |       |                                         |       |                                               |       |                                 |       |                                         |       |                                 |       |
| Pre-opening expenses                      |       | $                                            | —     |                                               | $          | —                               |       |                                         |       | $                                    | 5,293      |   |   |   |
|                                      |       |                                         |       |                                               |       |                                 |       |                                         |       |                                 |       |
| Related party royalties expense           |       | $                                            | 1,362      |                                               | $          | 1,387                                |       | -1.8                                         | %          | $                                    | 1,459      |   | -4.9 | % |
|                                      |       |                                         |       |                                               |       |                                 |       |                                         |       |                                 |       |
| Loss on disposal of assets                |       | $                                            | —     |                                               | $          | —                               |       |                                         |       | $                                    | 1,199      |   |   |   |
|                                      |       |                                         |       |                                               |       |                                 |       |                                         |       |                                 |       |
| Purchase deposit and extension fee        |       | $                                            | 5,500      |                                               | $          | —                               |       |                                         |       | $                                    | —     |   |   |   |
|                                      |       |                                         |       |                                               |       |                                 |       |                                         |       |                                 |       |
| Interest income                           |       | $                                            | 124        |                                               | $          | 91                                   |       | 36.3                                         | %          | $                                    | 499        |   | -81.8 | % |
|                                      |       |                                         |       |                                               |       |                                 |       |                                         |       |                                 |       |
| Interest expense                          |       | $                                            | 13,324     |                                               | $          | 13,248                               |       | 0.6                                          | %          | $                                    | 12,746     |   | 3.9 | % |

## *** ***

***Comparison of Year Ended December 31, 2008 with the Year ended December 31,2007***

 

The current state of theeconomy has negatively impacted our results of operations in 2008 and we expectthat impact to continue in 2009.  Becausewe are in the hospitality and recreation business, which is largely dependanton discretionary spending, we believe that the weak housing market, increasesin unemployment, decreases in air flights to Las Vegas, decreases in the valueof stock and other investments and the general tightening of spending onbusiness travel have all affected visitations to Las Vegas and the spendingbudget of our customers.

 

Our operating results of thefirst quarter of 2009 indicate to us that there may be further decreases invisitor volumes to Las Vegas and in customer spending, including conventionparticipants.  Because of these economicconditions, we have continued to focus on managing costs.  For 2009 we froze management salaries, aremanaging staffing levels, will not make matching contributions to the 401K planand will continue to eliminate other operating expenses where possible.

 

Net loss of $13.3 millionwas generated for the year ended December 31, 2008 compared to a net lossof $14.1 million for the year ended 2007. The $0.8 million improvement was due to $5.5 million in income fromforfeited deposits and extension fees as described in more detail in the paragraphsbelow, netted against a non-cash impairment charge to intangible assets of $3.5million and a decline in net revenue.

 

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The operating loss of $5.6million for the year ended December 31, 2008 increased by $4.6 millionfrom a loss of $1.0 million in the same period last year.  We charged a $3.5 million write-down ofgoodwill and other intangible assets to operations in 2008.  In addition, the remaining decrease inprofitability from operations was due to a decline in revenues of $6.4 million,partially offset by a cost savings of $5.3 million in other operating expenses.

 

Net operating revenues forthe year ended December 31, 2008 were $60.1 million; a decrease of $6.4million or 9.6%, from $66.5 million of net operating revenues for the yearended December 31, 2007 and were largely as a result of the $3.8 millionor 15.5% decline in hotel and other revenues.

 

*Casino.*  Casino revenues were flat at $25.0 millionfor both years ended December 31, 2008 and 2007, in spite of a decline onthe Las Vegas Strip of 10.6% in gaming revenue for the year ended December 31,2008 according to Gaming Revenue Report issued by the Nevada State Gaming ControlBoard.  We outperformed the market due tonew aggressive slot promotions offered during the year.

 

Tablegames revenue was $8.9 million for the year ended December 31, 2008, adecrease of $0.7 million, or 7.2%, compared to the table games revenue of $9.6million from the prior year.  Table gamedrop decreased to $51.9 million, or by 9.0%, for the year ended December 31,2008 compared to $57.0 million for the year ended December 31, 2007, whiletable game hold percentage increased from 16.8% in 2007 to 17.1% in 2008.  The table games generated an average win pertable of $932 per day for the year ended 2008 compared to $873 for the yearended 2007. Slot revenue of $15.5 million for the year ended December 31,2008 was an increase of $0.8 million or 5.5% compared to $14.7 million in thesame period in 2007.  The average win permachine per day was $67 for the year ended December 31, 2008 compared to$62 for the same period in 2007.

 

Casino expenses decreased by$0.3 million or 2.1% to $14.6 million for the year ended December 31, 2008compared to $14.9 million for the year ended December 31, 2007.  The decrease was due to controls over payrolland benefits in the table games department that saved $0.7 million in expenses,partially offset by additional casino marketing expense.  The profit margin for casino operationsincreased from 40.5% during the year ended December 31, 2007 to 41.6%during the year ended December 31, 2008.

 

*Food, beverage and entertainment.*  Food,beverage and entertainment revenue was $22.1 million for the year ended December 31,2008 as compared to $23.3 million for December 31, 2007, a decrease of$1.2 million or 5.1%.  The food revenuesdecreased $0.7 million or 5.6% to $12.2 million for the year ending December 31,2008 compared to $12.9 million for the year ending December 31, 2007.Beverage revenue (which includes complimentary beverages) decreased by $1.0million or 10.4% to $8.5 million for the year ended December 31, 2008 from$9.5 million during the year ended December 31, 2007.  Showroom revenue increased $0.6 million in2008 to $1.4 million as compared to showroom revenue of $0.8 million in 2007.

 

Food,beverage and entertainment expenses decreased from $17.7 million during theyear ended December 31, 2007 to $14.5 million during the year ended December 31,2008, a decrease of $3.2 million or 18.2%. The cost savings were due to the consolidation of food operations fromthree restaurants to two and the elimination of excess labor in foodpreparation.  The profit margin for food,beverage and entertainment operations increased from 24.0% during the yearended December 31, 2007 to 34.5% during the year ended December 31,2008 due to operational efficiencies in payroll and cost of sales.

 

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*Hotel and other.*  Hotel and other revenue (which includes hotelroom revenue, retail, spa and other miscellaneous revenue) decreased by $3.8million, or 15.5%, to $20.7 million for the year ended December 31, 2008from $24.5 million for the year ended December 31, 2007.  Room revenue decreased $3.0 million or16.2% to $15.2 million for the year ended December 31, 2008 compared to$18.2 million in 2007 due to a drop in average daily room rate (“ADR”). The ADRdecreased by 18.5% to $66 for the year ended December 31, 2008 compared to$81 for the prior year.  This drop in ADRexceeds the Las Vegas average decline in ADR of 9.8% as published for 2008 bythe Las Vegas Convention and Visitor Authority (“LVCVA”).  Occupancy for the year ended December 31,2008 increased to 91.6% compared to 89.6% for year ended December 31,2007, an increase of 2.0% in the hotel occupancy.   According to the LVCVA, the average occupancyin Las Vegas dropped 4.4% and visitor counts dropped 4.4% in 2008.

 

Salesfrom the retail outlets was $4.4 million in the year ended December 31,2008, a decrease of $0.5 million from the year ended December 31, 2007.

 

Hotel and other expensesdecreased by $1.1 million or 12.5% from $9.2 million during the year ended December 31,2007 to $8.1 million during the year ended December 31, 2008 due tooperational efficiencies in payroll and departmental expenses. The profitmargin for hotel and other was 61.0% for the year ended December 31, 2008compared to 62.3% for the same period in the prior year.

 

*General and administrative.*  General and administrativeexpense includes costs associated with marketing, information technology, andfinance, accounting, property operations and in 2008, corporate restructuringcosts.  General and administrativeexpense decreased $0.9 million or 4.6% to $17.1 million for the year ended December 31,2008 compared to $18.0 million for the year ended December 31, 2007. Thisdecrease was principally due to a $0.3 million decrease in payroll andbenefits, $0.1 million in insurance, $0.2 million in utilities, $0.2 inadvertising expenses, $0.6 million in general expenses, offset by $0.5 millionspent for corporate restructuring consultants.

 

*Depreciation and amortization expense.* Depreciation and amortization expense of $6.5 million for the year endedDecember 31, 2008 increased by $0.3 million, or 4.7%, from $6.2 millionfor the year ended December 31, 2007.

 

*Intangible assets impairment charge*.  With respect to our goodwill and other indefinite-lived intangibleassets, we performed our annual test during the fourth quarter of 2008.  As a result of this analysis, we recognized anon-cash impairment charge of $2.2 million to write-off the goodwill associatedwith the acquisition of the San Remo Hotel & Casino in 2004 and anon-cash $1.3 million write-down of the Hooters licensing, trademark.  The impairment charges resulted from factorsimpacted by current economic conditions.  We lowered our forecasts of cash flows from operations in future yearsand applied a higher discount rate as a result of the turmoil in the credit andequity markets.

 

*Related party royalties expense.* Beginning on February 3, 2006, we incurred related party royaltyfees pursuant to agreements with Hooters Gaming Corporation, Lags Ventures, Inc.,and Las Vegas Wings, Inc.  Theserelated party royalties expense totaled $1.4 million during both the yearsended December 31, 2008 and 2007. The payment of the related partyroyalties is restricted under the Notes indenture.  The fees can only be paid after the close ofthe fiscal year and only if our debt coverage ratio is 1.5 to 1 for that fiscalyear.  The payments of the royalty feesare further limited to the sum of 2% of revenue and 3% of EBITDA as defined inthe indenture.

 

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*Income on purchase deposit andextension fee*.  In June of 2008, we recorded income onforfeited deposits and extension fees of $5.5 million in connection with thetermination of the purchase agreement (the “Purchase Agreement”) with HedwigsLas Vegas Top Tier, LLC. (“Hedwigs”).

 

*Interest income.*  Interest income was $124,000 for the yearended December 31, 2008, compared to $91,000 for the year ended December 31,2007.

 

*Interest expense.*  Interest expense was $13.3million for the year ended December 31, 2008, compared to $13.2 millionfor the year ended December 31, 2007, an increase of $0.1 million due toan increase in the debt outstanding on the line of credit.  .

 

*Provision for income taxes.*  155 is a limited-liabilitycompany and is treated as a partnership for federal income tax purposes.  Accordingly, a provision for federal incometaxes is not recorded on our consolidated financial statements.  Taxable income or loss will be included inthe income tax returns of the members.

 

***Comparison of Year Ended December 31, 2007 with the Year ended December 31,2006***

 

Incomparing the ended December 31, 2007 to 2006, it should be noted that theHooters Casino Hotel was open for business for the full year ended December 31,2007. The results of operations for the year ended December 31, 2006include the month of January 2006 when the property was essentially closedfor remodeling and the first eleven months of operations of the Hooters CasinoHotel from February 3, 2006 through December 31, 2006.

 

In spite of the negativeeffect of remodeling in January 2006, net operating revenues for the yearended December 31, 2007 were $66.5 million, a decrease of $1.5 million or2.2%, from $68.0 million generated during the previous year. A decrease of $0.9million in net revenue was the result of increased promotional allowancesbecause of increased slot club cash back of $0.4 million and othercomplimentaries given away. Entertainment complimentaries totaled $0.5 milliongiven away to promote trips to the property The media and excitement that accompanied the grand opening of theHooter’s Casino Hotel in February 2006 caused a three month spike inrevenues resulting from trial visitations. The decline in gross revenues in 2007 is largely attributable to adecline in casino revenues.  Table gamesand slot revenues both declined, due to a decrease in casino table drop andcoin-in volumes.

 

*Casino.*Casino revenues decreased by $2.1 million or 7.7% to $25.0 million for the yearended December 31, 2007, compared to $27.1 million for the year ended December 31,2006.  This decline in casino revenue isthe result of a general decline in the property’s visitor traffic.  According to the Nevada Gaming Control Board,although the Las Vegas Strip in total enjoyed a marginal increase in gamingrevenue of 2.1% for 2007 compared to 2006, the smaller Strip properties, suchas we are, reported declines in gaming revenue.

 

Tablegames revenue was $9.5 million for the year ended December 31, 2007, adecrease of $1.5 million or 14% compared to table game revenue of $11.0 millionfrom the year ending December 31, 2006. During the year ended December 31,2007, table game volume (or drop) was reduced by $7.4 million or 11.0%, inaddition to a lower hold percentage. The hold percentage for table game win was16.8% in 2007 compared to 17.1% for the year ended 2006.  The table games generated an average win pertable of $873 per day for the year ended December 31, 2007 as compared to$1,013 per day after the opening of the Hooters Casino on February 3through December 31, 2006.

 

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Accordingto Gaming Revenue Reports published by the Nevada Gaming Control Board, theaverage win per table for the five Las Vegas Strip casinos with average gamingrevenue of $12 to $36 million for 2007 was $773 and table game revenue fell by$4.4 million or 13.6% in 2007 as compared to 2006.  The average win per table game for the sevenLas Vegas Strip casinos with an average gaming revenue of $36 to $72 millionwas $997 in 2007 and table game revenue fell by $8.1 million or 7.4% in 2007 ascompared to 2006.  Our table games winper table for 2007 is within industry norms, although (as occurred in aslightly lesser degree in comparable Strip properties), our table games revenuehas dropped from 2006.   We believe thatthis is indicative of an overall softening of the Las Vegas Strip casinorevenues that has affected smaller properties the hardest.

 

 Slot revenue was $14.6 million for the yearended December 31, 2007, which was a decrease of $0.9 million or 5.8%compared to $15.5 million in the same period in 2006. With the exception of$0.1 million, the entire slot revenue for 2006 was generated after grandopening through December 31, 2006. The average win per machine per day was $62 for the year ended December 31,2007 as compared to $73 from February 3, 2006 to December 31, 2006.Our decrease in slot revenue is not inconsistent with other competitors.

 

Accordingto Nevada Gaming published reports, the average win per unit for the five LasVegas Strip casinos with an average gaming revenue of $12 to $36 million for2007 was $73 in 2007 and slot revenue fell by $9.5 million or 10.4% in 2007 ascompared to 2006.  The average win perunit for the seven Las Vegas Strip casinos with an average gaming revenue of$36 to $72 million was $116 for 2007 and slot revenue fell by $6.7 million or2.4% in 2007 as compared to 2006.    Webelieve that our slot revenue win per unit can be increased to a morecompetitive level in future periods by focusing on special slot promotions,direct marketing programs and other programs targeted to increase casinotraffic.  Those programs were institutedin late 2007 and early 2008.

 

Casino expenses of $14.9million for the year ended December 31, 2007 were up $0.6 million from$14.3 million for the year ended December 31, 2006 due to increased casinomarketing costs and participation fees, offset partially by decreased operatingexpenses on the casino floor. The profit margin for casino operations decreasedfrom 47.0% during the year ended December 31, 2006 to 40.5% during theyear ended December 31, 2007.

 

*Food, beverage, and entertainment.* Food,beverage, and entertainment revenue decreased $0.3 million or 1.3% to $23.3million for the year ended December 31, 2007 compared to $23.6 million forthe year ended December 31, 2006. Beverage revenue of $8.7 million (whichincludes complimentary beverages) decreased by $1.2 million, or 13%, from $10.0million during the year ended December 31, 2006. This decrease is duelargely to the closing of the “13” Martini Bar and a decline in other barrevenues.  Our showroom, which opened midApril 2007, generated $0.8 million in entertainment ticket revenues forthe year ended December 31, 2007, of which $0.5 million was complimentaryrevenues.

 

Foodrevenue increased from $13.6 million for the year ended December 31, 2006to $13.7 million for the year ended December 31, 2007 an increase of $0.1million or 1%. The increase was due to a $1.1 million food revenue increase inMarino’s. Marino’s offered a new dinner special, which generated additionalrevenue.  In addition, the Dam 24-hourcoffee shop was closed on October 24, 2007 and Marino began operations atthat time as a 24-hour restaurant.  Forthe months of November and December 2007, Marino’s revenue increased$0.5 million or 194%, largely due to this change in operations.  The

 

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increasein Marino’s food revenue was partially offset by a decrease of $0.5 million atthe Dam 24-hour coffee shop for 2007 compared to 2006.

 

Food,beverage, and entertainment expenses decreased from $18.9 million during theyear ended December 31, 2006 to $17.7 million during the year ended December 31,2007, a decrease of $1.2 million. The profit margin for food, beverage, andentertainment operations increased to 24% for the year ended December 31,2007 from 19.7% in the same period in 2006 due to cost control. We saved $0.4million in food operating expenses in November and December 2007 as aresult of closing the Dam 24-hour restaurant on October 24, 2007.  We generated these savings because we wereable to consolidate our front-of-the-house serving staff and close kitchenoperations for the Dam restaurant to more efficiently operate out of the Marino’skitchen.  The additional savings were theresult of various cost savings that were initiated throughout the year such asreducing staffing levels to match business levels, cutting entertainment costs,closing sushi and deli operations and reducing other miscellaneous expenses.

 

*Hotel and other.* Hotel and other revenue (whichincludes hotel room revenue, retail, spa, and other miscellaneous revenue)increased $1.8 million to $24.4 million for the year ended December 31,2007 from $22.6 million for the year ended December 31, 2006.

 

Room revenuewas $18.3 million for the year ended December 31, 2007 compared to $16.2million in the same period in 2006. This increase was a result of an increasein occupancy, offset by a decrease in average daily room rates. Average dailyroom rates decreased slightly from $91 for the year ended December 31,2006 to $74 for the year ended December 31, 2007, while occupancy ratesincreased from 78.6% for the year ended December 31, 2006 to 89.6% for theyear ended December 31, 2007. Occupancy rates increased largely because ofsuccessful targeted marketing efforts in southern California and increasedsales through the wholesalers, internet providers and our group sales.

 

Salesfrom our retail outlets selling Hooters logo merchandise decreased 6.0 % from$5.1 million for the year ended December 31, 2006 to $4.8 million for theyear ended December 31, 2007 due to a general decline in traffic. Othermiscellaneous revenue remained constant.

 

Hotel and other expensesincreased to $9.2 million for the year ended December 31, 2007 from $8.8million for the year ended December 31, 2006. These increases in expenseswere largely due to operating the hotel for a full twelve months in 2007, ascompared to eleven month of operations in 2006. Hotel operations cut costs in several areas.  The profit margin for hotel and other of62.3% improved for 2007 compared to 61.3% for 2006. Retail sales generated aprofit margin of 42.91% for the year ended December 31, 2007 compared to47.69% for the year ended December 31, 2006.

 

*General and administrative.* General and administrative expense includes costs associated withmarketing, information technology, and finance, accounting, and propertyoperations. General and administrative expense decreased $0.2 million to $18.0million for the year ended December 31, 2007 compared to $18.2 million forthe year ended December 31, 2006. This decrease was principally due todecreases in advertising and marketing expenses for the year ended December 31,2007 as compared to 2006.

 

*Depreciation and amortization expense.* Depreciation and amortization expense of$6.2 million for the year ended December 31, 2007 increased by $0.4million, or 7.0%, from $5.8 million for the year ended December 31, 2006.This increase in depreciation expense was due to recording a full twelve

 

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monthsof depreciation in 2007 compared to eleven months in 2006 and also depreciationon additional asset purchases.

 

*Related party royalties expense.*Beginning on February 3, 2006, weincurred related party royalty fees pursuant to agreements with Hooters GamingCorporation, Lags Ventures, Inc., and Las Vegas Wings, Inc. Theserelated party royalties expense totaled $1.4 million and $1.5 million duringthe years ended December 31, 2007 and 2006, respectively. The payment ofthe related party royalties is restricted under the Notes indenture. The feescan only be paid after the close of the fiscal year and only if our debtcoverage ratio is 1.5 to 1 for that fiscal year. The payments of the royaltyfees are further limited to the sum of 2% of revenue and 3% of EBITDA, asdefined in the indenture.

 

*Interest income.*Interest income was $90,953 for the year ended December 31, 2007, comparedto $498,607 for the year ended December 31, 2006. In 2006, the Companyearned interest on construction funds, which were used during 2006 to pay forconstruction costs.

 

*Interest expense.* Interest expense was $12.7 million for the year ended December 31,2006, compared to $13.2 million for the year ended December 31, 2007, anincrease of $0.5 million. The increase in interest expense is largelyattributable to $5.3 million in interest expense on the Credit Facility and theequipment purchase agreements we entered into during 2006 and 2007.

 

*Provision for income taxes.* 155 is a limited-liability company and are treated as a partnershipfor federal income tax purposes. Accordingly, a provision for federal incometaxes is not recorded on our consolidated financial statements. Taxable incomeor loss will be included in the income tax returns of the members.

 

***Liquidity and Capital Resources (155 East Tropicana, LLC)***

 

For additional discussion of our liquidity and capitalresources, please see “Liquidity and Financial Position” discussion presentedin the Executive Overview at the beginning of Item 7, “Management Discussionand Analysis of Financial Condition and Results of Operations” and Note 2 tothe accompanying consolidated financial statements.

 

For year ended December 31,2008, we were provided $0.7 million of cash from operating activities, whichwas augmented by income of $5.5 million in forfeited deposits and extensionfees related to the termination of the Purchase Agreement, which we receivedfrom Hedwigs in 2007 and 2008.

 

For the year ended December 31,2008, $0.7 million of cash was used for capital expenditures.

 

For the year ended December 31,2008, we used $0.7 million of cash from financing activities. We borrowed $4.8million on our line of credit, offset by $2.0 million in principal payments ondebt.  Deposits of earnest money andextension fees of $2.0 million received in 2008 (along with $3.5 millionreceived in 2007) were taken to net income upon the termination of the PurchaseAgreement on June 6, 2008.

 

TheNotes indenture contains certain provisions, which restrict or limit ourability to, among other things, incur more debt, pay dividends, redeem stock ormake other distributions, enter into transactions with affiliates or transferor sell assets.

 

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Our Credit Facility is a revolving credit facility of $15.0 million,which originally matured on March 30, 2009.  On August 13, 2008, the term of theCredit Facility was extended to September 30, 2011 with the payment of a$150,000 extension fee.  As of December 31,2008, we had outstanding draws of $11.1 million. An additional $0.5 million ofthe Credit Facility is not available due to an outstanding letter of creditissued.  Subsequent to year end, weborrowed an additional $3.4 million. Currently, the Credit Facility is fully extended and we have noadditional availability to borrow against the Credit Facility.  All outstanding principal and interest underthe Credit Facility is due and payable on September 30, 2011 unlessaccelerated under the default provisions. Due to a potential default under the Note indenture and Credit Facility,we have classified the amount due under the Credit Facility and Notes and allother debt, totaling $141.4 million, as a current liability at December 31,2008.

 

At December 31, 2008,we had cash and cash equivalents of approximately $5.0 million on hand andapproximately $3.4million available under our Credit Facility.   As of March 3, 2009, we had fully drawnour Credit Facility.  As of March 3,2009, the Company had cash and cash equivalents of $7.9 million.

 

**ContractualObligations**

 

Thefollowing table summarizes the contractual commitments of 155 East Tropicana,LLC as of December 31, 2008:

 
| ** **                        | ** ** | **Payments Due By Year** | ** ** |
|-----------------------------------|------------|-----------------------------------------|------------|
| ** **                        | ** ** | **Total**                               | ** ** | **Less than  1 year** | ** ** | **1-3 years** | ** ** | **4-5 years** | ** ** | **Thereafter** | ** ** |
| ** **                        | ** ** | **(dollars in thousands)**    | ** ** |
| Long-term debt (1)                |       | $                                       | 141,080    |   | $ | — |   | $ | 141,080 |   | $ | — |   | — |   |
| Equipment purchase agreements (2) |       | 282                                     |       | 238 |   | 44 |   | — |   | — |   |
| Operating contracts (3)           |       | 6,303                                   |       | 4,852 |   | 1,447 |   | 4 |   | — |   |
| Total                             |       | $                                       | 147,665    |   | $ | 5,090 |   | $ | 142,571 |   | $ | 4 |   | $ | — |   |
|                                   |            |                                         |            |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

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(1)          Thedebt represents the $11.1 million in outstanding draws against our CreditFacility as of December 31, 2008 due on September 30, 2011 and the$130.0 million Notes issued on March 29, 2005 and due in 2012, if theCredit Facility and Notes are not accelerated under default provisions.

 

(2)          Weentered into various equipment purchase agreements in connection with therenovation and rebranding of the Hooters Casino Hotel.

 

(3)          Operatingcontracts represent various contracts for services in connection with theoperations of the Hooters Casino Hotel.

 

***Critical Accounting Policies and Estimates***

 

Managementhas identified the following critical accounting policies that affect the moresignificant judgments and estimates used in the preparation of 155 EastTropicana, LLC’s consolidated financial statements.  The preparation of the financial statementsin conformity with accounting principles generally accepted in the UnitedStates requires management to make estimates and judgments that affect thereported amounts of assets and liabilities, revenue and expenses, and related disclosuresof contingent assets and liabilities.  Onan on-going basis, management evaluates those estimates, including those

 

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relatedto asset impairment, accruals for slot marketing points, compensation andrelated benefits, revenue recognition, allowance for doubtful accounts,contingencies, and litigation.  Theseaccounting policies are stated in the notes to the financial statements and inrelevant sections of the management discussion and analysis.  These estimates are based on the informationcurrently available to management and on various other assumptions thatmanagement believes to be reasonable under the circumstances.  Actual results could vary from thoseestimates and estimates and assumptions may be changed in the future.  Changes in these estimates and assumptionsmay have a material affect on the results of operations and financial conditionof 155 East Tropicana, LLC.

 

Webelieve that the following critical accounting policies affect significantjudgments and estimates used in the preparation of the consolidated financialstatements:

 

*Cash and Cash Equivalents*.  We consider all highly liquidinvestments purchased with original maturities of three months or less to becash equivalents.  The carrying amount ofcash and equivalents approximates its fair value.

 

*Accounts Receivable.* Accounts receivable are due within one year and are recorded net ofamounts estimated to be uncollectible. We reserve an estimated amount for receivables to reduce the receivablesto their net realizable value which approximate fair value.  Historical collection rates and customerrelationships of the previously operated Hôtel San Rémo were considered indetermining the reserve for 155 East Tropicana, LLC.

 

*Inventories.*  Inventories are stated at the lower of cost(using the first-in, first-out method) or market values.

 

*Property and Equipment.*  Property and equipment arestated at cost.  Costs of improvementsare capitalized. Cost of normal repairs and maintenance are charged to expenseas incurred.  Upon the sale or retirementof property and equipment, the cost and related accumulated depreciation areremoved from the respective accounts, and the resulting gain or loss, if any,is included in the accompanying consolidated statements of operations.

 

Depreciationis provided on a straight-line basis over the estimated useful life of theassets.  The service lives of assets aregenerally 30 to 40 years for buildings and 3 to 10 years forfurniture and equipment.

 

Thecarrying values of our assets are reviewed when events or changes incircumstances indicate that the carrying amount of the asset may not berecoverable in accordance with Financial Accounting Standards Board, or theFASB Statement No. 144, Accounting for the Impairment or Disposal ofLong-lived Assets, or SFAS No. 144. Under SFAS No. 144, an asset impairment is determined to exist whenevents or changes in circumstances indicate that the carrying amount of anasset may not be recoverable and if estimated future cash flows, undiscountedand without interest charges, are less than the carrying amount.  If it is determined that an impairment hasoccurred, then an impairment loss is recognized in the consolidated statementof operations and the related assets are adjusted to their estimated fair valueless sales costs.

 

*Deferred Financing Costs.*  Deferred financing costsconsist of loan origination and commitment fees and are amortized to interestexpense over the term of the related financing on a straight line basis whichapproximates the effective interest rate method.

 

*Intangible Assets.*  Intangible assets represent (1) thevalue of intellectual property related to the Hooters brand contributed to uspursuant to an assignment agreement with Florida Hooters LLC, (2) the

 

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valueof the slot club customer list acquired from Eastern & Western, and (3) theexcess of the purchase price over the fair market value of the Hôtel San Rémoassets acquired, or Goodwill.

 

InJune 2001, the FASB issued Statement of Financial Accounting Standards No. 142,*Goodwill and Other Intangible Assets*, orSFAS No. 142. We evaluate the amortization periods and possible impairmentof its intangible assets in accordance with SFAS No. 142 on an annualbasis.  The intellectual property relatedto the Hooters brand contributed to us and the Goodwill are intangible assetsnot subject to amortization.  The slotcustomer list is being amortized using the straight line method over fiveyears.

 

Weperform our annual impairment test for goodwill and indefinite-lived intangibleassets in the fourth quarter of each year. Goodwill is tested for impairment using a discounted cash flow analysisbased on our forecasted future results discounted for cost of capital.  The impairment of the Company’s Hooter’slicense trademark is tested for impairment using the relief-from-royaltymethod.

 

Thereare several estimates inherent in evaluating these assets for impairment.  In particular, future cash flow estimatesare, by their nature, subjective and actual results may differ materially fromour estimates.  In addition, thedetermination of capitalization rates and discount rates used in the goodwillimpairment test are highly judgmental and dependent in large part onexpectations of future market conditions.

 

SeeIntangible Assets in Note 3 of the consolidated financial statements fordiscussion of impairment of goodwill and Hooter’s license trademark recorded in2008.

 

*Jackpots and Prizes.* We have progressive slot machines. As coins are played, the amount available to win increases and will bepaid out when the jackpot is awarded.  Inaccordance with industry practice, we record the liability and expense relatedto such progressives as incurred.

 

*Casino Revenues and Promotional Allowances.*  Inaccordance with industry practice, we recognize as casino revenue the net winfrom gaming activities, which is the difference between gaming wins andlosses.  The retail value of rooms, food,and beverage furnished to customers without charge is included in grossrevenues and then deducted as promotional allowances.

 

*Player Club Points.*  Our slot club allows customersto earn certain complimentary products and services or cash back, based on thevolume of the customer’s gaming activity.  We have recorded a liability for the estimated cost of the complimentaryproducts and services or cash back earned by customers and not redeemed. At thetime redeemed, the retail value of complimentaries under the program isrecorded as revenue with a corresponding offsetting amount included inpromotional allowances.  The costassociated with complimentary food, beverage, rooms, entertainment, andmerchandise redeemed under the program is recorded in casino costs andexpenses.  Play Club points redeemed forcash are recorded as a promotional allowance.

 

*Advertising.*  Prepaid advertising costs are expensed thefirst time the advertising takes place. Advertising costs are included in general and administrative expenses.

 

*Capitalized Interest.*  The interest cost associatedwith a major construction project is capitalized and included in the cost ofthe project.  When no debt is incurredspecifically for a project, interest is capitalized on amounts expended on theproject using the weighted-average cost of our outstanding borrowings.

 

*Income Taxes.*  155 East Tropicana, LLC is alimited-liability company and is taxed as a partnership for federal income taxpurposes.  Accordingly, no provision forfederal income taxes has been

 

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recordedin the accompanying consolidated financial statements since the taxable incomeor loss is included in the income tax return of the members.

 

*Pre-opening Expenses.*  Pre-opening costs are expensedas incurred, consistent with Statement of Position 98-5, Reporting on the Costsof Start-up Activities.

 

*Use of Estimates.*  The preparation of financialstatements in conformity with generally accepted accounting principles in theUnited States requires management to make estimates and assumptions that affectthe reported amounts of assets and liabilities and disclosure of contingentassets and liabilities at the date of the financial statements, and thereported amounts revenues and expenses during the reporting periods. Actualresults could differ from those estimates.

 

*Reclassifications.*  Certain reclassifications, having no effecton net loss, have been made to the previously issued consolidated financialstatements to conform to the current period’s presentation of the Company’sfinancial statements.

 

*Recently Issued AccountingPronouncements.*In December 2008, the FASB issued FASB Staff Position (“FSP”) FAS 140-4and FIN 46(R)-8, Disclosures by PublicEntities (Enterprises) about Transfers of Financial Assets and Interests inVariable Interest Entities. This FASB FSP amends SFAS No. 140, Accounting for Transfers and Servicing ofFinancial Assets and Extinguishments of Liabilities, to require publicentities to provide additional disclosures about transfers of financial assets.It also amends FASB Interpretation No. 46 (R), Consolidation of Variable Interest Entities, to require publicenterprises, including sponsors that have a variable interest in a variableinterest entity, to provide additional disclosures about their involvement withvariable interest entities. Additionally, this FSP requires certain disclosuresto be provided by a public enterprise that is (a) a sponsor of aqualifying special purpose entity (“SPE”) that holds a variable interest in thequalifying SPE but was not the transferor of financial assets to the qualifyingSPE, and (b) a servicer of a qualifying SPE that holds a significantvariable interest in the qualifying SPE but was not the transferor of financialassets to the qualifying SPE. The disclosures required by this FSP are intendedto provide greater transparency to financial statement users about a transferor’scontinuing involvement with transferred financial assets and an enterprise’sinvolvement with variable interest entities and qualifying SPEs. This FSP iseffective for the first reporting period ending after December 15, 2008,and shall apply for each annual and interim reporting period thereafter. Webelieve that the adoption of this FSP will not have a material impact on ourconsolidated financial statements.

 

In**June 2008, the FASB issued FSP No. EITF03-6-1, *Determining Whether InstrumentsGranted In Share-Based Payment Transactions Are Participating Securities*.This FSP concludes that those unvested share-based payment awards that containnon-forfeitable rights to dividends or dividend equivalents, whether paid orunpaid, are participating securities and must be included in the computation ofboth basic and diluted earnings per share (the two-class method). This FSP is effectiveduring the three months ending March 31, 2009 and is to be applied on aretrospective basis to all periods presented. The issue is effective forfinancial statements issued for fiscal years and interim periods within thosefiscal years beginning January 1, 2009. The adoption of FSP No. EITF03-6-1 will not have an impact on our consolidated financial statements.

 

InMay 2008, the FASB issued SFAS No.162, *Hierarchyof Generally Accepted Accounting Principles* (“SFAS 162”). Thisstatement is intended to improve financial reporting by identifying aconsistent framework, or hierarchy, for selecting accounting principles to beused in preparing financial statements of nongovernmental entities that arepresented in conformity with GAAP. This statement was effective November 15,2008*.* We currently adhere to thehierarchy of GAAP as presented in SFAS 162, and the adoption is not expected tohave a material impact on our consolidated financial statements.

 

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InApril 2008, the FASB issued FSP No. FAS 142-3, *Determination of the Useful Life of Intangible Assets*(“FSP 142-3”). FSP 142-3 amends the factors that should be considered indeveloping renewal or extension assumptions used to determine the useful lifeof a recognized intangible asset under SFAS No. 142, *Goodwill and Other Intangible Assets*, andrequires enhanced related disclosures. FSP 142-3 must be applied prospectivelyto all intangible assets acquired as of and subsequent to fiscal yearsbeginning after December 15, 2008.

 

InMarch 2008, the FASB issued SFAS No. 161, *Disclosures about Derivative Instruments and Hedging Activities — AnAmendment of FASB Statement No. 133* (“SFAS 161”). SFAS 161requires enhanced qualitative disclosures about objectives and strategies forusing derivatives, quantitative disclosures about fair value amounts of gainsand losses on derivative instruments, and disclosures about credit-risk-relatedcontingent features in derivative agreements. SFAS 161 is effective forfinancial statements issued for fiscal years and interim periods beginningafter November 15, 2008. We do not believe that the adoption of SFAS 161will have a material impact on our consolidated financial statements.

 

InFebruary 2008, the FASB issued FASB Staff Position No. FAS 157-2, *Effective Date of FASB Statement No. 157*,which defers the effective date of SFAS No. 157, *Fair Value Measurements*, (“SFAS 157”) tofiscal years beginning after November 15, 2008 for nonfinancial assets andnonfinancial liabilities, except for items that are recognized or disclosed atfair value in the financial statements on a recurring basis. Early adoption ofSFAS 157 is permitted.

 

InDecember 2007, the FASB issued SFAS No. 160, *Noncontrolling Interests in Consolidated FinancialStatements — An Amendment of ARB No. 51* (“SFAS 160”). SFAS 160establishes new accounting and reporting standards for the noncontrollinginterest in a subsidiary and for the deconsolidation of a subsidiary.Specifically, this statement requires the recognition of a noncontrollinginterest (minority interest) as equity in the consolidated financial statementsand separate from the parent’s equity. The amount of net income attributable tothe noncontrolling interest will be included in consolidated net income on theface of the income statement. SFAS 160 clarifies that changes in a parent’sownership in a subsidiary that do not result in deconsolidation are equitytransactions if the parent retains its controlling financial interest. Inaddition, this statement requires that a parent recognize a gain or loss in netincome when a subsidiary is deconsolidated. Such gain or loss will be measuredusing the fair value of the noncontrolling equity investment on thedeconsolidation date. SFAS 160 also includes expanded disclosure requirementsregarding the interests of the parent and its noncontrolling interest. SFAS No. 160is effective for fiscal years, and interim periods within those fiscal years,beginning on or after December 15, 2008. We do not believe that theadoption of SFAS 160 will have a material impact on our consolidated financialstatements.

 

InFebruary 2007, the FASB issued SFAS No. 159, *The Fair Value Option for Financial Assets andFinancial Liabilities*. SFAS 159 permits entities to choose tomeasure many financial instruments and certain other items at fair value. Theobjective of the guidance is to improve financial reporting by providingentities with the opportunity to mitigate volatility in reported earningscaused by measuring related assets and liabilities differently without havingto apply complex hedge accounting provisions. SFAS 159 is effective as of the beginning of the first fiscal year afterNovember 15, 2007, provided the provisions of SFAS 157 are alsoapplied.  The Company adopted theprovisions of SFAS No. 159, but chose not to elect the fair value optionfor eligible items that existed at January 1, 2008. Accordingly, theCompany’s adoption of SFAS No. 159 did not have a material impact on itsfinancial position, results of operations or cash flows.

 

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In December 2007, FASB issued SFAS No. 141R,“Business Combinations”.  Under SFAS141R, an acquiring entity will be required to recognize all the assets acquiredand liabilities assumed in a transaction at the acquisition-date fair value,with limited exceptions, replacing SFAS 141’s cost-allocation process.  SFAS 141R also includes a substantial numberof new disclosure requirements.  SFAS141R is to be applied prospectively to business combinations for which theacquisition date is on or after the beginning of the first annual reportingperiod beginning on or after December 15, 2008.  Early adoption is prohibited.  We will adopt SFAS 141R in the first quarterof 2009.  The impact on our accountingfor future business combinations once adopted will be dependent uponacquisitions that are made in the future.

 

In September 2006, theFASB issued SFAS  No. 157, *Fair Value Measurements*, which definesfair value, establishes a framework for measuring fair value in GAAP, andexpands disclosures about fair value measurements.  SFAS 157 does not require any new fair valuemeasurements, but provides guidance on how to measure fair value by providing afair value hierarchy used to classify the source of the information.  SFAS 157 is effective for financialstatements issued for fiscal years beginning after November 15, 2007 andinterim periods within these fiscal years. In February 2008, FASB issued FASB Staff Position (“FSP”) FAS157-2, which defers the effective date of SFAS 157 to fiscal years beginningafter November 15, 2008, and interim periods within those fiscal years,for nonfinancial assets and nonfinancial liabilities that are recognized ordisclosed at fair value in an entity’s financial statements on a recurringbasis.   As such, the Company partiallyadopted the provisions of SFAS No. 157 effective January 1, 2008,without any material impact to the Company’s financial position, results ofoperations or cash flows. The Company expects to adopt the remaining provisionsof SFAS No. 157 beginning in 2009; however, the Company does not expectthis adoption to have a material impact on its financial position, results ofoperations or cash flows.

 

Avariety of proposed or otherwise potential accounting standards are currentlyunder study by standard-setting organizations and certain regulatory agencies.Because of the tentative and preliminary nature of such proposed standards, wehave not yet determined the effect, if any, that the implementation of suchproposed standards would have on our consolidated financial statements.

 
| **ITEM 7A**. | **Quantitative and Qualitative Disclosures About  Market Risk**. |
|--------------|------------------------------------------------------------------|

 

Thefollowing discusses our exposure to market risk related to changes in interestrates, equity prices and foreign currency exchange rates.  We do not believe that their respectiveexposure to market risk is material.

 

Marketrisk is risk of loss arising from changes in market rates and prices, such asinterest rates, foreign currency exchange rates and commodity prices.  At December 31, 2008, we had$130,000,000 aggregate principal amount of the Notes, slot equipment purchaseagreements of $0.2 million carrying an imputed interest rate of 3.327%, andhotel equipment purchase agreements of $0.08 million carrying an imputedinterest rate of 11.72%.   The Notescarry a fixed interest rate of 8.75 %, provided no events of default haveoccurred.  Since the Notes and equipmentpurchase agreements have fixed interest rates, there is no market riskassociated with these loans.  We havemarket risk associated with funds that may be borrowed on our$15.0 million Credit Facility, due to an interest rate that floats withthe LIBOR or prime rate.  The term of ourCredit Facilitywillmature on September 30, 2011.  At December 31,2008, $11.1 million was outstanding under the variable rate Credit Facility,carrying interest at 6.21%.  Assuming a100 basis-point change in LIBOR at December 31, 2008 and assuming nochange in the funds borrowed on the $15.0 million Credit Facility, our annualinterest cost would change by approximately $145,000.

 

**We do not have any significant foreign currency exchange rate risk orcommodity price risk and do not currently trade any market sensitiveinstruments.**

 

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

## *** ***

**INDEX TO FINANCIAL STATEMENTS**

 

Thefollowing consolidated financial statements of 155 East Tropicana, LLC are presented herein on the pages indicated:

 

**155 EAST TROPICANA, LLC**

 
| **AUDITED CONSOLIDATED FINANCIAL STATEMENTS:**           |   |   |
|----------------------------------------------------------|--------|--------|
| Report of Independent Registered Public  Accounting Firm |   | 49     |
| Consolidated Balance Sheets                              |   | 50     |
| Consolidated Statements of Operations                    |   | 51     |
| Consolidated Statements of Members’ Equity          |   | 52     |
| Consolidated Statements of Cash Flows                    |   | 53     |
| Notes to Consolidated Financial Statements               |   | 55     |

 

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### **Table of Contents**

 

**Report of Independent RegisteredPublic Accounting Firm**

 

Tothe Members of 155 East Tropicana, LLC:

 

Wehave audited the accompanying consolidated balance sheets of 155 EastTropicana, LLC and its subsidiary (the “Company”) as of December 31, 2008and 2007, and the related consolidated statements of operations, members’equity (deficit), and cash flows for each of the three years in the periodended December 31, 2008. These financial statements are theresponsibility of the Company’s management.  Our responsibility is toexpress an opinion on these financial statements based on our audits.

 

Weconducted our audits in accordance with the standards of the Public CompanyAccounting Oversight Board (United States). Those standards require that weplan and perform the audit to obtain reasonable assurance about whether thefinancial statements are free of material misstatement. We were not engaged toperform an audit of the Company’s internal control over financial reporting.Our audits included consideration of internal control over financial reportingas a basis for designing audit procedures that are appropriate in thecircumstances, but not for the purpose of expressing an opinion on theeffectiveness of the Company’s internal control over  financial reporting. Accordingly, we expressno such opinion. An audit also includes examining, on a test basis, evidencesupporting the amounts and disclosures in the financial statements, assessingthe accounting principles used and significant estimates made by management,and evaluating the overall financial statement presentation. We believe thatour audits provide a reasonable basis for our opinion.

 

Inour opinion, the financial statements referred to above present fairly, inall material respects, the consolidated financial position of the Company and itssubsidiary at December 31, 2008 and 2007, and the consolidated results oftheir operations and their cash flows for each of the three years in the periodended December 31, 2008, in conformity with U.S. generally acceptedaccounting principles.

 

Theaccompanying financial statements have been prepared assuming that the Companywill continue as a going concern. As more fully described in Note 2, theCompany has incurred recurring operating losses, has a working capitaldeficiency and has an accumulated deficit. In addition, the Company anticipates they will be unable to meet 2009payment obligations under debt agreements, which, absent forebearance or waiverfrom the creditors, will result in an event of default. These conditions raisesubstantial doubt about the Company’s ability to continue as a going concern.Management’s plans in regard to these matters also are described in Note2.  The 2008 financial statements do not include any adjustments toreflect the possible future effects on the recoverability and classification ofassets or the amounts and classification of liabilities that may result fromthe outcome of this uncertainty.

 

 

/s/ Ernst & Young LLP

 

LasVegas, NevadaMarch 31, 2009

 

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### **155 EAST TROPICANA, LLC (A NEVADA LIMITED-LIABILITY COMPANY)**

### ** **

### **CONSOLIDATED BALANCE SHEETS**

 
| ** **                                                                                                          | ** ** | **December 31,** | ** **  | **December 31,** | ** ** |
|---------------------------------------------------------------------------------------------------------------------|------------|-----------------------|-------------|-----------------------|------------|
| ** **                                                                                                          | ** ** | **2008**              | ** **  | **2007**              | ** ** |
| **Assets**                                                                                                          |       |                  |        |                  |       |
| Current assets:                                                                                                     |       |                  |        |                  |       |
| Cash and cash equivalents                                                                                           |       | $                     | 4,980,299   |                  | $          | 5,861,991 |   |
| Accounts receivable, net of allowance for  doubtful accounts of $199,872 and $90,831 in 2008 and 2007, respectively |       | 662,683               |        | 1,880,454             |       |
| Inventories                                                                                                         |       | 839,643               |        | 931,029               |       |
| Prepaid expenses                                                                                                    |       | 1,409,819             |        | 1,576,356             |       |
| Total current assets                                                                                                |       | 7,892,444             |        | 10,249,830            |       |
| Property and equipment, net                                                                                         |       | 111,254,020           |        | 117,084,512           |       |
| Other long-term assets:                                                                                             |       |                  |        |                  |       |
| Deferred financing costs                                                                                            |       | 3,801,924             |        | 4,971,161             |       |
| Intangible assets                                                                                                   |       | 2,995,168             |        | 6,505,209             |       |
| Other assets                                                                                                        |       | 483,695               |        | 336,022               |       |
| Total other long-term assets                                                                                        |       | 7,280,787             |        | 11,812,392            |       |
| Total assets                                                                                                        |       | $                     | 126,427,251 |                  | $          | 139,146,734 |   |
|                                                                                                                |       |                  |        |                  |       |
| **Liabilities and Members’ Equity**                                                                            | ** ** | ** **            | ** **  | ** **            | ** ** |
| Current liabilities:                                                                                                |       |                  |        |                  |       |
| Accounts payable                                                                                                    |       | $                     | 2,794,378   |                  | $          | 2,974,233 |   |
| Accrued interest payable                                                                                            |       | 2,843,750             |        | 2,843,750             |       |
| Accrued liabilities                                                                                                 |       | 1,475,062             |        | 1,399,930             |       |
| Purchase deposit and extension payments                                                                             |       | —                |        | 3,500,000             |       |
| Current portion of long-term debt                                                                                   |       | 141,362,004           |        | 2,035,273             |       |
| Total current liabilities                                                                                           |       | 148,475,194           |        | 12,753,186            |       |
| Related party royalties payable                                                                                     |       | 4,210,567             |        | 2,848,796             |       |
| Long-term debt                                                                                                      |       | —                |        | 136,552,084           |       |
| Total liabilities                                                                                                   |       | 152,685,761           |        | 152,154,066           |       |
|                                                                                                                |       |                  |        |                  |       |
| Commitments and contingencies                                                                                       |       |                  |        |                  |       |
|                                                                                                                |       |                  |        |                  |       |
| Members’ (deficit) equity:                                                                                     |       |                  |        |                  |       |
| Membership interests                                                                                                |       | 34,333,375            |        | 34,333,375            |       |
| Accumulated deficit                                                                                                 |       | (60,591,885           | )           | (47,340,707           | )          |
|                                                                                                                |       | (26,258,510           | )           | (13,007,332           | )          |
| Total liabilities and members’ (deficit)  equity                                                               |       | $                     | 126,427,251 |                  | $          | 139,146,734 |   |

 

*Theaccompanying notes are an integral part of these consolidated financial**statements.*

 

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**155 East Tropicana, LLC (A Nevada Limited-Liability Company)**

 

### **CONSOLIDATED STATEMENTS OF OPERATIONS**

 
| ** **                                                                                                                                      | ** ** | **Year Ended  December 31,** | ** **  | **Year Ended  December 31,** | ** ** | **Year Ended  December 31,** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------------|-------------|----------------------------------------|------------|----------------------------------------|------------|
| ** **                                                                                                                                      | ** ** | **2008**                               | ** **  | **2007**                               | ** ** | **2006**                               | ** ** |
| ** **                                                                                                                                      | ** ** | ** **                             | ** **  | ** **                             | ** ** | ** **                             | ** ** |
| Operating revenues:                                                                                                                             |       |                                   |        |                                   |       |                                   |       |
| Casino                                                                                                                                          |       | $                                      | 24,950,887  |                                   | $          | 24,993,443                             |       | $ | 27,075,446 |   |
| Food, beverage and entertainment                                                                                                                |       | 22,136,579                             |        | 23,318,248                             |       | 23,620,776                             |       |
| Hotel and other                                                                                                                                 |       | 20,685,695                             |        | 24,483,805                             |       | 22,696,316                             |       |
|                                                                                                                                            |       | 67,773,161                             |        | 72,795,496                             |       | 73,392,538                             |       |
| Less promotional allowances                                                                                                                     |       | (7,678,360                             | )           | (6,315,609                             | )          | (5,436,431                             | )     |
| Net operating revenues                                                                                                                          |       | 60,094,801                             |        | 66,479,887                             |       | 67,956,107                             |       |
|                                                                                                                                            |       |                                   |        |                                   |       |                                   |       |
| Operating expenses:                                                                                                                             |       |                                   |        |                                   |       |                                   |       |
| Casino                                                                                                                                          |       | 14,572,098                             |        | 14,882,800                             |       | 14,349,153                             |       |
| Food, beverage and entertainment                                                                                                                |       | 14,501,343                             |        | 17,721,954                             |       | 18,973,914                             |       |
| Hotel and other                                                                                                                                 |       | 8,065,765                              |        | 9,222,140                              |       | 8,785,883                              |       |
| General and administrative                                                                                                                      |       | 17,142,894                             |        | 17,977,767                             |       | 18,248,203                             |       |
| Depreciation and amortization                                                                                                                   |       | 6,543,518                              |        | 6,249,991                              |       | 5,841,526                              |       |
| Intangible assets impairment charge                                                                                                             |       | 3,458,131                              |        | —                                 |       | —                                 |       |
| Pre-opening expenses                                                                                                                            |       | —                                 |        | —                                 |       | 5,292,834                              |       |
| Related party royalties expense                                                                                                                 |       | 1,361,772                              |        | 1,386,914                              |       | 1,459,162                              |       |
| Loss on disposal of assets                                                                                                                      |       | —                                 |        | —                                 |       | 1,199,470                              |       |
| Total operating expenses                                                                                                                        |       | 65,645,521                             |        | 67,441,566                             |       | 74,150,145                             |       |
| Operating loss                                                                                                                                  |       | (5,550,720                             | )           | (961,679                               | )          | (6,194,038                             | )     |
|                                                                                                                                            |       |                                   |        |                                   |       |                                   |       |
| Other income (expense):                                                                                                                         |       |                                   |        |                                   |       |                                   |       |
| Interest expense, net of capitalized  interest of $0, $0, and $202,873 for the years ended December 31, 2008,  2007 and 2006, respectively |       | (13,324,441                            | )           | (13,248,133                            | )          | (12,745,839                            | )     |
| Interest income                                                                                                                                 |       | 123,983                                |        | 90,953                                 |       | 498,607                                |       |
| Forfeited purchase deposit and extension fee                                                                                                    |       | 5,500,000                              |        | —                                 |       | —                                 |       |
| Other income (expense), net                                                                                                                     |       | (7,700,458                             | )           | (13,157,180                            | )          | (12,247,232                            | )     |
| Net loss                                                                                                                                        |       | $                                      | (13,251,178 | )                                      | $          | (14,118,859                            | )          | $ | (18,441,270 | )  |
|                                                                                                                                            |       |                                   |        |                                   |       |                                   |       |
| Income (loss) allocable to preferred and  common member interests:                                                                              |       |                                   |        |                                   |       |                                   |       |
| Income allocable to preferred interest EW  Common, LLC                                                                                          |       | $                                      | 1,000,000   |                                   | $          | 1,000,000                              |       | $ | 833,333 |   |
|                                                                                                                                            |       |                                   |        |                                   |       |                                   |       |
| Loss allocable to common member interests                                                                                                       |       | (14,251,178                            | )           | (15,118,859                            | )          | (19,274,603                            | )          |
| Net loss                                                                                                                                        |       | $                                      | (13,251,178 | )                                      | $          | (14,118,859                            | )          | $ | (18,441,270 | )  |

 

*The accompanying notes are an integral part of theseconsolidated financial**statements*****

 

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**155 East Tropicana, LLC (A Nevada Limited-Liability Company)**

 

### **CONSOLIDATEDSTATEMENTS OF MEMBERS’ (DEFICIT) EQUITY**

 
| ** **                                             | ** ** | **Florida Hooters  LLC** | ** **  | **EW Common  LLC** | ** ** | **Total**   | ** ** |
|--------------------------------------------------------|------------|-------------------------------|-------------|-------------------------|------------|-------------|------------|
| ** **                                             | ** ** | ** **                    | ** **  | ** **              | ** ** | ** **  | ** ** |
| Balance at December 31, 2005                      |       | (520,343                      | )           | 20,073,140              |       | 19,552,797  |       |
|                                                   |       |                          |        |                    |       |        |       |
| Net loss during the year ended  December 31, 2006 |       | (12,294,180                   | )           | (6,147,090              | )          | (18,441,270 | )          |
|                                                   |       |                          |        |                    |       |        |       |
| Balance at December 31, 2006                      |       | (12,814,523                   | )           | 13,926,050              |       | 1,111,527   |       |
|                                                   |       |                          |        |                    |       |        |       |
| Net loss during the year ended  December 31, 2007 |       | (9,412,573                    | )           | (4,706,286              | )          | (14,118,859 | )          |
|                                                   |       |                          |        |                    |       |        |       |
| Balance at December 31, 2007                      |       | (22,227,096                   | )           | 9,219,764               |       | (13,007,332 | )          |
|                                                   |       |                          |        |                    |       |        |       |
| Net loss during the year ended December 31,  2008 |       | (8,834,163                    | )           | (4,417,015              | )          | (13,251,178 | )          |
|                                                   |       |                          |        |                    |       |        |       |
| Balance at December 31, 2008                      |       | $                             | (31,061,259 | )                       | $          | 4,802,749   |       | $ | (26,258,510 | ) |
|                                                        |            |                               |             |                         |            |             |            |  |  |  |

 

* The accompanying notes are an integral part ofthese consolidated financial**statements.*

 

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**155 East Tropicana, LLC (A Nevada Limited-Liability Company)**

 

### **CONSOLIDATED STATEMENTS OF CASH FLOWS**

 
| ** **                                                                       | ** ** | **Year Ended  December 31,  2008** | ** **  | **Year Ended  December 31,  2007** | ** ** | **Year Ended  December 31,  2006** | ** ** |
|----------------------------------------------------------------------------------|------------|----------------------------------------------|-------------|----------------------------------------------|------------|----------------------------------------------|------------|
| ** **                                                                       | ** ** | ** **                                   | ** **  | ** **                                   | ** ** | ** **                                   | ** ** |
| **Cash Flow From Operating Activities**                                          |       |                                         |        |                                         |       |                                         |       |
| Net loss                                                                         |       | $                                            | (13,251,178 | )                                            | $          | (14,118,859                                  | )          | $ | (18,441,270 | ) |
| Adjustments to reconcile net loss to net  cash provided by operating activities: |       |                                         |        |                                         |       |                                         |       |
| Depreciation and amortization                                                    |       | 6,543,518                                    |        | 6,249,991                                    |       | 5,841,526                                    |       |
| Amortization of debt issuance costs                                              |       | 1,169,237                                    |        | 1,395,464                                    |       | 1,299,484                                    |       |
| Amortization of intangible asset                                                 |       | 51,910                                       |        | 51,910                                       |       | 51,909                                       |       |
| Intangible assets impairment charge                                              |       | 3,458,131                                    |        | —                                       |       | —                                       |       |
| Loss on disposal of assets                                                       |       | —                                       |        | —                                       |       | 1,199,470                                    |       |
| Changes in assets and liabilities:                                               |       |                                         |        |                                         |       |                                         |       |
| Accounts receivable                                                              |       | 1,217,771                                    |        | (270,698                                     | )          | (961,980                                     | )          |
| Inventories                                                                      |       | 91,386                                       |        | (84,378                                      | )          | (700,312                                     | )          |
| Prepaid expenses                                                                 |       | 166,537                                      |        | (6,376                                       | )          | (794,144                                     | )          |
| Accounts payable                                                                 |       | (179,855                                     | )           | 5,169                                        |       | (354,035                                     | )          |
| Accrued interest payable                                                         |       | —                                       |        | —                                       |       | (20,646                                      | )          |
| Accrued liabilities                                                              |       | 75,132                                       |        | (866,810                                     | )          | 882,091                                      |       |
| Related party royalties payable                                                  |       | 1,361,771                                    |        | 1,386,915                                    |       | 1,461,881                                    |       |
| Net cash provided by (used in) operating  activities                             |       | 704,360                                      |        | (6,257,672                                   | )          | (10,536,026                                  | )          |
|                                                                             |       |                                         |        |                                         |       |                                         |       |
| **Cash Flow From Investing Activities**                                          |       |                                         |        |                                         |       |                                         |       |
| Capital expenditures                                                             |       | (713,026                                     | )           | (886,100                                     | )          | (19,693,731                                  | )          |
| Change in construction payable                                                   |       | —                                       |        | —                                       |       | (6,034,450                                   | )          |
| Change in restricted cash                                                        |       | —                                       |        | —                                       |       | 29,345,513                                   |       |
| Decrease (increase) in other assets                                              |       | (147,674                                     | )           | 7,251                                        |       | 518,292                                      |       |
| Net cash (used in) provided by investing  activities                             |       | $                                            | (860,700    | )                                            | $          | (878,849                                     | )          | $ | 4,135,624 |   |

 

* The accompanying notes are an integral part ofthese consolidated financial**statements.*

 

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**155 East Tropicana, LLC (A Nevada Limited-Liability Company)**

 

### **CONSOLIDATEDSTATEMENTS OF CASH FLOWS (CONTINUED)**

** **
| ** **                                             | ** ** | **Year Ended  December 31,  2008** | ** ** | **Year Ended  December 31,  2007** | ** ** | **Year Ended  December 31,  2006** | ** ** |
|--------------------------------------------------------|------------|----------------------------------------------|------------|----------------------------------------------|------------|----------------------------------------------|------------|
| ** **                                             | ** ** | ** **                                   | ** ** | ** **                                   | ** ** | ** **                                   | ** ** |
| **Cash Flow From Financing Activities**                |       |                                         |       |                                         |       |                                         |       |
| Payment of debt financing costs                        |       | $                                            | —     |                                         | $          | —                                       |       | (379,370 | ) |
| Proceeds from issuance of long-term debt               |       | 4,824,212                                    |       | 5,342,955                                    |       | 912,610                                      |       |
| Due to/from Hôtel San Rémo                   |       | —                                       |       | —                                       |       | 30,508                                       |       |
| Principal payments on equipment purchase  agreements   |       | (2,049,565                                   | )          | (2,008,635                                   | )          | (2,190,539                                   | )          |
| Redemption of purchase deposits and  extension fees    |       | (5,500,000                                   | )          |                                         |       |                                         |       |
| Proceeds from purchase deposit and  extension payments |       | 2,000,000                                    |       | 3,500,000                                    |       | —                                       |       |
| Net cash (used in) provided by financing  activities   |       | (725,353                                     | )          | 6,834,320                                    |       | (1,626,791                                   | )          |
|                                                   |       |                                         |       |                                         |       |                                         |       |
| Decrease in cash and cash equivalents                  |       | (881,692                                     | )          | (302,201                                     | )          | (8,027,193                                   | )          |
| Cash and cash equivalents, beginning of  period        |       | 5,861,991                                    |       | 6,164,192                                    |       | 14,191,385                                   |       |
| Cash and cash equivalents, end of period               |       | $                                            | 4,980,299  |                                         | $          | 5,861,991                                    |       | $ | 6,164,192 |   |
|                                                   |       |                                         |       |                                         |       |                                         |       |
| **Supplemental disclosure of cash flow  information**  |       |                                         |       |                                         |       |                                         |       |
| Cash paid for interest, net of capitalized  interest   |       | $                                            | 12,155,204 |                                         | $          | 11,852,669                                   |       | $ | 12,766,485 |   |
|                                                   |       |                                         |       |                                         |       |                                         |       |
| Assets acquired through equipment purchase  agreements |       | $                                            | —     |                                         | $          | 312,619                                      |       | $ | 6,218,347 |   |

 

* The accompanying notes are an integral part ofthese consolidated financial**statements.*

 

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**155 East Tropicana, LLC (A Nevada Limited-Liability Company)**

 

### **NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

### ** **

**December 31, 2008**

 

**1.  Organizational and Basis of Presentation**

** **

155 East Tropicana, LLC, aNevada limited-liability company (the “Company”) was incorporated on June 17,2004 to acquire the real and personal property of the Hôtel San Rémo Casino andResort (the “Hôtel San Rémo”) in Las Vegas, Nevada with the intention ofrenovating the existing casino and hotel facility with a “Hooters”entertainment concept and theme.  Therenovations were completed and the Hôtel San Rémo property was reopened as thenew Hooters Casino Hotel on February 3, 2006.  The Company’s business is concentrated at theone casino and hotel property in Las Vegas, Nevada.  The renovations were financed by the Companyand its wholly owned subsidiary, 155 East Tropicana Finance Corp. through a$130 million Senior Secured Notes offering on March 29, 2005.  The Company’s membership interests are heldtwo-thirds through Florida Hooters LLC and one-third through EW CommonLLC.  The initial capitalization of theCompany was provided by Florida Hooters LLC in the form of a $5.1 millioncash contribution and the assignment of rights with respect to the Hooterstrademark and logo and other intellectual property and by EW Common LLC in theform of a $25.0 million deemed capital contribution.  The deemed capital contribution from EWCommon LLC carries with it a priority return of four percent on thecontribution annually as described in Note 10. The payment of this priority return is subject to meeting certain financialcovenants associated with the Company’s debt.

 

Florida Hooters LLC is ajoint venture between Hooters Gaming LLC and Lags Ventures, LLC.  Hooters Gaming LLC is owned by the holders oflicenses to operate Hooters restaurants in the Tampa Bay, Florida, Chicago,Illinois and downtown Manhattan in New York as well as for the sale ofwholesale foods and calendars and Nevada hotel/gaming and includes most of theoriginal founders of the Hooters brand. Pursuant to these license rights, the owners of Florida Hooters LLCoperate 39 Hooters restaurants, publish Hooters calendars and operate a Hootersfood business.  Lags Ventures, LLC isowned by a holder of the license rights to Hooters restaurants in South Floridaand the State of Nevada.  The owner ofLags Ventures, LLC is also the founder of the Dan Marino concept restaurantsand owns and operates 2 Dan Marino concept restaurants.

 

EW Common LLC is owned 90%by Eastern & Western Hotel Corporation (“Eastern & Western”)and 10% by the president of the Company.  Eastern & Western and its affiliatesowned the real property and non-gaming assets of Hôtel San Rémo from November 1988until the Company’s acquisition of the Hôtel San Rémo in August 2004.

 

Florida Hooters LLC and EWCommon LLC entered into a joint venture agreement for the purpose of formingthe Company and documenting the terms of their investments and businessventure.  Under the terms of the jointventure agreement, the venture progressed in three stages.  The first stage involved the formation of theCompany and the conveyance of all the real and non-gaming personal

 

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**1.  Organizational andBasis of Presentation (continued)**

 

property owned by andassociated with the Hôtel San Rémo, the leaseback under operating leasearrangements of these assets to Eastern & Western pursuant to thecasino and hotel lease agreements, and the contribution through assignmentagreements of certain intellectual property rights to the Company by therespective members of Florida Hooters LLC. The second stage related to the raising of financing to fund theredesign and renovation of the Hôtel San Rémo into the Hooters Casino Hotel,the refinancing of the Company’s current debt structure and other workingcapital requirements, which was completed on March 29, 2005.  The final stage involved the securing of alllicenses necessary to conduct gaming at the hotel casino and the subsequenttermination of the hotel and casino leases. In October 2005, the Company secured the necessary gaming andliquor licenses and on November 1, 2005, assumed the operations of theexisting Hôtel San Rémo.  The hotel andcasino leases with Eastern & Western were terminated on October 31,2005.

 

Pursuant to the jointventure agreement, Florida Hooters LLC and EW Common LLC entered into an operatingagreement.  Under the terms of theoperating agreement, Florida Hooters LLC has the right to appoint six managersand EW Common LLC has the right to appoint three managers to a managementboard.  Certain transactions, includingkey operational matters, the sale of all or substantially all of the Company’sassets, a merger or consolidation and various governance matters require theunanimous approval of the management board.

 

Prior to November 1,2005, the Company had conducted no business other than in connection with theacquisition and subsequent leasing of the Hôtel San Rémo, and was considered adevelopment stage company.  The Hôtel SanRémo is a division of S.I. Enterprises, Inc., a Nevada corporation.  Through October 31, 2005, Eastern &Western held the gaming license in Nevada and owned all gaming assets used byHôtel San Rémo.  Commencing November 1,2005, all operations, assets and liabilities of the former Hôtel San Rémo hoteland casino are included in the Company’s financial statements, and effectivethat date the Company was no longer in the development stages.

 

On February 3, 2006,the new Hooters Casino Hotel was opened for business.  The Hooters CasinoHotel features a casino floor with 633 slot and video poker machines, 28 tablegames, 696 hotel rooms including 17 suites, a tropical pool area, retailoutlets, a day spa, and dining and entertainment options which include aHooters restaurant, and Dan Marino’s restaurant, (which began offering 24 hourservice as of October 24, 2007, when the coffee shop was closed) a sportsbar, and several bars and Night Owl Showroom. The renovations included aredesign of the main entrance, a renovation and expansion of the casino andrestaurant areas, a remodel of the hotel rooms and a renovation and expansionof the pool area.

 

During 2007, the Company entered into a definitiveAsset Purchase Agreement with Hedwigs Las Vegas Top Tier, LLC (the “Hedwigs”),an affiliate of the investment group led by NTH Advisory Group, LLC, andreceived a total of $5.5 million in non-refundable deposits and extension feesin 2007 and 2008.  In connection with thePurchase Agreement, Hedwigs was required to make a $0.5 million payment to theCompany on or before June 6, 2008 or the Purchase Agreement automaticallyterminated. Hedwigs did not make the payment. Accordingly, the PurchaseAgreement terminated on June 6, 2008. See note 11, asset purchase agreement.

 

Significant intercompanytransactions between the Company and its wholly owned subsidiary have beeneliminated in consolidation.

 

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**2.  Liquidity and Financial Position**

 

TheCompany has significant indebtedness and financial commitments in 2009.  As of December 31, 2008, the Company had$141.4 million in debt.  In the firstquarter of 2009 the Company borrowed an additional $3.4 million under theCredit Facility, increasing debt to $144.8 million at March 3, 2009.  Currently, the Credit Facility is fullyextended and the Company has no additional availability to borrow against theCredit Facility.  The Company has noother additional sources of borrowing available, except for certain equipmentfinancing as allowed under our Notes and Credit Facility.

 

Inaddition to commitments under contractual agreements (see “ContractualObligations”), the Company’s financial commitments and estimated capitalexpenditures in 2009, as of December 31 2008, totaled approximately$14.5.  These financial commitments for2009 consist of contractual maturities of long-term debt totaling $0.2 million,interest payments on long-term debt, estimated at $13.3 million, and $1.0million of estimated capital expenditures. In addition, we entered into a contract in 2009 to purchase a new slotaccounting and marketing system for $2.5 million, which is being financed over3 years.  The payments are $78,000 permonth.  To fund its anticipated 2009financial commitments the Company has the following sources of funds in 2009: (1) availableborrowings under the Credit Facility of $3.4 million, which were borrowedduring the first quarter of 2009, (2) limited equipment financing, (3) operatingcash flow.  The Company’s currentexpectations for 2009 indicate that operating cash flow will be lower than in2008.  In 2008, the Company generatedapproximately $7.4 million in cash from operating activities excluding incomefrom forfeited purchase deposit and extension fees related to the cancelledsale to Hedwigs and before deducting cash paid for interest, which commitmentsare included in the list above.

 

Basedon anticipated future operations, the Company does not believe that cash onhand and expected cash flows will be adequate to meet our anticipatedoperational expenses, debt service on equipment leases and Credit Facility,capital expenses and scheduled payments of interest on our Notes.  As a result, the Company will be unable tomake the interest payment on the Notes due April 1, 2009.  The note holders could declare a defaultfollowing the expiration of the 30 day grace period provided under theindenture governing the Notes.  An eventof default under the Notes indenture would allow the lender to declare adefault under the Credit Facility.  TheNotes indenture and Credit Facility contain significant restrictions on theoperations of the Company.  See RiskFactors – Restrictive Covenants.  Failureto comply with any restriction of the Notes indenture or the Credit Facility bythe Company will cause a default, subject to any applicable grace periods,under the Notes indenture and/or the Credit Facility.  TheCompany expects to enter into discussions with the note holders and the CreditFacility lender to attempt to negotiate forbearance agreements pursuant towhich they would agree not to declare, for a specified period of time, an eventof default under the indenture or the Credit Facility.  The Company has engaged a financial advisorto assist us with our evaluation of financial and strategic alternatives, whichmay include a recapitalization, refinancing, restructuring or reorganization ofour obligations or a sale of some or all of our business.  The Company and its advisors are activelyworking toward such a transaction.  TheCompany cannot assure you that it will be successful in negotiating aforbearance with the note holders or Credit Facility lender or in undertakingany such alternative in the near term.

 

Ifthe Company is not successful in obtaining a forbearance or entering into atransaction to address our liquidity and capital structure, the note holderswill have the ability to accelerate repayment of all amounts outstanding underthe indenture ($135.7 million at March 31, 2009) and the Credit Facilitylender will have the ability to accelerate repayment of all amounts outstandingunder the Credit Facility ($14.5 million at March 31, 2009).  If either the Notes indebtedness or theCredit Facility indebtedness

 

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**2.  Liquidity and Financial Position  (continued)**

 

were to be accelerated upona default, theCompanywould be required to refinance or restructure the payments on that debt.  The Company cannot assure you that it wouldbe successful in completing a refinancing or restructuring.  If the Company were unable to do so, it maydetermine to seek protection under Chapter 11 of the U.S. Bankruptcy Code.

 

Theconditions and events described above raise a substantial doubt about theCompany’s ability to continue as a going concern.  The Company has classified all debt at December 31,2008 as a current liability on the balance sheet.  The accompanying consolidated financialstatements do not include all adjustments to reflect the possible futureeffects on the recoverability and classification of assets or the amounts andclassifications of liabilities that may result should the Company be unable tocontinue as a going concern.

 

**3.  Summary ofSignificant Accounting Principles**

 

*Cash and Cash Equivalents.*  The Company considers all highly liquidinvestments purchased with original maturities of three months or less to becash equivalents.  The carrying amount ofcash and equivalents approximates its fair value.

 

*Accounts Receivable.* Accounts receivableare due within one year and are recorded net of amounts estimated to beuncollectible.  The Company reserves anestimated amount for receivables to reduce the receivables to their netrealizable value which approximate fair value. Historical collection rates and customer relationships of the previouslyoperated Hôtel San Rémo were considered in determining the reserve.  Bad debt expense was $394,800, $160,880 and $233,027 for the years ended December 31, 2008, 2007 and 2006 respectively.

 

*Inventories.*  Inventories are stated at the lower of cost(using the first-in, first-out method) or market value.

 

*Property and Equipment.*  Property and equipment are stated atcost.  Costs of improvements arecapitalized. Cost of normal repairs and maintenance are charged to expense asincurred.  Upon the sale or retirement ofproperty and equipment, the cost and related accumulated depreciation areremoved from the respective accounts, and the resulting gain or loss, if any, isincluded in the accompanying consolidated statements of operations.

 

Depreciation is provided ona straight-line basis over the estimated useful life of the assets.  The service lives of assets are generally 30to 40 years for buildings and 3 to 10 years for furniture and equipment.

 

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**3.  Summary ofSignificant Accounting Principles (continued)**

 

The carrying values of theCompany’s assets are reviewed when events or changes in circumstances indicatethat the carrying amount of the asset may not be recoverable in accordance with*Financial Accounting Standards Board (FASB)Statement No. 144, Accounting for the Impairment or Disposal of Long-livedAssets*.  Under SFAS No. 144,an asset impairment is determined to exist when events or changes incircumstances indicate that the carrying amount of an asset may not berecoverable and if estimated future cash flows, undiscounted and withoutinterest charges, are less than the carrying amount.  If it is determined that an impairment hasoccurred, then an impairment loss is recognized in the consolidated statementof operations and the related assets are adjusted to their estimated fair valueless sales costs.  During the fourthquarter of 2008, the Company reviewed the carrying values of the Company’sassets and determined that no impairment of the long-lived assets had occurred.

 

*Deferred Financing Costs.*  Deferred financing costs consist of loanorigination and commitment fees and are amortized to interest expense over theterm of the related financing on a straight line basis which approximates theeffective interest rate method.

 

*Intangible Assets.* Intangible assets represent(1) the value of intellectual property related to the Hooters brandcontributed to the Company pursuant to an assignment agreement with FloridaHooters LLC, (2) the value of the slot club customer list acquired from Eastern &Western, and (3) the excess of the purchase price over the fair marketvalue of the assets acquired (“Goodwill”).  Theintellectual property related to the Hooters brand contributed to the Companyand the Goodwill are intangible assets not subject to amortization.  The slot customer list is being amortizedusing the straight line method over five years.

 

Inaccordance with SFAS 142, “Goodwill and Other Intangible Assets”, we test forimpairment of goodwill and indefinite-lived intangible assets annually. For theyears ending December 31, 2008, 2007 and 2006, we utilized the incomeapproach for goodwill, which focuses on the income-producing capability of therespective property during the fourth quarter of each fiscal year. Theunderlying premise of this approach is that the value of an asset can bemeasured by the present worth of the net economic benefit (cash receipts lesscash outlays) to be received over the life of the subject asset. The stepsfollowed in applying this approach include estimating the expected after-taxcash flows attributable to the property and converting these after-tax cashflows to present value through discounting. The discounting process uses a rateof return, which accounts for both the time value of money and investment riskfactors. The present value of the after-tax cash flows is the totaled to arriveat an indication of the fair value of the assets. If the fair value of theassets exceeds the carrying value, the impairment is measured based on thedifference between the calculated fair value and the carrying value. Wedetermined that there was no impairment during 2007 or 2006.  We determined there was impairment during2008 and recorded an impairment charge of $2.2 million in the fourth quarter.(See Note 5)

 

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**3.  Summary ofSignificant Accounting Principles (continued)**

 

The impairment of the Company’s Hooter’s licensetrademark is tested for annual impairment using the relief-from-royaltymethod.  We determined that there was noimpairment during 2007 and 2006.  Wedetermined there was impairment during 2008 and recorded an impairment chargeof $1.3 million in the fourth quarter. (See Note 5)

 

*Jackpots and Prizes.* The Companyhas progressive slot machines.  As coinsare played, the amount available to win increases and will be paid out when thejackpot is awarded.  In accordance withindustry practice, the Company records the liability and expense related tosuch progressives as incurred.

 

*Casino Revenues and PromotionalAllowances*.  Inaccordance with industry practice, the Company recognizes as casino revenue thenet win from gaming activities, which is the difference between gaming wins andlosses.  The retail value of rooms, food,and beverage furnished to customers without charge is included in gross revenuesand then deducted as promotional allowances.

 

The estimated departmentalcost of providing such promotional allowances is included in casino costs andexpenses and consists of the following for the years ended December 31,2008, 2007 and 2006 (dollars in thousands):

 
| ** **        | ** ** | **2008** | ** ** | **2007** | ** ** | **2006** | ** ** |
|-------------------|------------|----------|------------|----------|------------|----------|------------|
| Food and Beverage |       | $        | 1,144      |     | $          | 1,028    |       | $ | 1,141 |   |
| Hotel and other   |       | 725      |       | 428      |       | 316      |       |
|              |       | $        | 1,869      |     | $          | 1,456    |       | $ | 1,457 |   |

 

*Player Club Points.*  The Company’s slot club allows customers toearn certain complimentary products and/or cash, based on the volume of thecustomer’s gaming activity.  The Companyhas recorded a liability for the estimated cost of the products and/or cashearned by customers and not redeemed.

 

The Company’s slot clubprogram allows customers to redeem points earned from their gaming activity forcomplimentary food, beverage, rooms, entertainment, and merchandise or cashback.  At the time redeemed, the retailvalue of complimentaries under the program is recorded as revenue with acorresponding offsetting amount included in promotional allowances.  The cost associated with complimentary food,beverage, rooms, entertainment, and merchandise redeemed under the program isrecorded in casino operating expenses.

 

The Company has recorded theretail value of points earned and redeemed for complimentary services/cashrebates as promotional allowances.  Suchamounts totaled $349,344, $535,905 and $114,150 for the years ended December 31,2008, 2007 and 2006 respectively.

 

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**3.  Summary ofSignificant Accounting Principles (continued)**

 

* Advertising.*  Prepaid advertising costs are expensed thefirst time the advertising takes place. Prepaid advertising included in prepaidexpenses was $143,590 and $293,427 at December 31, 2008, and 2007respectively.  Advertising costs includedin general and administrative expenses were $4,214,084, $4,379,402 and$6,029,798 for the years ended December 31, 2008, 2007, and 2006,respectively.

 

*Capitalized Interest.*  The interest cost associated with a majorconstruction project is capitalized and included in the cost of theproject.  When no debt is incurredspecifically for a project, interest is capitalized on amounts expended on theproject using the weighted-average cost of the Company’s outstandingborrowings.  There was no capitalizedinterest for the years ended December 31, 2008 and 2007.  Capitalized interest was $202,873 for theyear ended December 31, 2006.

 

*Income Taxes.*  TheCompany is a limited-liability company and is taxed as a partnership forfederal income tax purposes. Accordingly, no provision for federal income taxeshas been recorded in the accompanying consolidated financial statements sincethe taxable income or loss is included in the income tax return of the members.

 

*Pre-opening Expenses.*  Pre-opening costs are expensed as incurred,consistent with Statement of Position 98-5, *Reporting on the Costs ofStart-up Activities*.

 

*Use of Estimates.*  Thepreparation of financial statements in conformity with generally acceptedaccounting principles in the United States requires management to makeestimates and assumptions that affect the reported amounts of assets andliabilities and disclosure of contingent assets and liabilities at the date ofthe financial statements, and the reported amounts revenues and expenses duringthe reporting periods. Actual results could differ from those estimates.

 

*Reclassifications.* Certain reclassificationsof participation fees and player club points, having no effect on net income(loss), have been made to the previously issued condensed consolidatedfinancial statements to conform to the current period’s presentation of theCompany’s condensed consolidated financial statements.

 

*Income (Loss) Allocable to Preferred and Common Member Interests*.  A schedule is presented on the consolidatedstatements of operations which allocates net income (loss) between thepreferred interest held by EW Common, LLC and the common member interests. Asdescribed in footnote 10, Preferred Return, a preferred return beganaccumulating on March 1, 2006 and accumulates whether or not there areprofits or funds available for the payment of the preferred return. Under theNotes indenture, the preferred return is payable only if the Company’s coverageratio meets certain criteria. No payments have ever been made through December 31,2008 or in subsequent periods.

 

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**3.  Summary ofSignificant Accounting Principles (continued)**

 

RecentlyIssued Accounting Pronouncements.

 

In December 2008,the FASB issued FASB Staff Position (“FSP”) FAS 140-4 and FIN 46(R)-8, Disclosures by Public Entities (Enterprises)about Transfers of Financial Assets and Interests in Variable InterestEntities. This FASB FSP amends SFAS No. 140, Accounting for Transfers and Servicing ofFinancial Assets and Extinguishments of Liabilities, to require publicentities to provide additional disclosures about transfers of financial assets.It also amends FASB Interpretation No. 46 (R), Consolidation of Variable Interest Entities, to require publicenterprises, including sponsors that have a variable interest in a variableinterest entity, to provide additional disclosures about their involvement withvariable interest entities. Additionally, this FSP requires certain disclosuresto be provided by a public enterprise that is (a) a sponsor of aqualifying special purpose entity (“SPE”) that holds a variable interest in thequalifying SPE but was not the transferor of financial assets to the qualifyingSPE, and (b) a servicer of a qualifying SPE that holds a significantvariable interest in the qualifying SPE but was not the transferor of financialassets to the qualifying SPE. The disclosures required by this FSP are intendedto provide greater transparency to financial statement users about a transferor’scontinuing involvement with transferred financial assets and an enterprise’sinvolvement with variable interest entities and qualifying SPEs. This FSP iseffective for the first reporting period ending after December 15, 2008,and shall apply for each annual and interim reporting period thereafter. Webelieve that the adoption of this FSP will not have a material impact on ourconsolidated financial statements.

 

In**June 2008, the FASB issued FSP No. EITF03-6-1, *Determining Whether InstrumentsGranted In Share-Based Payment Transactions Are Participating Securities*.This FSP concludes that those unvested share-based payment awards that containnon-forfeitable rights to dividends or dividend equivalents, whether paid orunpaid, are participating securities and must be included in the computation ofboth basic and diluted earnings per share (the two-class method). This FSP iseffective during the three months ending March 31, 2009 and is to beapplied on a retrospective basis to all periods presented. The issue iseffective for financial statements issued for fiscal years and interim periodswithin those fiscal years beginning January 1, 2009. The adoption of FSP No. EITF03-6-1 will not have an impact on our consolidated financial statements.

 

InMay 2008, the FASB issued SFAS No.162, *Hierarchyof Generally Accepted Accounting Principles* (“SFAS 162”). Thisstatement is intended to improve financial reporting by identifying aconsistent framework, or hierarchy, for selecting accounting principles to beused in preparing financial statements of nongovernmental entities that arepresented in conformity with GAAP. This statement was effective November 15,2008*.* We currently adhere to thehierarchy of GAAP as presented in SFAS 162, and the adoption is not expected tohave a material impact on our consolidated financial statements.

 

In April 2008, the FASBissued FSP No. FAS 142-3, *Determinationof the Useful Life of Intangible Assets* (“FSP 142-3”). FSP 142-3amends the factors that should be considered in developing renewal or extensionassumptions used to determine the useful life of a recognized intangible assetunder SFAS No. 142, *Goodwill and OtherIntangible Assets*, and requires enhanced related disclosures.  FSP 142-3 must be applied prospectively toall intangible assets acquired as of and subsequent to fiscal years

 

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**3.  Summary ofSignificant Accounting Principles (continued)**

 

beginningafter December 15, 2008.

 

InMarch 2008, the FASB issued SFAS No. 161, *Disclosures about Derivative Instruments and Hedging Activities — AnAmendment of FASB Statement No. 133* (“SFAS 161”). SFAS 161requires enhanced qualitative disclosures about objectives and strategies forusing derivatives, quantitative disclosures about fair value amounts of gainsand losses on derivative instruments, and disclosures about credit-risk-relatedcontingent features in derivative agreements. SFAS 161 is effective forfinancial statements issued for fiscal years and interim periods beginningafter November 15, 2008. We do not believe that the adoption of SFAS 161will have a material impact on our consolidated financial statements.

 

InFebruary 2008, the FASB issued FASB Staff Position No. FAS 157-2, *Effective Date of FASB Statement No. 157*,which defers the effective date of SFAS No. 157, *Fair Value Measurements*, (“SFAS 157”) to fiscalyears beginning after November 15, 2008 for nonfinancial assets andnonfinancial liabilities, except for items that are recognized or disclosed atfair value in the financial statements on a recurring basis. Early adoption ofSFAS 157 is permitted.

 

InDecember 2007, the FASB issued SFAS No. 160, *Noncontrolling Interests in Consolidated FinancialStatements — An Amendment of ARB No. 51* (“SFAS 160”). SFAS 160establishes new accounting and reporting standards for the noncontrollinginterest in a subsidiary and for the deconsolidation of a subsidiary.Specifically, this statement requires the recognition of a noncontrollinginterest (minority interest) as equity in the consolidated financial statementsand separate from the parent’s equity. The amount of net income attributable tothe noncontrolling interest will be included in consolidated net income on theface of the income statement. SFAS 160 clarifies that changes in a parent’sownership in a subsidiary that do not result in deconsolidation are equitytransactions if the parent retains its controlling financial interest. Inaddition, this statement requires that a parent recognize a gain or loss in netincome when a subsidiary is deconsolidated. Such gain or loss will be measuredusing the fair value of the noncontrolling equity investment on thedeconsolidation date. SFAS 160 also includes expanded disclosure requirementsregarding the interests of the parent and its noncontrolling interest. SFAS No. 160is effective for fiscal years, and interim periods within those fiscal years,beginning on or after December 15, 2008. We do not believe that theadoption of SFAS 160 will have a material impact on our consolidated financialstatements.

 

InFebruary 2007, the FASB issued SFAS No. 159, *The Fair Value Option for Financial Assets andFinancial Liabilities*. SFAS 159 permits entities to choose tomeasure many financial instruments and certain other items at fair value. Theobjective of the guidance is to improve financial reporting by providingentities with the opportunity to mitigate volatility in reported earningscaused by measuring related assets and liabilities differently without havingto apply complex hedge accounting provisions. SFAS 159 is effective as of the beginning of the first fiscal year afterNovember 15, 2007, provided the

 

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provisionsof SFAS 157 are also applied.  TheCompany adopted the provisions of SFAS No. 159, but chose not to elect thefair value option for eligible items that existed at January 1, 2008.Accordingly, the Company’s adoption of SFAS No. 159 did not have amaterial impact on its financial position, results of operations or cash flows.

 

In December 2007, FASB issued SFAS No. 141R,“Business Combinations”.  Under SFAS141R, an acquiring entity will be required to recognize all the assets acquiredand liabilities assumed in a transaction at the acquisition-date fair value,with limited exceptions, replacing SFAS 141’s cost-allocation process.  SFAS 141R also includes a substantial numberof new disclosure requirements.  SFAS141R is to be applied prospectively to business combinations for which theacquisition date is on or after the beginning of the first annual reportingperiod beginning on or after December 15, 2008.  Early adoption is prohibited.  We will adopt SFAS 141R in the first quarterof 2009.  The impact on our accountingfor future business combinations once adopted will be dependent uponacquisitions that are made in the future.

 

In September 2006, the FASB issued SFAS No. 157,*Fair Value Measurements*, whichdefines fair value, establishes a framework for measuring fair value in GAAP,and expands disclosures about fair value measurements.  SFAS 157 does not require any new fair valuemeasurements, but provides guidance on how to measure fair value by providing afair value hierarchy used to classify the source of the information.  SFAS 157 is effective for financialstatements issued for fiscal years beginning after November 15, 2007 andinterim periods within these fiscal years. In February 2008, FASB issued FASB Staff Position (“FSP”) FAS157-2, which defers the effective date of SFAS 157 to fiscal years beginningafter November 15, 2008, and interim periods within those fiscal years,for nonfinancial assets and nonfinancial liabilities that are recognized ordisclosed at fair value in an entity’s financial statements on a recurringbasis.   As such, the Company partiallyadopted the provisions of SFAS No. 157 effective January 1, 2008,without any material impact to the Company’s financial position, results ofoperations or cash flows. The Company expects to adopt the remaining provisionsof SFAS No. 157 beginning in 2009; however, the Company does not expectthis adoption to have a material impact on its financial position, results ofoperations or cash flows.

 

Avariety of proposed or otherwise potential accounting standards are currentlyunder study by standard-setting organizations and certain regulatory agencies.Because of the tentative and preliminary nature of such proposed standards, wehave not yet determined the effect, if any, that the implementation of suchproposed standards would have on our consolidated financial statements.

 

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**4.  Property andEquipment**

 

Propertyand equipment consists of the following at December 31, 2008 and 2007(dollars in thousands):

 
| ** **                        | ** ** | **2008** | ** ** | **2007** | ** ** |
|-----------------------------------|------------|----------|------------|----------|------------|
| Land                              |       | $        | 38,932     |     | $          | 38,932 |   |
| Buildings and improvements        |       | 72,465   |       | 72,433   |       |
| Furniture, fixtures and equipment |       | 20,201   |       | 19,519   |       |
| Construction in progress          |       | 39       |       | 40       |       |
| Subtotal                          |       | 131,637  |       | 130,924  |       |
| Less: accumulated depreciation    |       | (20,383  | )          | (13,839  | )          |
| Property and equipment, net       |       | $        | 111,254    |     | $          | 117,085 |   |

 

**5.  Intangible Assets**

** **

Intangibleassets consist of the following at December 31, 2008 and 2007 (dollars inthousands):

 
| ** **                                          | ** ** | **2008** | ** ** | **2007** | ** ** |
|-----------------------------------------------------|------------|----------|------------|----------|------------|
| Licensing, trade names                              |       | $        | 2,900      |     | $          | 4,200 |   |
| Slot customer list                                  |       | 260      |       | 260      |       |
| Goodwill                                            |       | —   |       | 2,158    |       |
| Subtotal                                            |       | 3,160    |       | 6,618    |       |
| Less: accumulated amortization (slot customer list) |       | (165     | )          | (113     | )          |
| Intangible assets, net                              |       | $        | 2,995      |     | $          | 6,505 |   |

 

*Goodwill.*  As part ofthe allocation of the purchase price of the Hôtel San Rémo, the Companyrecorded goodwill from the acquisition of Hôtel San Rémo, representing theexcess of the purchase price over the fair market value of assets acquired.

 

As a result of the Company’s annual impairment testof the goodwill, the Company recognized a non-cash impairment charge togoodwill of $2,158,000 in the fourth quarter of 2008, resulting in a totalwrite-off of goodwill.  The charge isincluded in “Intangible assets impairment charge” in the accompanyingconsolidated statements of operations. Such charge was impacted by current market conditions including: (1) currentcash flow forecasts reflecting lower expectations; (2) higher discountrates resulting from turmoil in the credit and equity markets; and (3) lowervaluation multiples for gaming assets.

 

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**155 East Tropicana, LLC (A Nevada Limited-Liability Company)**

 

### **NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)**

### ** **

**5.  Intangible Assets (continued)**

 

* Licensing, trade names. *The Hooters licensingagreement, which pertains to the usage of the Hooters name for casino,restaurant and hotel operations was valued at $4.2 million and was reflected assuch in on the accompanying consolidated balance sheet at December 31,2007.  The fair value of the licensingagreements was determined using the relief-from-royalty method and wasnegatively impacted by the factors discussed above relating to the impairmentof goodwill.  The Company recognized anon-cash impairment charge to licensing, trade names of $1.3 million in thefourth quarter of 2008 and the charge is included in “Intangible assetsimpairment charge” in the accompanying consolidated statements of operations.

 

***Intellectual property.***  The Company hasentered into an assignment agreement with Florida Hooters LLC which grants theCompany the right to use certain intellectual property in connection with theoperations of the Hooters Casino Hotel. The intellectual property consists of (i) an exclusive license forthe Hooters trademark and logo insignia in connection with gaming, casino orcombined hotel, gaming and casino operations, (ii) a non-exclusive licenseto use the Hooters restaurant concept, (iii) an exclusive license tooperate and promote restaurants, taverns, loungesand “Dan Marino’s Fine Food & Spirits” (iv) a non-exclusive,royalty-free license to use the Pete & Shorty’s mark at a restaurant,bar and lounge, in each case solely for purposes of a Hooters Casino Hotellocated at the Hôtel San Rémo property.

** **

The Hooters trademark and logo insignia are theexclusive property of HI Limited Partnership. Florida Hooters LLC originally obtained the license for the trademarkand logo insignia through an assignment from Hooters Gaming Corporation, anaffiliated entity under common ownership with Hooters Gaming LLC.  Hooters Gaming Corporation is owned directlyor indirectly by certain members of the Company or members of the Company’smanagement board.  The underlying licenseagreement was executed****betweenHI Limited Partnership and Hooters Gaming Corporation and granted toHooters Gaming Corporation an exclusive license to use the licensedintellectual property in connection with gaming, casino or combined hotel,gaming and casino operations within the State of Nevada.  Hooters Gaming Corporation retained any andall rights and obligations in the licensed intellectual property pursuant tothe license agreement for all locations within the State of Nevada other thanthe Hooters Casino Hotel.  The Companybegan the use of the licensed intellectual property in connection with licensedgaming activities when the hotel casino was reopened as the new Hooters CasinoHotel on February 3, 2006

 

The Hooters restaurant concept is the exclusiveproperty of Hooters of America, Inc., an unrelated party. Florida HootersLLC originally obtained the right for use of the Hooters restaurant concept atthe Hooters Casino Hotel through an assignment from Hooters Gaming Corporation,who in turn, was granted the right from Las Vegas Wings, Inc., anaffiliated entity under common ownership with Lags Ventures, LLC.

 

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**155 East Tropicana, LLC (A Nevada Limited-Liability Company)**

 

### **NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)**

### ** **

**5.  IntangibleAssets (continued)**

** **

Pursuant to the terms of the assignment agreementwith Florida Hooters LLC related to the Hooters trademark, logo, and restaurantconcept and Lags Ventures, LLC related to the Dan Marino’s concept restaurants,the Company must pay fees and royalties to Hooters Gaming Corporation, HILimited Partnership, Las Vegas Wings, Inc. and Lags Ventures, Inc.  Payments to Hooters Gaming****Corporation are accrued at three percent of all net profitsdirectly earned from the gaming activities at the Hooters Casino Hotel.  HI Limited Partnership will be paid an annualfee equal to $500.

 

In addition, the Company is required to pay HILimited Partnership a royalty in an amount equal to two percent of all netrevenues generated in connection with licensed activities which includes netrevenues generated in connection with the Hooters restaurant operation.  Las Vegas Wings, Inc is paid a consent feeequal to four percent of gross sales from any Hooters branded restaurant andthree percent of the gross cash sales of any merchandise with a Hooters logo,on or near the Hooters Casino Hotel. Lags Ventures, Inc. is paid a fee by the Company equal to sixpercent of net revenues generated by the Dan Marino’s Fine Food and Spirits andlocated in the Hooters Casino Hotel. Payment of these fees is restricted underthe indenture governing the Notes.  Useof the Pete & Shorty’s mark partly owned by certain members of theCompany’s management board is royalty-free.

 

HootersGaming Corporation, HI Limited Partnership, and Las Vegas Wings, Inc.agreed to subordinate payment of their respective fees in favor of certainpayments required under the Company’s operating agreement.  Payment is further subject to meeting certainfinancial ratios associated with the Company’s Notes.

 

*Slot customer list.*  As part of the acquisition of the realproperty and other assets of the Hôtel San Rémo (see Note 2), the Companyacquired the slot customer list valued by a third-party appraiser at $260,000.  It is being amortized over five years usingthe straight line method.

 

**6.  Long-term Debt**

** **

**Notes Offering**

 

On March 29, 2005, the Company issued$130.0 million aggregate principal amount of 83/4% Senior Secured Notes due 2012, in a private placement (the “old notes”).  On August 5, 2005, the Companysuccessfully exchanged all of the old notes for new notes (the “Notes”).  The Notes have substantially identical termsas the old notes, except that the Notes have been registered under theSecurities Act of 1933.  Interestpayments on the Notes are due semi annually, on April 1 and October 1.  The Notes are secured by all of the Company’sand, to the extent in existence, subsidiary guarantors’ (1)  existing andfuture assets  (other than certainexcluded existing and future assets), (2) the Company’s equity interest inany guarantors.

 

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**155 East Tropicana, LLC (A Nevada Limited-Liability Company)**

 

### **NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)**

### ** **

**6.  Long-term Debt(continued)**

 

The Notes are redeemable at the option of theCompany on or after April 1, 2009. The indenture governing the Notescontains certain provisions which restrict or limit the Company’s ability to,among other things, incur more debt, pay dividends, redeem stock or make otherdistributions, enter into transactions with affiliates or transfer or sellassets. The Company used the proceeds from the Notes to retire existingindebtedness and (together with cash from operations and proceeds fromequipment financing), renovate and construct the Hooters Casino Hotel andprovide for general working capital needs.

 

**Senior Secured Credit Facility**

 

The Company entered into a $15.0 million senior secured credit facility(the “Credit Facility”) concurrently with the offering of the old notes.  The Credit Facility is a revolving creditfacility of $15.0 million, maturing on September 30, 2011. The CreditFacility has no financial covenant requirements.  The Company drew $11.1 million against theCredit Facility as of December 31, 2008 and the remaining available fundsas of March 3, 2009.

 

At the Company’s option, the interest rate will be either the agent forthe lender’s prime rate plus 2.00% per annum or LIBOR plus 3.50% perannum.  As of December 31, 2008, theCredit Facility carried an interest rate of 6.21% per annum.  All the obligations under the Credit Facilityare secured by first priority liens on and security interest in all of theCompany’s and any guarantor’s existing and future properties and assets.  The lien on the collateral that secures theNotes are contractually subordinated to the liens securing the principal amountof borrowings under the Credit Facility of up to $15.0 million (plus relatedinterest, fees, indemnities, costs and expenses).  The Credit Facility requires the Company topay unused commitment fees of 0.50% per annum on any unused portion of theCredit Facility, and, if terminated prior to the due date, a prepayment premium.

 

**IntercreditorAgreement**

 

Concurrently with the closing of the old notes offering and the CreditFacility, the Company entered into an intercreditor agreement, which definesthe rights of the lenders under the Credit Facility in relation to the rightsof the trustee and the holders of the Notes with respect to****thecollateral securing the Notes. The intercreditor agreement, among other things,provides that the liens securing the Notes and any guarantees thereof arecontractually subordinated to the liens securing the principal amount ofindebtedness of up to $15.0 million (plus related interest, fees, indemnities,costs and expenses) under the Credit Facility. The trustee’s ability toexercise rights and remedies in respect of the collateral are also subject tothe terms of the intercreditor agreement.

 

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**155 East Tropicana, LLC (A Nevada Limited-Liability Company)**

 

### **NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)**

### ** **

**6.  Long-term Debt(continued)**

 

**Equipment Purchase Agreements**

 

Duringthe year ended December 31, 2008, the Company did not enter into any loanagreements.  During the year ended December 31,2007 the Company entered into a loan agreement to purchase approximately $0.3million in equipment.  The equipmentloans, which are collateralized by the equipment purchased, have terms rangingfrom 12 months to 5 years.  Interestrates imputed on slot equipment purchases of $6.0 million and hotel equipmentpurchase of $0.5 million were 3.3% and 11.8%, respectively.  At December 31, 2008 and 2007, $0.3million and $2.3 million were outstanding under these agreements, respectively.

 

Scheduled maturities of long-term debt are asfollows (amount in thousands):

 
| **Years ending December 31,** | ** ** | ** ** | ** ** |
|----------------------------------------------|------------|------------|------------|
| ** **                                   | ** ** | ** ** | ** ** |
| 2009                                         |       | $          | 238        |   |
| 2010                                         |       | 41         |       |
| 2011                                         |       | 11,083     |       |
| 2012                                         |       | 130,000    |       |
| Total                                        |       | $          | 141,362    |   |

 

AtDecember 31, 2008 we reclassified amounts outstanding on all of ourlong-term debt obligations as a current liability as the Company concluded thedefault was probable of occurring in 2009.  On April 1, 2009 we will be unable tomake the interest payment of $5.7 million due on the Notes.  The note holders could declare a defaultfollowing the expiration of the 30 day grace period provided under theindenture governing the Notes.  An eventof default under the Notes indenture would allow the Credit Facility lender todeclare a default under the Credit Facility. Lenders could demand immediate repayment of all outstanding borrowings.  (See to Note 2) “Liquidity and FinancialPosition”.  The Notes indenture andCredit Facility contain significant restrictions on our operations.  See Risk Factors – RestrictiveCovenants.  Failure to comply with anyrestriction of the Notes indenture or the Credit Facility by us will cause adefault, subject to any applicable grace periods, under the Notes indentureand/or the Credit Facility.

 

**7. Membership Interests**

** **

The initial capital contributions and membershipinterests in the Company for Florida Hooters LLC and EW Common LLC wereestablished in exchange for the following:

 

FloridaHooters LLC contributed $5.0 million in cash and the intellectual propertydescribed in Note 5 for a 66 2¤3% membership interest in the Company. Further, allpre-development costs incurred by Florida Hooters LLC are credited to the FloridaHooters LLC capital account.

 

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**155 East Tropicana, LLC (A Nevada Limited-Liability Company)**

 

### **NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)**

### ** **

**7. MembershipInterests (continued)**

** **

EWCommon LLC received a 33 1¤3%membership interest with priority return for a $20.0 million deemedinitial capital contribution as part of the Company’s acquisition of the realproperty and non-gaming assets of the Hôtel San Rémo. In October 2005, theCompany secured their gaming and liquor licenses and on November 1, 2005,assumed the operations of the hotel casino. Upon obtaining the necessary licenses to operate the hotel casino, theCompany acquired the gaming assets from Eastern & Western consistingprimarily of slot machines and customer lists and credited the capital accountof EW Common LLC for an additional $5.0 million.  A 4% priority rate of return on the membershipinterest held by EW Common LLC commenced accruing upon completion of therenovation and the re-opening of Hooters Casino Hotel.

 

**8.  Profit-SharingPlan**

 

TheCompany has a deferred compensation plan established pursuant to Section 401(k) ofthe Internal Revenue Code for all regular full-time employees not covered by acollective bargaining agreement who have completed at least three months ofcontinuous service.  The Company’s****contributions to the plan are at the discretion of theCompany’s management board. The Company’s plan allows for a Company match of25% of each dollar contributed by the employee, not to exceed 1% of aparticipant’s annual compensation. Contributions of approximately $65,000, $77,000 and $66,000 were made bythe Company in 2008, 2007 and 2006, respectively.  Amounts expensed under the plan foradministrative expenses for the years ended December 31, 2008, 2007 and2006 totaled $8,150, $12,145, and $5,046, respectively.

 

**9.  Related Party Transactions**

 

**RoyaltiesExpense**

 

Pursuantto agreements related to the use of certain trademarks (see Note 5), theCompany must pay fees and royalties to related parties.  A fee equal to 3%of all net profits earned from gaming activities is payable to Hooters GamingCorporation, a consent fee equal to 6% of net revenues generated by the DanMarino’s Restaurant is payable to Lags Ventures, Inc. and a fee of 4% ofcash sales from Hooters branded restaurant, and 3% of the gross sales with anymerchandise with a Hooters logo, is payable to Las Vegas Wings, Inc. The total fees accrued at December 31, 2008 for Hooters GamingCorporation, Lags Venture, Inc. and Las Vegas Wings, Inc. were $2.2million, $0.7 million, and $1.3 million, respectively.    The payment of these royalty fees isrestricted under the indenture governing the Notes.

 

**HawkeyeConstruction and Millwork, Inc.**

 

HawkeyeConstruction and Millwork, Inc. are co-owned by David Lageschulte, amember of the Company’s management board and an indirect beneficial owner of33.27% of the Company’s membership interests. Hawkeye Construction and Millwork, Inc. managed the constructionand renovation of the Hooters Casino Hotel and received as compensation forsuch services 2% of the

 

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**155 East Tropicana, LLC (A Nevada Limited-Liability Company)**

 

### **NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)**

### ** **

**9.  Related Party Transactions (continued)**

 

construction and furniture,fixtures and equipment costs, not to exceed a total of $600,000.  The Company’s payments to HawkeyeConstruction and Millwork, Inc. in relation to the construction andrenovation management agreement totaled $0.1 million for the year ended December 31,2006.

 

**ProvidentAdvertising & Marketing, Inc.**

 

Themajority shareholder of Provident Advertising & Marketing, Inc. (“Provident”)is Edward C. Droste, a member of the Company’s management board and an indirectbeneficial owner of 3.96% of the Company’s membership interests.  Provident was engaged by the Company toprovide services related to the planning and development of an initialadvertising and marketing plan and for the continued development andimplementation of a strategic marketing plan for the Hooters Casino Hotel.  They continue to be involved as the Company’sadvertising firm.  In addition, theCompany purchases Hooters logo items from Provident for uniforms and for resalein the Company’s gift shops.  The feespaid to Provident during the years ended December 31, 2008, 2007, and 2006totaled $1.1 million, $1.8 million, and $3.0 million, respectively.

 

**The Notes issued by the Company require the Companyto engage an independent valuation firm to determine that the related partytransactions are valued at arm’s-length prices if the total expenditures toProvident aggregate $2.5 million. In 2006, a nationally-recognized valuationfirm issued a favorable opinion that the related party transactions withProvident had been conducted in a manner consistent with the arm’s-lengthstandard.**

** **

**10.  Commitments and Contingencies**

** **

***Litigation***

*** ***

**From time to time, the Company is a party to variousclaims arising in the normal course of business.  Management believes, however, that there areno proceedings pending or threatened against the Company which, if determinedadversely, would have a material adverse effect on the Company’s financialcondition, results of operations or liquidity.**

** **

***ContractualCommitments***

*** ***

The Company has entered into operational contractstotaling $6.3 million at December 31, 2008.

 

**Hooters of America Royalty Payments**

 

Beginning on February 3, 2006, the Company wasrequired to pay the owner of the Hooters trademark, Hooters of America, aroyalty fee equal to 2% of all net revenues of the hotel and casino (excludingthe Dan Marino’s Restaurant and 13 Martini Bar) and 1% of revenues from thePete and

 

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**155****East Tropicana, LLC (A Nevada Limited-Liability Company)**

 

### **NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)**

### ** **

**10.  Commitments andContingencies (continued)**

** **

Shorty’s Tavern less miscellaneous expenses.  The total fees paid to Hooters of Americawere approximately $1.1 million, $1.2 million and $1.3 million for the yearsended December 31, 2008, 2007 and 2006, respectively.  These fees are included in general andadministrative expenses on the accompanying condensed consolidated statements ofoperations.

*** ***

***PreferredReturn***

*** ***

The Company’s membership interests include an EW Common LLC preferredaccount which accumulates a preferred return rate of 4% per annum on the $25.0million account balance.  Such preferredreturn began accumulating on March 1, 2006, and accumulates whether or notthere are profits or funds available for the payment of the preferredreturn.  Under the Notes indenture, thepreferred return to EW Common LLC is payable only if the Company’s coverageratio of EBITDA to fixed charges (as defined in the indenture and after givingeffect to the payment of the preferred return) is 1.5 to 1 for the fiscal yearas measured after the close of the fiscal year. As of December 31, 2008, $2.8 million relating to the preferredaccount has accumulated, but has not been paid. As the Company’s coverage ratio of EBITDA to fixed charges did not meetthis defined ratio, no liability has been recorded in the accompanyingconsolidated financial statements at December 31, 2008.

 

**11. Asset PurchaseAgreement**

** **

During2007, the Company entered into a definitive Asset Purchase Agreement withHedwigs Las Vegas Top Tier, LLC (the “Hedwigs”), an affiliate of the investmentgroup led by NTH Advisory Group, LLC, and subsequently entered into a first,second and third amendment to the Asset Purchase Agreement (collectively, the “PurchaseAgreement”). In connection with the third amendment to the Purchase Agreement,Hedwigs was required to make a $0.5 million payment to the Company on or beforeJune 6, 2008 or the Purchase Agreement automatically terminated. Hedwigsdid not make the payment. Accordingly, the Purchase Agreement terminated on June 6,2008.

 

Underthe terms of the Purchase Agreement, Hedwigs offered to purchase essentiallyall of the assets of the Company for a purchase price of $98 million in cash,the payment of certain accrued royalties, and the assumption of certainoutstanding liabilities of the Company. The Purchase Agreement also providedthat Hedwigs would be responsible for the Company’s $130 million in principalamount of 8 3⁄4% Senior Secured Notes due 2012. In connection with the PurchaseAgreement, Hedwigs paid a total of $5.5 million in deposits and extension feesto the Company, which were non-refundable and were fully earned on the dates ofpayment.  The deposits and extension feeswere taken to income in June 2008.

 

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## ***ITEM 9. ***CHANGES IN AND DISAGREEMENTS WITHACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

## *** ***

Not applicable.

## *** ***

## ***ITEM 9A(T).  CONTROLS AND PROCEDURES.***

## *** ***

### **Evaluation of Disclosure Controls**

### ** **

We evaluated the effectiveness of ourdisclosure controls and procedures as of the end of the 2008 fiscal year.  This evaluation was done with theparticipation of our management, including our Chief Executive Officer,President, Chief Operating Officer, and Chief Financial Officer.

 

Disclosure controls and procedures arecontrols and other procedures that are designed to ensure that informationrequired to be disclosed by us in the reports that we file or submit under theSecurities Exchange Act of 1934 are recorded, processed, summarized andreported within the time periods specified in the Securities and ExchangeCommission’s rules and forms. Disclosure controls and procedures include, without limitation, controlsand procedures designed to ensure that information required to be disclosed byus in the reports that we file under the Securities Exchange Act of 1934 isaccumulated and communicated to our managers, as appropriate to allow timelydecisions regarding required disclosure.

 

### **Limitations on the Effectiveness ofControls**

### ** **

Our management does not expect that ourdisclosure controls and procedures or our internal controls over financialreporting will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provideonly reasonable, but not absolute, assurance that the objectives of a controlsystem are met.  Further, any controlsystem reflects limitations on resources, and the benefits of a control systemmust be considered relative to its costs. Because of the inherent limitations in all control systems, noevaluation of controls can provide absolute assurance that all control issuesand instances of fraud, if any, within us have been detected.  These inherent limitations include therealities that judgments in decision-making can be faulty and that breakdownscan occur because of simple error or mistake. Additionally, controls can becircumvented by the individual acts of some persons, by collusion of two ormore people, or by management override of a control.  The design of a control system is also basedupon certain assumptions about the likelihood of future events, there can be noassurance that any design will succeed in achieving its stated goals under allpotential future conditions; over time, controls may become inadequate becauseof changes in conditions, or the degree of compliance with the policies orprocedures may deteriorate. Because of the inherent limitations in acost-effective control system, misstatements due to error or fraud may occurand may not be detected.

 

### **Conclusions**

### ** **

Based on this evaluation, the our ChiefExecutive Officer and Chief Financial Officer have evaluated our disclosurecontrols and procedures (as defined in the Securities Exchange Act of 1934 Rules 13a-15(e) and15d- 15(e)) as of December 31, 2008, and have concluded that these areeffective to timely alert them to material information relating to us requiredto be included in the reports that we file or submit under the SecuritiesExchange Act of 1934.

 

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**Management’s Report onInternal Control Over Financial Reporting**

 

The management of the Company is responsiblefor establishing and maintaining adequate internal control over financialreporting. The Company’s internal control system was designed to providereasonable assurance to the Company’s management and board of directorsregarding the preparation and fair presentation of published financialstatements.

 

Management assessed the effectiveness of theCompany’s internal control over financial reporting (as defined in theSecurities Exchange Act of 1934 Rules 13a-15(f) and 15d-15(f)) as of December 31,2008. In making this assessment, it used the criteria set forth by theCommittee of Sponsoring Organizations of the Treadway Commission (COSO) inInternal Control — Integrated Framework. Based on our assessment we believethat, as of December 31, 2008, the Company’s internal control overfinancial reporting is effective based on those criteria.

 

This annual report does not include anattestation report of the company’s registered public accounting firm regardinginternal control over financial reporting. Management’s report was not subjectto attestation by the Company’s registered public accounting firm pursuant totemporary rules of the Securities and Exchange Commission that permit thecompany to provide only management’s report in this annual report.

 

### **Changes in Internal Controls**

### ** **

There were no changes in our internalcontrols over financial reporting that occurred during our last fiscal quarter,*i.e.*, the quarter ended December 31,2008, that have materially affected, or are reasonably likely to materiallyaffect, our internal controls over financial reporting.

 

## ***ITEM 9B.         OTHER INFORMATION.***

## *** ***

Not applicable.

 

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# **PART III**

# ** **

## ***ITEM 10.  DIRECTORS, EXECUTIVE OFFICERS AND CORPORATEGOVERNANCE.***

## *** ***

The following information summarizes thebusiness experience during at least the past five years of each of ourexecutive officers and the members of our management board.

 
| **Name**                  | ** ** | **Age** | ** ** | **Position(s)**                |
|---------------------------|------------|---------|------------|--------------------------------|
| Neil G. Kiefer            |       | 57      |       | Chief Executive Officer        |
| Michael J. Hessling       |       | 56      |       | President and Management Board |
| Gary A. Gregg             |       | 57      |       | Chief Operating Officer        |
| Deborah J. Pierce         |       | 60      |       | Chief Financial Officer        |
| John T. Blakely           |       | 64      |       | Management Board               |
| Gilbert DiGiannantonio(1) |       | 60      |       | Management Board               |
| Edward C. Droste          |       | 57      |       | Management Board               |
| Sukeaki Izumi(2)          |       | 71      |       | Management Board               |
| Toyoroku Izumi(2)         |       | 46      |       | Management Board               |
| Dennis D. Johnson         |       | 58      |       | Management Board               |
| David L. Lageschulte      |       | 57      |       | Management Board               |
| William R. Ranieri(1)     |       | 88      |       | Management Board               |

 

----

(1)             Mr. DiGiannantonio is the son-in-lawof Mr. Ranieri.

 

(2)             Mr. Sukeaki Izumi is the father of Mr. ToyorokuIzumi.

 

**Business Experience**

** **

*Neil G. Kiefer.*  Mr. Kiefer was appointed our ChiefExecutive Officer in August 2004. Mr. Kiefer has been involved in theHooters organization since its inception in 1983, when he incorporated theoriginal Hooters entity, Hooters Inc. From 1983 to 1992, Mr. Kieferserved as general outside counsel to Hooters Inc. and its related Hootersentities. From May 1992 to June 1994, Mr. Kiefer served asPresident and Chief Executive Officer of Hooters Management Corporation, themanaging entity for Hooters Inc. and its affiliated companies. Since June 1994,Mr. Kiefer has served as President and Chief Executive Officer ofHooters Inc. and all other Hooters corporations affiliated withHooters Inc. Mr. Kiefer was elected to the Hooters Inc. board ofdirectors in 1994 and continues to serve on the board.

 

*Michael J. Hessling.*  Mr. Hessling was appointed to ourmanagement board in July 2004 and was appointed our President in June 2006.Mr. Hessling has been involved in the gaming industry since 1979 when hejoined Caesars Palace as Manager of Financial Planning. Before his departure in1983, Mr. Hessling was promoted to Assistant Vice President of Planningand Administration and, after assisting in the opening of Caesars Tahoe, servedas management liaison between the Tahoe and Las Vegas operations. During 1983, Mr. Hesslingserved as Vice President of Casino Operations for CSP, a management companythat operated the Dunes Hotel & Casino. From 1983 to 1988, Mr. Hesslingserved as general manager of several small casinos in Las Vegas. From 1989 to2005, Mr. Hessling was a part owner of and served as Treasurer and adirector for Beatty Future Inc., which owned a casino motel in ruralNevada. From 1989 until June 2004, Mr. Hessling served as ExecutiveVice President, General Manager and Chief Operating Officer of the Hôtel SanRémo.

 

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* *

*Gary A. Gregg.*  Mr. Gregg was appointed our ChiefOperating Officer in October 2006. From 1988 to 1993, Mr. Gregg served as President for the FlamingoHilton Laughlin and was responsible for the property’s operations andprofitability.  From 1993 to 1997, Mr. Greggserved as President and Senior Vice President for the Las Vegas Hilton andHilton Hotels Corporation, where he was responsible for the company’s overalloperations and profitability.  From 1998to 2001, Mr. Gregg served as General Manager for the Regency Casino byHyatt located in Thessaloniki, Greece, where, in addition to his operationalresponsibilities, he was also responsible for overall regulatory issuesincluding administration of all policies and procedures.  From 2001 to 2003, Mr. Gregg served asGeneral Manager for the Hollywood Casino located in Shreveport, Louisiana wherehe was also responsible for the operational and regulatory aspects of thecompany’s business.  From July 2004until October 2006, Mr. Gregg served as President for Daily Edge, LLCwhere he managed sales representatives, trade shows, and associated sales andmarketing services.

 

*Deborah J. Pierce.*  Ms. Pierce was appointed our ChiefFinancial Officer in February 2005. From June 1995 to May 1998, Ms. Pierceserved as Vice President of Finance for Tropicana Resort & Casino andwas responsible for various financial and operational aspects of theorganization’s business. From June 1998 to November 1998, Ms. Pierceserved as Chief Financial Officer, Secretary and Treasurer of Palace REIT, areal estate investment trust formed in 1998 to acquire office and industrialproperties in selected markets in the United States. From November 1998 toJune 2003, Ms. Pierce served as Vice President of Finance forAmeristar Casinos, Inc. From July 2003 to August 2004, Ms. Pierceserved as Vice President of Finance for Silverton Casino, LLC where she wasresponsible for various financial, regulatory and operational aspects of thecompany’s business. From November 2004 to February 2005, Ms. Pierceserved as Chief Financial Officer of Fantasy Springs Resort & Casino.

 

*John T. Blakely.*  Mr. Blakely was appointed to ourmanagement board in July 2004. Mr. Blakely has been practicing law inFlorida since 1970. In 1973, Mr. Blakely practiced in the Tampa andClearwater offices of Johnson, Blakely, Pope, Bokor, Ruppel and Burns and was apartner when he left in 2003. Since 2003, Mr. Blakely has been a partnerwith the Naples office of Roetzel & Andress, a national law firm basedin Akron, Ohio. Mr. Blakely has served as Director (1999 to 2002) andPresident (2001 to 2002) of the Port Royal Club in Naples, Florida.

 

*Gilbert DiGiannantonio.*  Mr. DiGiannantonio was appointed to ourmanagement board in July 2004. Mr. DiGiannantonio is one of theoriginal founders of the Hooters restaurant, concept and brand. He served asthe Vice President of Operations and Vice President of Hooters Inc. inpast years. Mr. DiGiannantonio is also the co-owner of one Hootersrestaurant in Las Vegas, Nevada and the restaurant Casa Ludovico in PalmHarbor, Florida. In addition, he is an owner of the Pete & Shorty’s ofClearwater restaurant.

 

*Edward C. Droste.*  Mr. Droste was appointed to ourmanagement board in July 2004. Mr. Droste is one of the originalfounders of the Hooters restaurant, concept and brand. Mr. Drosteco-founded several restaurant concepts, including Pete & Shorty’sTavern and Adobe Gila’s and was involved in the conceptual development of DanMarino’s Town Tavern and Stumps Supper Club. Currently, Mr. Droste servesas Chief Executive Officer of Provident Management Corporation, a resortmanagement company, which he founded (since 1989), and as a director forHooters Management Corporation (since 1992). In 1986, Mr. Droste foundedProvident Advertising & Marketing, Inc., which is responsible forcoordinating the promotional activities for the Hooters restaurants and thenational distribution of the Hooters calendar. In 1995, Mr. Droste foundedProvident Entertainment, Inc., an entertainment company that produces atwo-hour radio talk show and is in talks to produce a motion picture. Mr. Drostealso serves on the board of directors for the Outback Bowl (since 2004), the H.Lee Moffitt Cancer Center & Research Institute Foundation, Inc.(since 2003), and the Clearwater Regional Chamber of Commerce (since 1993).

 

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Mr. Droste is currentlyserving as the Chairman for the H. Lee Moffitt Cancer Center and ResearchInstitute Foundation, Inc.

 

*Sukeaki Izumi.*  Mr. Izumi was appointed to ourmanagement board in July 2004. Mr. Izumi was the founder of Eastern &Western, which was formed in 1988 to acquire, remodel, expand and operate theHôtel San Rémo property. Since 1988, Mr. Izumi has served as the Presidentand Director of Eastern & Western. Mr. Izumi also serves as President and Director of S.I.Enterprises, LLC (formerly known as S.I. Enterprises, Inc.), theentity which wholly owns Eastern & Western (since 1990and I &F Corporation, Japan (since 1973). ).  He also owned Beatty Future, Inc.from 1989 to 2005, which owned a casino motel in rural Nevada.   Mr. Izumi served as President, Chairmanand Director of Hakusui Tech, Co., Ltd. from 1992 to 2002. Hakusui Tech.Co., Ltd. filed an application for the commencement of civilrehabilitation proceedings with a Japanese court in June 2002. As a resultof such filing, the company underwent court-supervised reorganization.  On January 31, 2006, the Japanese courthas released Hakusui Tech. Co., Ltd. from its supervision, and Hakusui Tech.Co., Ltd. is no longer involved in civil rehabilitation proceedings.  Currently, Hakusui Tech. Co., Ltd. is a goodstanding corporation.

 

*Toyoroku Izumi.*  Mr. Izumi was appointed to ourmanagement board in July 2004. Mr. Izumi has been a director,Secretary and Treasurer of Eastern & Western since 1990. From 1996 to2002, Mr. Izumi served as Vice President of Beatty Future, Inc., anentity in which he has an ownership interest. Mr. Izumi also serves asdirector, Treasurer and Assistant Secretary of S.I. Enterprises, LLC(formerly known as S.I. Enterprises, Inc.), the entity that wholly ownsEastern & Western (since 1995), and as a director of I&FCorporation, Japan (since 1997). Mr. Izumi has been serving as thePresident of Hakusui Tech, Co., Ltd. since 2000. Hakusui Tech.Co., Ltd. filed an application for the commencement of civilrehabilitation proceedings with a Japanese court on June 21, 2002. As aresult of such filing, the company underwent court-supervisedreorganization.  On January 31,2006, the Japanese court has released Hakusui Tech. Co., Ltd. from itssupervision, and Hakusui Tech. Co., Ltd. is no longer involved in civilrehabilitation proceedings.  Currently,Hakusui Tech. Co., Ltd. is a good standing corporation.

 

*Dennis D. Johnson.*  Mr. Johnson was appointed to ourmanagement board in August 2004. Mr. Johnson is one of the originalfounders of the Hooters restaurant, concept and brand. In 1994, Mr. Johnsonjoined the corporate office of Hooters Inc. and was responsible formaintaining the integrity of the Hooters trademark through quality control,store inspections and site selections until 2002. From 1994 to 2004, Mr. Johnsonserved as the Vice President of Hooters Management Corporation. Since 2000, Mr. Johnsonhas served as the Vice President of Merchandise Sales. Since 1992, Mr. Johnsonhas been a member of the Hooters Management Corporation board of directors.

 

*David L. Lageschulte.*  Mr. Lageschulte was appointed to ourmanagement board in July 2004. Mr. Lageschulte is the controllingshareholder of the original licensee of the Hooters restaurant concept andbrand. Mr. Lageschulte controls and is the Chief Executive Officer of 19Hooters restaurants which operate throughout Southeast and Southwest Florida,and in the State of Nevada. Mr. Lageschulte is the Chief Executive Officerof LTP Management Group, Inc., a restaurant managing entity for 32restaurants, which he established in 1987. Mr. Lageschulte co-foundedseveral restaurant and entertainment concepts including Dan Marino’s Fine Food &Spirits, Adobe Gila’s, Ugly Tuna Saloona, Stumps Supper Club and Splitsville. Mr. Lageschultealso owns several corporations, in Florida and other states, which are involvedin an array of operations including health and fitness centers, heavy equipmentsales and leasing, well drilling and real estate investments.

 

*William R. Ranieri.*  Mr. Ranieri was appointed to ourmanagement board in July 2004. Mr. Ranieri is one of the originalfounders of the Hooters restaurant, concept and brand and, since 1983, hasserved as a director for Hooters Management Corporation, Hooters Inc. andits related entities.

 

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**Committees of our Management Board**

** **

Our management board currently does not haveany committees. More specifically, our management board does not have acompensation committee or an audit committee. The guidelines and pay levels forthe compensation of executive officers are generally established by themanagement board. All the functions of an audit committee are performed by theentire management board.

 

**Code of Ethics**

** **

Due to our limited size, wehave not yet adopted a code of ethics that applies to our principal executiveofficer, principal financial officer, principal accounting officer orcontroller, or persons performing similar functions.

 

## ***ITEM 11. EXECUTIVE COMPENSATION.***

## *** ***

**Compensation Discussion and Analysis**

** **

We do not have a compensation committee orformalized program for determining executive compensation.  All decisions regarding executivecompensation for the Chief Executive Officer, President, and Chief OperatingOfficer are made at the sole discretion of our management board.  Our Chief Executive Officer, President, andChief Operating Officer have the discretion to award reasonable annual payincreases for other executives.  Themanagement board has not used an outside consultant in connection with makingcompensation decisions.

 

Our management board strives to award executivecompensation at a level that will attract, motivate, and retain talented anddedicated executive officers.  For thefiscal year ended December 31, 2008, the components of compensation fornamed executive officers were base salary, paid premiums for life insurancepolicies, and company contributions to our 401(k) plan.

 

In setting base salaries, the management boardconsiders executive experience, current position’s responsibility, and certainrelevant market data. Bonuses may be awarded to salaried employees andexecutive management. The bonuses are discretionary and are based on financialachievement evaluated at the time the bonuses are granted.  One bonus was awarded for the fiscal yearended December 31, 2008.

 

Executive officers are eligible to participate inour 401(k) plan as are all regular full-time employees not covered by acollective bargaining agreement who have completed at least three months ofcontinuous service.  The Company’scontributions to the 401(k) plan are at the discretion of the managementboard.  The Company’s plan allows for acompany match of 25% of each dollar contributed by the employee, not to exceed1% of a participant’s annual compensation.

 

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**Summary Compensation Table**

 

The following table sets forth the cash compensationwe paid to the five most highly compensated employees during the year ended December 31,2008 for services to the Chief Executive Officer, Chief Financial Officer, andcertain other most highly compensated executive officers during the year ended December 31,2008:

 
| **Name and Principal Position**                  | ** ** | **Year** | ** ** | **Salary** | ** ** | **Bonus** | ** ** | **All  Other   Compensation  (1)** | ** ** | **Total** |
|--------------------------------------------------|------------|----------|------------|------------|------------|-----------|------------|------------------------------------|------------|-----------|
|                                             |       |     |       |       |       |      |       |                               |       |      |
| Neil G.  Kiefer  Chief Executive Officer         |       | 2008     |       | $          | 100,000    |      | $          | —                             |       | $         | 1,576 |   | $ | 101,576 |
|                                             | 2007       |     | $          | 100,000    |       | $         | —     |                               | $          | 1,000     |   | $ | 101,000 |
|                                             | 2006       |     | $          | 101,964    |       | $         | —     |                               | $          | 1,552     |   | $ | 103,516 |
|                                             |       |     |       |       |       |      |       |                               |       |      |
| Deborah J.  Pierce  Chief Financial Officer      |       | 2008     |       | $          | 170,887    |      | $          | 20,000                             |       | $         | 2,503 |   | $ | 193,390 |
|                                             | 2007       |     | $          | 160,961    |       | $         | —     |                               | $          | 2,155     |   | $ | 163,116 |
|                                             | 2006       |     | $          | 154,230    |       | $         | —     |                               | $          | 2,095     |   | $ | 156,325 |
|                                             |       |     |       |       |       |      |       |                               |       |      |
| Michael J.  Hessling  President                  |       | 2008     |       | $          | 275,000    |      | $          | —                             |       | $         | 1,213 |   | $ | 276,213 |
|                                             | 2007       |     | $          | 275,000    |       | $         | —     |                               | $          | 1,188     |   | $ | 276,188 |
|                                             | 2006       |     | $          | 276,340    |       | $         | —     |                               | $          | 1,188     |   | $ | 277,528 |
|                                             |       |     |       |       |       |      |       |                               |       |      |
| Kim L. Tyler  Sr. VP of Food & Beverage |       | 2008     |       | $          | 170,887    |      | $          | —                             |       | $         | 2,303 |   | $ | 173,190 |
|                                             | 2007       |     | $          | 160,957    |       | $         | —     |                               | $          | 2,155     |   | $ | 163,112 |
|                                             | 2006       |     | $          | 154,406    |       | $         | 50,000     |                               | $          | 2,590     |   | $ | 206,996 |
|                                             |       |     |       |       |       |      |       |                               |       |      |
| Gary Gregg  Chief Operating Officer              |       | 2008     |       | $          | 300,000    |      | $          | —                             |       | $         | 2,838 |   | $ | 302,838 |
|                                             | 2007       |     | $          | 250,000    |       | $         | —     |                               | $          | 2,488     |   | $ | 252,488 |

 

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(1)          All other compensationincludes $538 in premiums paid for life insurance policies insuring the livesof the executive officers and the Company’s contributions to the employees’ 401(k) plan.

 

**Employment Contracts**

** **

EffectiveOctober 31, 2006, we signed an employment agreement with Michael J.Hessling to serve as President.  Theterms of the agreement stated that Mr. Hessling serve as our President fora

 

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period of one year from the effective date of theagreement.  Under the signed employmentagreement, Mr. Hessling was paid an annual base salary of $275,000 and wasentitled to participate in a bonus program, if a bonus program had beenestablished for our senior management team. Subsequent to October 31,2007, Mr. Hessling has continued to serve as President without anemployment contract, at the same annual base salary of $275,000.

 

EffectiveOctober 30, 2006, we signed an employment agreement with Gary A. Gregg toserve as Chief Operating Officer.  Theterms of the agreement states that Mr. Gregg will serve as our ChiefOperating Officer for a period of three years from the effective date of theagreement.  Mr. Gregg was awarded araise in salary on June 9, 2008. Under the signed employment agreement, Mr. Gregg was paid an annualbase salary of $250,000 through June 8, 2008 and $300,000 annual basesalary thereafter.  He will be eligibleto receive an annual performance bonus based on targeted EBITDA (as defined inthe employment agreement) levels.  If wechoose to terminate Mr. Gregg’s employment without cause, Mr. Greggwill be entitled to receive separation pay equal to six months of base salaryat the then current rate.  On March 23,2007, we signed a change of control agreement with Mr. Gregg, whichexpired on April 30, 2008.

 

EffectiveFebruary 1, 2005, we signed an employment agreement with Deborah J. Pierceto serve as our Chief Financial Officer. Under the signed employment agreement, Ms. Pierce will be paid anannual base salary of $150,000 plus annual raises, and will be entitled to participatein a bonus program for up to $50,000, if a bonus program is established.  If we choose to terminate Ms. Pierce’semployment without cause, Ms. Pierce will be entitled to receiveseparation pay equal her monthly gross salary for six months after thetermination.  On March 23, 2007, wesigned a change of control agreement with Ms. Pierce, which expired on April 30,2008.  In 2007, in recognition of theadditional work involved with duties associated with the Asset PurchaseAgreement between the Company and Hedwigs Las Vegas Top Tier, LLC, the Companysigned a bonus agreement with Deborah J. Pierce awarding a bonus of $40,000 atthe time the transaction is consummated or a $20,000 bonus if the transactionis not consummated.

 

EffectiveOctober 27, 2004, we signed an employment agreement with Kim L. Tyler toserve as our Senior Vice-President of Food and Beverage.  Under the signed employment agreement, Mr. Tylerwill be paid an annual base salary of $150,000 plus annual raises, and will beentitled to participate in a bonus program for up to $50,000, if a bonusprogram is established.  If we choose toterminate Mr. Tyler’s employment without cause, Mr. Tyler will beentitled to receive separation pay equal his monthly gross salary for sixmonths after the termination.  On March 23,2007, we signed a change of control agreement with Mr. Tyler, whichexpired on April 30, 2008.

 

**Compensation of Management Board**

** **

The members of our management board currentlydo not receive any separate compensation for serving on our management board.All members of our management board are reimbursed for air, meal, and othertravel expenses incurred in connection with attendance at board meetings.

 

**Options, Long Term Incentive and Other Benefit Plans**

** **

We do not maintain a stock option plan or anysimilar employee benefit plan. Accordingly, during the last fiscal year, we have not issued any optionsor stock to any of its executive officers or directors.  In addition, there have not been anyexercises or re-pricings of stock options or stock appreciation rights held byany of our executive officers or directors.

 

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**Management Board Interlocksand Insider Participation**

 

Gary A. Gregg, our ChiefOperating Officer, participates in discussions regarding compensation forexecutive officers and other employees.

 

**THE FOLLOWING REPORT OF THEMANAGEMENT BOARD SHALL NOT BE DEEMED TO BE SOLICITING MATERIAL OR TO BE FILEDWITH THE SEC UNDER THE SECURITIES ACT OF 1933 OR THE SECURITIES EXCHANGE ACT OF1934 OR INCORPORATED BY REFERENCE IN ANY DOCUMENT SO FILED.**

 

**ManagementBoard Compensation Report**

 

Our management board hasreviewed and discussed the above Compensation Discussion and Analysis with ourmanagement and determined that the Compensation Discussion and Analysis beincluded in this annual report.

 
| March 31, 2009 | MANAGEMENT BOARD

 

Michael J. Hessling

Toyoroku Izumi

Sukeaki Izumi

William R. Ranieri

David L. Lageschulte

Edward C. Droste

Gilbert DiGiannantonio

John T. Blakely

Dennis D. Johnson |
|---------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

## ***ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIALOWNERS AND MANAGEMENT.***

## *** ***

The following table shows informationregarding the beneficial ownership of our membership interests as of December 31,2008, and sets forth the number of and percentage owned by:

 

·                  each person known to own beneficially morethan 5% of any units of our membership interests;

 

·                  each of the members of our management boardand named executive officers; and

 

·                  all of our management board and executiveofficers as a group.

 

A person is a “beneficial owner” of asecurity if that person has or shares “voting power,” which includes the powerto vote or to direct the voting of the security, or “investment power,” whichincludes the power to dispose of or to direct the disposition of the security.

 

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| **Name of Beneficial Owner**                                                                | ** ** | **Number of Units  Beneficially Owned** | ** ** | **Percent of  Units  Owned Beneficially** | ** ** |
|---------------------------------------------------------------------------------------------|------------|-----------------------------------------|------------|-------------------------------------------|------------|
| *Florida Hooters LLC*(1)107 Hampton Road #200  Clearwater, FL 33759                         |       | 66.67                                   |       | 66.67                                     | %          |
| Hooters Gaming LLC107 Hampton Road #200  Clearwater, FL 33759                               |       | 33.40                                   |       | 33.40                                     | %          |
| Gilbert DiGiannantonio(2)107 Hampton Road #200  Clearwater, FL 33759                        |       | 15.58                                   |       | 15.58                                     | %          |
| William Ranieri(3)107 Hampton Road #200  Clearwater, FL 33759                               |       | 6.23                                    |       | 6.23                                      | %          |
| Edward Droste(4)  107 Hampton Road #200  Clearwater, FL 33759                               |       | 5.65                                    |       | 5.65                                      | %          |
| Dennis Johnson(5)107 Hampton Road #200  Clearwater, FL 33759                                |       | 0.62                                    |       | 0.62                                      | %          |
| Neil Kiefer(6)  107 Hampton Road #200   Clearwater, FL 33759                                |       | 1.57                                    |       | 1.57                                      | %          |
| Lags Ventures, LLC  4411 Cleveland Avenue  Ft. Myers, FL 33901                              |       | 33.27                                   |       | 33.27                                     | %          |
| David Lageschulte(7)4411 Cleveland Ave.  Ft. Myers, FL 33902                                |       | 33.27                                   |       | 33.27                                     | %          |
| *EW Common LLC*(8)  115 East Tropicana Ave.  Las Vegas, NV 89109                            |       | 33.33                                   |       | 33.33                                     | %          |
| Eastern & Western Hotel Corporation(9)115 East Tropicana Ave.  Las Vegas, NV 89019 |       | 30.00                                   |       | 30.00                                     | %          |
| S.I. Enterprises, Inc.(10)  115 East Tropicana Ave.  Las Vegas, NV 89019               |       | 30.00                                   |       | 30.00                                     | %          |
| Sukeaki Izumi(10)(11)  115 East Tropicana Ave.  Las Vegas, NV 89109                         |       | 2.10                                    |       | 2.10                                      | %          |
| Toyoroku Izumi(10)(12)  115 East Tropicana Ave   Las Vegas, NV 89109                        |       | 27.90                                   |       | 27.90                                     | %          |
| Michael J. Hessling(13)115 East Tropicana Ave.  Las Vegas, NV 89109                         |       | 3.33                                    |       | 3.33                                      | %          |
| *All  Management Board and Executive Officers as a group* (11 persons)                      |       | 96.27                                   |       | 96.27                                     | %          |

 

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| (1)    |   | The membership interests of Florida Hooters LLC are  owned 50.1% by Hooters Gaming LLC and 49.9% by Lags Ventures, LLC.                                                                                                                                                                                                                                                                                                                                                          |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| (2)    |   | By virtue of his 46.65% ownership interest in  Hooters Gaming LLC, Mr. DiGiannantonio is deemed to beneficially own  15.58% of our membership interests.                                                                                                                                                                                                                                                                                                                    |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| (3)    |   | By virtue of his 18.66% ownership interest in Hooters  Gaming LLC, Mr. Ranieri is deemed to beneficially own 6.23% of our  membership interests.                                                                                                                                                                                                                                                                                                                            |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| (4)    |   | By virtue of his 16.92% ownership interest in  Hooters Gaming LLC, Mr. Droste is deemed to beneficially own 5.65% of  our membership interests.                                                                                                                                                                                                                                                                                                                             |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| (5)    |   | By virtue of his 1.87% ownership interest in Hooters  Gaming LLC, Mr. Johnson is deemed to beneficially own 0.62% of our  membership interests.                                                                                                                                                                                                                                                                                                                             |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| (6)    |   | By virtue of his 4.71% ownership interest in Hooters  Gaming LLC, Mr. Kiefer is deemed to beneficially own 1.57% of our  membership interests.                                                                                                                                                                                                                                                                                                                              |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| (7)    |   | By virtue of his sole ownership and control of Lags  Ventures, LLC, Mr. Lageschulte is deemed to beneficially own all of our  membership interests beneficially owned by Lags Venture, LLC.                                                                                                                                                                                                                                                                            |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| (8)    |   | The membership interests of EW Common LLC are owned  90% by Eastern & Western and 10% by Michael Hessling.                                                                                                                                                                                                                                                                                                                                                              |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| (9)    |   | Eastern & Western is wholly owned by S.I.  Enterprises, Inc.                                                                                                                                                                                                                                                                                                                                                                                                       |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| (10)   |   | S.I. Enterprises, Inc. was converted into a  limited-liability company on February 28, 2005 and is now known as  S.I. Enterprises, LLC. The interests in S.I. Enterprises, Inc.  are owned 93% by Toyoroku Izumi and 7% by Sukeaki Izumi. By virtue of its  sole ownership of Eastern & Western, S.I. Enterprises, Inc. is  deemed to beneficially own all of our membership interests beneficially owned  by Eastern & Western. |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| (11)   |   | By virtue of his 7% ownership of S.I.  Enterprises, Inc., Mr. S. Izumi is deemed to beneficially own 2.10%  of our membership interests.                                                                                                                                                                                                                                                                                                                               |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| (12)   |   | By virtue of his 93% ownership of S.I.  Enterprises, Inc., Mr. T. Izumi is deemed to beneficially own  27.90% of our membership interests.                                                                                                                                                                                                                                                                                                                             |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| (13)   |   | By virtue of his 10% ownership of EW  Common LLC, Mr. Hessling is deemed to beneficially own 3.33% of our  membership interests.                                                                                                                                                                                                                                                                                                                                       |

## *** ***

## ***ITEM 13. CERTAIN RELATIONSHIPSAND RELATED TRANSACTIONS.***

## *** ***

We believe that all of the transactionsmentioned below are on terms at least as favorable to us as would have beenobtained from an unrelated third party.

 

The Company’s Compliance Policies consider relatedparty transactions as “potential conflicts of interest”.  Before engaging in “potential conflicts ofinterest,” proposed activities are reviewed by company management and reportedto the Compliance Committee, which comprises of two management board membersand three company officers.  Themanagement board also reviews all related party transactions on a case by casebasis and approves any such transaction in accordance with Nevada corporatelaw.  In addition, the Notes issued by us prohibit us from entering intocertain transactions with certain related parties unless it is determined thatthe terms of the transaction are fair and reasonable to us, and no lessfavorable than could have been obtained in an arm’s length transaction with anunrelated party.  The Notes require additional approvals before we mayenter into certain related transactions in which the consideration to eitherparty in the transaction would exceed specified thresholds.

 

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**Florida Hooters LLC and Related Entities**

** **

We have entered into an assignment agreementwith Florida Hooters LLC whereby we have been assigned (i) a license touse certain intellectual property related to the Hooters brand in connectionwith gaming, casino or combined hotel gaming and casino operations at theHooters Casino Hotel property; (ii) a non-exclusive license to use theHooters restaurant concept at the Hooters Casino Hotel property; and (iii) anexclusive license to use certain intellectual property to operate and promoterestaurants, taverns, lounges and bars using the marks “Dan Marino’s Fine Food &Spirits” and “‘13’ Martini Bar,” which is operated in conjunction with DanMarino’s Fine Food & Spirits, at the Hooters Casino Hotelproperty.  Pursuant to the assignmentagreement, we must pay certain fees to related entities.

 

Hooters Gaming Corporation is a relatedentity which is owned by certain members of our management board (GilbertDiGiannantonio (52.078%), William Ranieri (20.831%), Edward Droste (12.510%),and Dennis Johnson (2.083%)) as well as some of our other indirect minorityinterest owners. Las Vegas Wings, Inc. is a related entity that is ownedby David Lageschulte (50.69%), Gilbert DiGiannantonio (14.18%) and WilliamRanieri (5.13%), all of whom are members of our management board and indirectmembership interest owners. Lags Ventures, Inc. is a related entity whichis wholly owned by David Lageschulte, a member of our management board and anindirect beneficial owner (through Lags Ventures, LLC) of 33.27% of ourmembership interests.

 

Pursuant to the terms of our assignmentagreement with Florida Hooters LLC, we accrued the following fees beginning on February 3,2006, the opening of the Hooters Casino Hotel:

 

·                  *Hooters Gaming Corporation.*  We pay Hooters Gaming Corporation a fee equalto three percent of all net gaming revenues generated from our gamingactivities (as defined by Nevada law). The fee accrues on a monthly basis.

 

·                  *Las Vegas Wings, Inc.*  We pay Las Vegas Wings, Inc. a consentfee equal to four percent of gross cash sales from any Hooters brandedrestaurant and three percent of the gross cash sales of any merchandise with aHooters logo at any location on or about the Hooters Casino Hotel.  This consent fee accrues monthly.

 

·                  *Lags Ventures, Inc.*  The “Dan Marino’s Fine Food &Spirits” and “‘13’ Martini Bar” marks used in connection with restaurantservices at the Hooters Casino Hotel property, require us to pay Lags Ventures, Inc.a royalty equal to six percent of gross cash sales generated from suchestablishments. This mark fee is calculated on a monthly basis, subject to anysubordination or deferral agreed to by Lags Ventures, Inc., and is payableno later than 30 days after the termination of the preceding full calendarmonth. In addition to the mark fee, we pay Lags Ventures, Inc. alltraining fees, set-up fees and other start-up items customarily incurred byLags Ventures, Inc. in similar licensing situations. These additional feesand amounts are not and will not be subordinated or deferred to any otheramount.

 

Hooters Gaming Corporation, Las Vegas Wings, Inc.and Lags Ventures, Inc. have agreed to subordinate payment of their respectivefees in favor of the obligations of 155 East Tropicana, LLC and itssubsidiaries under the Notes and any guarantees of the Notes, certain paymentsto be made pursuant to our operating agreement, and any fees due to any of themwill accrue and remain unpaid until there is sufficient net cash flow fromoperations to make all of the foregoing payments. In addition, the foregoingfees are subject to applicable limitations in the indenture governing theNotes, such as the limitation on restricted payments to the extent theyconstitute restricted payments.

 

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**Other Transactions**

** **

*Provident Advertising &Marketing, Inc.*  ProvidentAdvertising & Marketing, Inc.’s majority shareholder is Edward C.Droste, a member of our management board and an indirect beneficial owner of3.96% of our membership interests. Beginning 2004, Provident Advertising & Marketing, Inc.provided us with services relating to the planning and development of anadvertising and marketing plan.  Theaggregate marketing fee and merchandise fee paid to Provident Advertising &Marketing, Inc. for the years ended December 31, 2008, 2007 and 2006was approximately $0.1 million, $0.2 million, and $0.6 million,respectively.  For the years ended December 31,2008, 2007 and 2006, we paid $1,002,862, $1,553,184, and $3,033,070,respectively, to Provident Merchandise Sourcing, and $3,500, $502, and $6,420,respectively, to Provident Creative for uniforms and for merchandise to sell inour gift shops.  Both ProvidentMerchandise Sourcing and Provident Creative are affiliated with ProvidentAdvertising & Marketing, Inc. We will continue to engage Provident Advertising & Marketing, Inc.for the continued development and implementation of a strategic marketing planin connection with the Hooters Casino Hotel.

 

Our Notes indenture required that we engagean independent valuation firm to determine that the related party transactionsare valued at arm’s-length prices if the total expenditures to Providentaggregate $2.5 million.  Anationally-recognized valuation firm issued a favorable opinion in 2006 thatthe related party transactions with Provident had been conducted in a mannerconsistent with the arm’s length standard.

 

*Hawkeye Construction and Millwork, Inc.*  Hawkeye Construction and Millwork, Inc.is co-owned by David Lageschulte, a member of our management board and anindirect beneficial owner of 33.27% of our membership interests. In February 2005,we entered into an agreement with Hawkeye Construction and Millwork, Inc.whereby Hawkeye Construction and Millwork, Inc. would manage theconstruction and renovation project at the hotel casino property. Totalcompensation for services is two percent (2%) of the construction andfurniture, fixtures and equipment costs, but will not exceed $600,000. The feeis paid on a monthly basis.  The Company’spayments to Hawkeye Construction and Millwork, Inc. in relation to the constructionand renovation management agreement totaled $0.1 million for the year ended December 31,2006. No payments were made to Hawkeye Construction in the year ended December 31,2008 or 2007.

 

*Pete & Shorty’s, Inc.*  Pete & Shorty’s, Inc. is ownedby our chief executive officer, Neil Kiefer (6.39%), certain members of ourmanagement board (Gilbert DiGiannantonio (12.77%), William Ranieri (4.26%),Edward Droste (14.00%), and Dennis Johnson (9.34%)), and an indirect minorityinterest owner. In March 2005, we entered into a license agreement withPete & Shorty’s, Inc. whereby we were granted a nonexclusive,royalty-free license to use the Pete & Shorty’s mark in connectionwith a restaurant, bar and lounge at the Hooters Casino Hotel. Pursuant to thelicense agreement, we can also use the mark in connection with affiliatedmerchandise, entertainment and casino services.

 

## ***ITEM 14.  PRINCIPAL ACCOUNTING FEES AND SERVICES.***

## *** ***

The aggregate accountingfees billed and services provided by Ernst & Young LLP, our principalaccountants, to us and Hôtel San Rémo Casino and Resort for 2008 and 2007 areas follows:

 

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| **155 East Tropicana, LLC** | ** ** | **Year ended  December 31,  2008** | ** ** | **Year ended  December 31,  2007** | ** ** |
|--------------------------------------------|------------|----------------------------------------------|------------|----------------------------------------------|------------|
| Audit fees (1)                             |       | $                                            | 156,110    |                                         | $          | 190,021 |   |
|                                       |       |                                         |       |                                         |       |
| Total fees                                 |       | $                                            | 156,110    |                                         | $          | 190,021 |   |

 

----

(1)          Represents the aggregate fees Ernst &Young LLP billed us and Hôtel San Rémo Casino and Resort for professionalservices for the audits of our annual financial statements and review offinancial statements included in our reports on Form 10-Q or services thatare normally provided by Ernst & Young LLP in connection with thosefilings.

 

We do not have an audit committee. Fees paid to Ernst & Young LLP, our principal accountants, arepre-approved by the Chief Financial Officer and President.

 

# **PART IV**

# ** **

## ***ITEM 15.  EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.***

## *** ***

(a)            List the following documents filed aspart of the report:

 

(1)          All financial statements.

 

Included in “Item8. Financial Statements and Supplementary Data” above.

 

(2)          Financial Statement Schedules.

 

Not applicable.

 

(3)          Exhibit Index.

 

See exhibits listed on the Exhibit Index following the signature page ofthis Annual Report, where said Exhibit Index is incorporated herein byreference.

 

(b)           Exhibits.

 

Included as exhibits are the items listed in the Exhibit Index.

 

(c)            Financial Statement Schedules

 

Not applicable.

 

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## ***Table of Contents***

 

## ***SIGNATURES***

## *** ***

Pursuant to the requirements of Section 13or 15(d) of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned, thereuntoduly authorized.

 

 
| ** **                | **155 EAST TROPICANA, LLC** | ** **              |
|---------------------------|-----------------------------|-------------------------|
|                      | (Registrant)                |                    |
|                      |                        |                    |
|                      |                        |                    |
|                      | By:                         | /s/  Neil G. Kiefer     |
| Date: March 31, 2009 |                        | Neil  G. Kiefer         |
|                      | Its:                        | Chief Executive Officer |
|                           |                             |                         |  |

 

 

Pursuantto the requirements of the Securities and Exchange Act of 1934, this report hasbeen signed below by the following persons on behalf of the registrant and inthe capacities and on the dates included.

 
| **Signature**                | ** ** | **Title**                                                             | ** ** | **Date**            |
|------------------------------|------------|-----------------------------------------------------------------------|------------|---------------------|
|                         |       |                                                                  |       |                |
|  /s/  Neil G. Kiefer    |       | Chief Executive Officer (Principal Executive  Officer)                |       | March 31, 2009 |
| Neil G. Kiefer               |       |                                                                  |       |                |
|                         |       |                                                                  |       |                |
|  /s/  Deborah J. Pierce |       | Chief Financial Officer (Principal Financial and  Accounting Officer) |       | March 31, 2009 |
| Deborah J. Pierce            |       |                                                                  |       |                |
|                         |       |                                                                  |       |                |
|  /s/  Michael Hessling  |       | President and Management Board                                        |       | March 31, 2009 |
| Michael Hessling             |       |                                                                  |       |                |
|                         |       |                                                                  |       |                |
|  /s/  Toyoroku Izumi    |       | Management Board                                                      |       | March 31, 2009 |
| Toyoroku Izumi               |       |                                                                  |       |                |

 

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| **Signature**                     | ** ** | **Title**        | ** ** | **Date**            |
|-----------------------------------|------------|------------------|------------|---------------------|
| ** **                        | ** ** | ** **       | ** ** | ** **          |
|  /s/ Sukeaki Izumi           |       | Management Board |       | March 31, 2009 |
|  Sukeaki Izumi               |       |             |       |                |
|                              |       |             |       |                |
|  /s/ William  Ranieri        |       | Management Board |       | March 31, 2009 |
|  William Ranieri             |       |             |       |                |
|                              |       |             |       |                |
|  /s/ David  Lageschulte      |       | Management Board |       | March 31, 2009 |
|  David Lageschulte           |       |             |       |                |
|                              |       |             |       |                |
|  /s/ Edward Droste           |       | Management Board |       | March 31, 2009 |
|  Edward Droste               |       |             |       |                |
|                              |       |             |       |                |
|  /s/ Gilbert  DiGiannantonio |       | Management Board |       | March 31, 2009 |
|  Gilbert  DiGiannantonio     |       |             |       |                |
|                              |       |             |       |                |
|  /s/ John Blakely            |       | Management Board |       | March 31, 2009 |
|  John Blakely                |       |             |       |                |
|                              |       |             |       |                |
|  /s/ Dennis  Johnson         |       | Management Board |       | March 31, 2009 |
|  Dennis Johnson              |       |             |       |                |

 

88

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## ***Table of Contents***

 

## ***SIGNATURES***

## *** ***

Pursuant to the requirements of Section 13or 15(d) of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned, thereuntoduly authorized.

 

 
|                       | **155 EAST TROPICANA FINANCE  CORP.** | ** **              |
|----------------------------|---------------------------------------|-------------------------|
|                       | (Registrant)                          |                    |
|                       |                                  |                    |
|                       |                                  |                    |
|                       | By:                                   | /s/  Neil G. Kiefer     |
| Date: March 31,  2009 |                                  | Neil  G. Kiefer         |
|                       | Its:                                  | Chief Executive Officer |
|                            |                                       |                         |  |

 

 

Pursuantto the requirements of the Securities and Exchange Act of 1934, this report hasbeen signed below by the following persons on behalf of the registrant and inthe capacities and on the dates included.

 
| **Signature**         | ** ** | **Title**                                               | ** ** | **Date**            |
|-----------------------|------------|---------------------------------------------------------|------------|---------------------|
|                  |       |                                                    |       |                |
| /s/ Neil G. Kiefer    |       | President (Principal Executive Officer)                 |       | March 31, 2009 |
| Neil G. Kiefer        |       |                                                    |       |                |
|                  |       |                                                    |       |                |
| /s/ Deborah J. Pierce |       | Treasurer (Principal Financial and Accounting  Officer) |       | March 31, 2009 |
| Deborah J. Pierce     |       |                                                    |       |                |
|                  |       |                                                    |       |                |
| /s/ Michael Hessling  |       | Vice President, Secretary and Director                  |       | March 31, 2009 |
| Michael Hessling      |       |                                                    |       |                |
|                  |       |                                                    |       |                |
| /s/ Toyoroku Izumi    |       | Director                                                |       | March 31, 2009 |
| Toyoroku Izumi        |       |                                                    |       |                |

 

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| **Signature**               | ** ** | **Title** | ** ** | **Date**             |
|-----------------------------|------------|-----------|------------|----------------------|
|                        |       |      |       |                 |
| /s/ Sukeaki Izumi           |       | Director  |       | March  31, 2009 |
| Sukeaki Izumi               |       |      |       |                 |
|                        |       |      |       |                 |
| /s/ William Ranieri         |       | Director  |       | March 31, 2009  |
| William Ranieri             |       |      |       |                 |
|                        |       |      |       |                 |
| /s/ David Lageschulte       |       | Director  |       | March 31, 2009  |
| David Lageschulte           |       |      |       |                 |
|                        |       |      |       |                 |
| /s/ Edward Droste           |       | Director  |       | March 31, 2009  |
| Edward Droste               |       |      |       |                 |
|                        |       |      |       |                 |
| /s/ Gilbert  DiGiannantonio |       | Director  |       | March 31, 2009  |
| Gilbert DiGiannantonio      |       |      |       |                 |
|                        |       |      |       |                 |
| /s/ John Blakely            |       | Director  |       | March 31, 2009  |
| John Blakely                |       |      |       |                 |
|                        |       |      |       |                 |
| /s/ Dennis Johnson          |       | Director  |       | March 31, 2009  |
| Dennis Johnson              |       |      |       |                 |

 

90

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## ***Table of Contents***

 

## ***EXHIBITINDEX***

 
| **Index No.** | ** ** | **Description**                                                                                                                                                                                                                                                                                                                                                                                                |
|---------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** **    | ** ** | ** **                                                                                                                                                                                                                                                                                                                                                                                                     |
| 3.1           |       | Articles of Organization  of 155 East Tropicana LLC dated June 17, 2004, incorporated by reference  to registrant’s Registration Statement on Form S-4, as filed with the  Securities and Exchange Commission on May 13, 2005.                                                                                                                                                             |
|          |       |                                                                                                                                                                                                                                                                                                                                                                                                           |
| 3.2           |       | Amended and Restated  Articles of Organization of 155 East Tropicana LLC dated June 28, 2004,  incorporated by reference to registrant’s Registration Statement on  Form S-4, as filed with the Securities and Exchange Commission on  May 13, 2005.                                                                                                                                       |
|          |       |                                                                                                                                                                                                                                                                                                                                                                                                           |
| 3.3           |       | Articles of Incorporation  of 155 East Tropicana Finance Corp dated March 7, 2005, incorporated by  reference to registrant’s Registration Statement on Form S-4, as filed  with the Securities and Exchange Commission on May 13, 2005.                                                                                                                                                   |
|          |       |                                                                                                                                                                                                                                                                                                                                                                                                           |
| 3.4           |       | Articles of Organization  of EW Common LLC dated July 23, 2004, incorporated by reference to  registrant’s Registration Statement on Form S-4, as filed with the  Securities and Exchange Commission on May 13, 2005.                                                                                                                                                                      |
|          |       |                                                                                                                                                                                                                                                                                                                                                                                                           |
| 3.5           |       | Articles of Organization  of Florida Hooters LLC dated June 15, 2004, incorporated by reference to  registrant’s Registration Statement on Form S-4, as filed with the  Securities and Exchange Commission on May 13, 2005.                                                                                                                                                                |
|          |       |                                                                                                                                                                                                                                                                                                                                                                                                           |
| 3.6           |       | Amended and Restated  Articles of Organization of Florida Hooters LLC dated November 5, 2004,  incorporated by reference to registrant’s Registration Statement on  Form S-4, as filed with the Securities and Exchange Commission on  May 13, 2005.                                                                                                                                       |
|          |       |                                                                                                                                                                                                                                                                                                                                                                                                           |
| 3.7           |       | Amended and Restated  Operating Agreement of 155 East Tropicana, LLC dated March 9, 2005,  incorporated by reference to registrant’s Registration Statement on  Form S-4, as filed with the Securities and Exchange Commission on  May 13, 2005.                                                                                                                                           |
|          |       |                                                                                                                                                                                                                                                                                                                                                                                                           |
| 3.8           |       | Code of Bylaws of 155 East  Tropicana Finance Corp. dated March 8, 2005, incorporated by reference  to registrant’s Registration Statement on Form S-4, as filed with the  Securities and Exchange Commission on May 13, 2005.                                                                                                                                                             |
|          |       |                                                                                                                                                                                                                                                                                                                                                                                                           |
| 3.9           |       | Operating Agreement of EW  Common LLC dated July 30, 2004, incorporated by reference to  registrant’s Registration Statement on Form S-4, as filed with the  Securities and Exchange Commission on May 13, 2005.                                                                                                                                                                           |
|          |       |                                                                                                                                                                                                                                                                                                                                                                                                           |
| 3.10          |       | Operating Agreement of  Florida Hooters LLC dated July 30, 2004, incorporated by reference to  registrant’s Registration Statement on Form S-4, as filed with the  Securities and Exchange Commission on May 13, 2005.                                                                                                                                                                     |
|          |       |                                                                                                                                                                                                                                                                                                                                                                                                           |
| 4.1           |       | Indenture among 155 East  Tropicana, LLC, 155 East Tropicana Finance Corp and The Bank of New York  Trust Company, N.A. dated March 29, 2005, incorporated by reference to  registrant’s Registration Statement on Form S-4, as filed with the  Securities and Exchange Commission on May 13, 2005.                                                                                        |
|          |       |                                                                                                                                                                                                                                                                                                                                                                                                           |
| 4.2           |       | Registration Rights  Agreement among 155 East Tropicana, LLC, 155 East Tropicana Finance Corp,  Florida Hooters LLC, EW Common LLC, Jefferies & Company, Inc.  and Wells Fargo Securities, LLC dated March 29, 2005. , incorporated by  reference to registrant’s Registration Statement on Form S-4, as filed  with the Securities and Exchange Commission on May 13, 2005. |
|          |       |                                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.1          |       | Purchase Agreement among  155 East Tropicana, LLC, 155 East Tropicana Finance Corp,  Jefferies & Company, Inc. and Wells Fargo Securities, LLC dated  March 23, 2005. , incorporated by reference to registrant’s Registration  Statement on Form S-4, as filed with the Securities and Exchange  Commission on May 13, 2005.                                                |

 

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| **Index No.** | ** ** | **Description**                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|---------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|          |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.2          |       | Senior Secured Notes  Security Agreement among 155 East Tropicana, LLC, 155 East Tropicana Finance  Corp and The Bank of New York Trust Company, N.A. dated March 29, 2005,  incorporated by reference to registrant’s Registration Statement on  Form S-4, as filed with the Securities and Exchange Commission on  May 13, 2005.                                                                                                                               |
|          |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.3          |       | Guarantee and Pledge  Agreement between Eastern & Western Hotel Corporation and The Bank  of New York Trust Company, N.A. dated March 29, 2005, incorporated by reference  to registrant’s Registration Statement on Form S-4, as filed with the  Securities and Exchange Commission on May 13, 2005.                                                                                                                                                   |
|          |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.4          |       | Parent Pledge Agreement  among Florida Hooters LLC, EW Common LLC and The Bank of New York Trust  Company, N.A. dated March 29, 2005, incorporated by reference to  registrant’s Registration Statement on Form S-4, as filed with the  Securities and Exchange Commission on May 13, 2005, incorporated by  reference to registrant’s Registration Statement on Form S-4, as filed  with the Securities and Exchange Commission on May 13, 2005. |
|          |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.5          |       | Trademark Security  Agreement among 155 East Tropicana LLC, 155 East Tropicana Finance Corp and  The Bank of New York Trust Company, N.A. dated March 29, 2005,  incorporated by reference to registrant’s Registration Statement on  Form S-4, as filed with the Securities and Exchange Commission on  May 13, 2005.                                                                                                                                           |
|          |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.6          |       | Credit Agreement among 155  East Tropicana, LLC, 155 East Tropicana Finance Corp and Wells Fargo  Foothill, Inc. dated March 29, 2005, incorporated by reference to  registrant’s Registration Statement on Form S-4, as filed with the  Securities and Exchange Commission on May 13, 2005.                                                                                                                                                                |
|          |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.7          |       | Amendment Number One to  Credit Agreement dated January 30, 2006, incorporated by reference to  registrant’s current report on Form 8-K, as filed with the Securities  and Exchange Commission on February 2, 2006.                                                                                                                                                                                                                                              |
|          |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.8          |       | Security Agreement among  155 East Tropicana, LLC, 155 East Tropicana Finance Corp and Wells Fargo  Foothill, Inc. dated March 29, 2005, incorporated by reference to  registrant’s Registration Statement on Form S-4, as filed with the  Securities and Exchange Commission on May 13, 2005.                                                                                                                                                              |
|          |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.9          |       | Securities Account Control  Agreement between Wells Fargo Foothill, Inc., Eastern & Western  Hotel Corporation, Wells Fargo Brokerage Services, LLC dated March 29,  2005, incorporated by reference to registrant’s Registration Statement on  Form S-4, as filed with the Securities and Exchange Commission on  May 13, 2005.                                                                                                                   |
|          |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.10         |       | Securities Account Control  Agreement between Wells Fargo Foothill, Inc., 155 East Tropicana, LLC  and Wells Fargo Brokerage Services, LLC dated March 29, 2005,  incorporated by reference to registrant’s Registration Statement on  Form S-4, as filed with the Securities and Exchange Commission on  May 13, 2005.                                                                                                                                     |
|          |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.11         |       | Collateral Account Control  Agreement among 155 East Tropicana, LLC, The Bank of New York Trust Company,  N.A. dated March 29, 2005 (Interest Reserve Account) , incorporated by  reference to registrant’s Registration Statement on Form S-4, as filed  with the Securities and Exchange Commission on May 13, 2005.                                                                                                                                           |
|          |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.12         |       | Cash Collateral and  Disbursement Agreement among The Bank of New York Trust Company, N.A., and  155 East Tropicana, LLC and 155 East Tropicana Finance Corp. dated  March 29, 2005, incorporated by reference to registrant’s Registration  Statement on Form S-4, as filed with the Securities and Exchange  Commission on May 13, 2005.                                                                                                                       |

 

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| **Index No.** | ** ** | **Description**                                                                                                                                                                                                                                                                                                                                                                                                      |
|---------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|          |       |                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.13         |       | Guarantee and Pledge  Agreement between Eastern & Western Hotel Corporation and Wells  Fargo Foothill, Inc. dated March 29, 2005, incorporated by reference  to registrant’s Registration Statement on Form S-4, as filed with the  Securities and Exchange Commission on May 13, 2005.                                                                                            |
|          |       |                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.14         |       | Parent Pledge Agreement  among Florida Hooters, LLC, EW Common LLC and Wells Fargo Foothill, Inc.  dated March 29, 2005, incorporated by reference to registrant’s  Registration Statement on Form S-4, as filed with the Securities and  Exchange Commission on May 13, 2005.                                                                                                              |
|          |       |                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.15         |       | Intercompany Subordination  Agreement among 155 East Tropicana, LLC, 155 East Tropicana Finance Corp. and  Wells Fargo Foothill, Inc. dated March 29, 2005, incorporated by  reference to registrant’s Registration Statement on Form S-4, as filed  with the Securities and Exchange Commission on May 13, 2005.                                                                           |
|          |       |                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.16         |       | Intercreditor and Lien  Subordination Agreement among Wells Fargo Foothill, Inc., The Bank of  New York Trust Company, N.A., 155 East Tropicana, LLC and 155 East Tropicana  Finance Corp. dated March 29, 2005, incorporated by reference to  registrant’s Registration Statement on Form S-4, as filed with the  Securities and Exchange Commission on May 13, 2005.                      |
|          |       |                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.17         |       | Deed of Trust, Fixture  Filing with Assignment of Rents and Leases, and Security Agreement by and  from 155 East Tropicana, LLC, to Lawyers Title of Nevada, Inc for the benefit  of Wells Fargo Foothill, Inc. dated March 29, 2005, incorporated by  reference to registrant’s Registration Statement on Form S-4, as filed  with the Securities and Exchange Commission on May 13, 2005. |
|          |       |                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.18         |       | Leasehold Deed of Trust,  Fixture Filing with Assignment of Rents and Leases, and Security Agreement to  Lawyers Title of Nevada, Inc. for the benefit of Wells Fargo  Foothill, Inc. dated March 29, 2005, incorporated by reference to  registrant’s Registration Statement on Form S-4, as filed with the  Securities and Exchange Commission on May 13, 2005.                      |
|          |       |                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.19         |       | Assignment of  Entitlements, Contracts, Rents and Revenues between 155 East Tropicana, LLC  and Wells Fargo Foothill, Inc. dated March 29, 2005, incorporated  by reference to registrant’s Registration Statement on Form S-4, as  filed with the Securities and Exchange Commission on May 13, 2005.                                                                                      |
|          |       |                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.20         |       | Assignment of Entitlements  and Contracts between Eastern & Western Hotel Corporation and Wells  Fargo Foothill, Inc. dated March 29, 2005, incorporated by reference  to registrant’s Registration Statement on Form S-4, as filed with the  Securities and Exchange Commission on May 13, 2005.                                                                                  |
|          |       |                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.21         |       | Subordination and  Attornment Agreement and Estoppel Certificate between Wells Fargo  Foothill, Inc., Eastern & Western Hotel Corporation and 155  East Tropicana, LLC dated March 29, 2005, incorporated by reference to  registrant’s Registration Statement on Form S-4, as filed with the  Securities and Exchange Commission on May 13, 2005.                                 |
|          |       |                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.22         |       | Consent to Collateral Assignment  of Contract by C&B Nevada, Inc. and Wells Fargo Foothills, Inc.  dated March 29, 2005, incorporated by reference to registrant’s  Registration Statement on Form S-4, as filed with the Securities and  Exchange Commission on May 13, 2005.                                                                                                     |
|          |       |                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.23         |       | Consent to Collateral  Assignment of Contract by The PENTA Building Group, Inc. and Wells Fargo  Foothills, Inc. dated March 29, 2005, incorporated by reference to  registrant’s Registration Statement on Form S-4, as filed with the  Securities and Exchange Commission on May 13, 2005.                                                                                           |

 

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| **Index No.** | ** ** | **Description**                                                                                                                                                                                                                                                                                                                                      |
|---------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|          |       |                                                                                                                                                                                                                                                                                                                                                 |
| 10.24         |       | Control Agreement among  Wells Fargo Foothill, Inc. Florida Hooters LLC, EW Common LLC and 155  East Tropicana, LLC dated March 29, 2005, incorporated by reference to  registrant’s Registration Statement on Form S-4, as filed with the  Securities and Exchange Commission on May 13, 2005.                             |
|          |       |                                                                                                                                                                                                                                                                                                                                                 |
| 10.25         |       | Amended and Restated Joint  Venture Agreement between EW Common LLC, Eastern & Western Hotel  Corporation and Florida Hooters dated March 9, 2005, incorporated by  reference to registrant’s Registration Statement on Form S-4, as filed  with the Securities and Exchange Commission on May 13, 2005.                |
|          |       |                                                                                                                                                                                                                                                                                                                                                 |
| 10.26         |       | Amended and Restated  Assignment Agreement between Hooters Gaming Corporation and Florida Hooters,  LLC dated March 9, 2005, incorporated by reference to registrant’s  Registration Statement on Form S-4, as filed with the Securities and  Exchange Commission on May 13, 2005.                                               |
|          |       |                                                                                                                                                                                                                                                                                                                                                 |
| 10.27         |       | Amended and Restated  Assignment Agreement between Florida Hooters, LLC and 155 East Tropicana, LLC  dated March 9, 2005, incorporated by reference to registrant’s  Registration Statement on Form S-4, as filed with the Securities and  Exchange Commission on May 13, 2005.                                                  |
|          |       |                                                                                                                                                                                                                                                                                                                                                 |
| 10.28         |       | Amended and Restated Mark  License Agreement between Lags Ventures, Inc. and Florida Hooters, LLC  dated March 9, 2005, incorporated by reference to registrant’s Registration  Statement on Form S-4, as filed with the Securities and Exchange  Commission on May 13, 2005.                                               |
|          |       |                                                                                                                                                                                                                                                                                                                                                 |
| 10.29         |       | Affirmation and  Acknowledgement between Hooters Gaming Corporation and 155 East Tropicana,  LLC dated March 9, 2005, incorporated by reference to registrant’s  Registration Statement on Form S-4, as filed with the Securities and  Exchange Commission on May 13, 2005.                                                      |
|          |       |                                                                                                                                                                                                                                                                                                                                                 |
| 10.30         |       | Trademark License  Agreement between PETE & SHORTY’S, INC., Florida 33763 and 155 East  Tropicana, LLC dated March 11, 2005, incorporated by reference to  registrant’s Registration Statement on Form S-4, as filed with the  Securities and Exchange Commission on May 13, 2005.                                 |
|          |       |                                                                                                                                                                                                                                                                                                                                                 |
| 10.31         |       | Amendment to License  Agreement between HI Limited Partnership and Hooters Gaming Corporation dated  February 24, 2005, incorporated by reference to registrant’s  Registration Statement on Form S-4, as filed with the Securities and  Exchange Commission on May 13, 2005.                                                    |
|          |       |                                                                                                                                                                                                                                                                                                                                                 |
| 10.32         |       | Collateral Account Control  Agreement among 155 East Tropicana, LLC and The Bank of New York Trust  Company, N.A. dated March 29, 2005 (Renovation Disbursement Account),  incorporated by reference to registrant’s Registration Statement on  Form S-4, as filed with the Securities and Exchange Commission on  May 13, 2005. |
|          |       |                                                                                                                                                                                                                                                                                                                                                 |
| 10.33         |       | Amendment Number Two to  Credit Agreement dated June 2, 2006, incorporated by reference to  registrant’s current report on Form 8-K, as filed with the Securities  and Exchange Commission on June 6, 2006.                                                                                                                      |
|          |       |                                                                                                                                                                                                                                                                                                                                                 |
| 10.34         |       | Amendment Number Three to  Credit Agreement dated December 15, 2006, incorporated by reference to  registrant’s current report on Form 8-K, as filed with the Securities  and Exchange Commission on December 21, 2006.                                                                                                          |
|          |       |                                                                                                                                                                                                                                                                                                                                                 |
| 10.35         |       | Letter of Intent dated  January 12, 2007, incorporated by reference to registrant’s current  report on Form 8-K, as filed with the Securities and Exchange Commission  on January 19, 2007.                                                                                                                                      |
|          |       |                                                                                                                                                                                                                                                                                                                                                 |
| 10.36         |       | Change of Control  Agreement between 155 East Tropicana, LLC and Gary A. Gregg dated  March 23, 2007, incorporated by reference to registrant’s Form 10-K  as filed with the Securities and Exchange Commission on April 2, 2007. †                                                                                         |

 

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Table of Contents

 
| **Index No.** | ** ** | **Description**                                                                                                                                                                                                                                                     |
|---------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|          |       |                                                                                                                                                                                                                                                                |
| 10.37         |       | Change of Control  Agreement between 155 East Tropicana, LLC and Deborah J. Pierce dated  March 23, 2007, incorporated by reference to registrant’s Form 10-K  as filed with the Securities and Exchange Commission on April 2, 2007. †    |
|          |       |                                                                                                                                                                                                                                                                |
| 10.38         |       | Change of Control  Agreement between 155 East Tropicana, LLC and Kim Tyler dated March 23,  2007, incorporated by reference to registrant’s Form 10-K as filed with  the Securities and Exchange Commission on April 2, 2007. †            |
|          |       |                                                                                                                                                                                                                                                                |
| 10.39         |       | Change of Control Agreement  between 155 East Tropicana, LLC and Rick Newman dated March 23, 2007, incorporated  by reference to registrant’s Form 10-K as filed with the Securities and  Exchange Commission on April 2, 2007. †          |
|          |       |                                                                                                                                                                                                                                                                |
| 10.40         |       | Employment Agreement  between 155 East Tropicana, LLC and Michael J. Hessling dated  October 31, 2006, incorporated by reference to registrant’s  Form 10-Q, as filed with the Securities and Exchange Commission on  November 13, 2006. † |
|          |       |                                                                                                                                                                                                                                                                |
| 10.41         |       | Employment Agreement  between 155 East Tropicana, LLC and Gary A. Gregg dated October 30,  2006, incorporated by reference to registrant’s Form 10-Q, as filed with  the Securities and Exchange Commission on November 13, 2006. †        |
|          |       |                                                                                                                                                                                                                                                                |
| 10.42         |       | Employment Agreement  between 155 East Tropicana, LLC and Deborah J. Pierce dated February 1,  2005, incorporated by reference to registrant’s Form 10-K as filed with  the Securities and Exchange Commission on April 2, 2007. †         |
|          |       |                                                                                                                                                                                                                                                                |
| 10.43         |       | Employment Agreement  between 155 East Tropicana, LLC and Kim Tyler dated October 27, 2004,  incorporated by reference to registrants Form 10-K as filed with the  Securities and Exchange Commission on April 2, 2007. †                       |
|          |       |                                                                                                                                                                                                                                                                |
| 10.44         |       | Bonus Agreement between  155 East Tropicana, LLC and Deborah J. Pierce dated November 19, 2007, incorporated  by reference to registrant’s Form 10-K as filed with the Securities and  Exchange Commission on March 31, 2008. †            |
|          |       |                                                                                                                                                                                                                                                                |
| 10.45         |       | Amendment Number four to  Credit Agreement dated August 13, 2008, incorporated by reference to  registrants’ quarterly report Form 10-Q, as filed with Securities and  Exchange Commission on August 14, 2008.                                  |
|          |       |                                                                                                                                                                                                                                                                |
| 12            |       | Computation of Ratio of  Earnings to Fixed Charges. *                                                                                                                                                                                                               |
|          |       |                                                                                                                                                                                                                                                                |
| 31.1          |       | Certification of Deborah  J. Pierce under Section 302 of the Sarbanes-Oxley Act of 2002. *                                                                                                                                                                     |
|          |       |                                                                                                                                                                                                                                                                |
| 31.2          |       | Certification of Neil G.  Kiefer under Section 302 of the Sarbanes-Oxley Act of 2002. *                                                                                                                                                                        |
|          |       |                                                                                                                                                                                                                                                                |
| 32.1          |       | Certification of Deborah  J. Pierce pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *                                                                                                                                                               |
|          |       |                                                                                                                                                                                                                                                                |
| 32.2          |       | Certification of Neil G.  Kiefer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *                                                                                                                                                                  |

 

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* Filed herewith

† Executive compensation plan or arrangement

 

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