**UNITED STATES**

**SECURITIES AND EXCHANGECOMMISSION**

**Washington, D.C. 20549**

 

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**FORM 10-Q**

** **

**(Mark One)**

** **

| **x**                                                  | ** ** | **QUARTERLY  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**  |
|--------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------|
| ** **                                             | ** ** | ** **                                                                                    |
| **For the quarterly period ended  September 30, 2007** |
| **or**                                                 |
| ** **                                             | ** ** | ** **                                                                                    |
| o                                                      | ** ** | **TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |

** **

**For the transition period from                         to                        **

 

**Commission File Number 333-124924**

 

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**155 East Tropicana, LLC155 East Tropicana Finance Corp.**

(Exact Name of Registrant as Specified in itsCharter)

 

| **NEVADA   NEVADA**                                               | ** ** | **20-1363044   20-2546581**               |
|-------------------------------------------------------------------|------------|-------------------------------------------|
| (State or Other  Jurisdiction   of Incorporation or Organization) |       | (I.R.S. Employer   Identification Number) |
|                                                              |       |                                      |
| **115 East Tropicana Avenue   Las Vegas, Nevada**                 | ** ** | **89109**                                 |
| (Address of Principal  Executive Offices)                         |       | (Zip Code)                                |

** **

**(702) 597-6076**

(Registrant’s Telephone Number, IncludingArea Code)

 

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Indicateby check mark whether the registrant (1) has filed all reports required bySection 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the registrant was required to filesuch reports) and (2) has been subject to such filing requirements for the past90 days. Yes  x    No o

 

Indicateby check mark whether the registrant is a large accelerated filer, anaccelerated filer, or a non-accelerated filer. See definition of “acceleratedfiler and large accelerated filer” in Rule 12b-2 of the Exchange Act (Checkone):  

Large accelerated filer o   Acceleratedfiler o   Non-accelerated filer x

 

Indicateby check mark whether the registrant is a shell company (as defined in Rule12b-2 of the Exchange Act). Yes o    No  x

 

 

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| **PART I –  FINANCIAL INFORMATION** |
|------------------------------------------|
|                                     |   |   |
| Item 1.                                  |   | Financial  Statements. |
|                                     |   |   |
|                                     | **155  EAST TROPICANA, LLC (A Nevada Limited-Liability Company)(unaudited)** |
|                                     |   | Condensed Consolidated Balance Sheets (unaudited) |
|                                     |   | Condensed Consolidated Statements of Operations  (unaudited) |
|                                     |   | Condensed Consolidated Statements of Cash Flows  (unaudited) |
|                                     |   | Notes to Condensed Consolidated Financial Statements  (unaudited) |
|                                     |   |   |
| Item 2.                                  |   | Management’s  Discussion and Analysis of Financial Condition and Results of Operations. |
|                                     |   |   |
| Item 3.                                  |   | Quantitative  and Qualitative Disclosures About Market Risk. |
|                                     |   |   |
| Item 4.                                  |   | Controls and  Procedures. |
|                                     |   |   |
| **PART  II - OTHER INFORMATION**         |
|                                     |   |   |
| Item 1.                                  |   | Legal Proceedings. |
|                                     |   |   |
| Item 1A.                                 |   | Risk Factors. |
|                                     |   |   |
| Item 2.                                  |   | Unregistered  Sales of Equity Securities and Use of Proceeds. |
|                                     |   |   |
| Item 3.                                  |   | Defaults Upon  Senior Securities. |
|                                     |   |   |
| Item 4.                                  |   | Submission of  Matters to a Vote of Security Holders. |
|                                     |   |   |
| Item 5.                                  |   | Other Information. |
|                                     |   |   |
| Item 6.                                  |   | Exhibits. |
|                                     |   |   |
| SIGNATURES                               |

 

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# ** **

# **PARTI – FINANCIAL INFORMATION**

# ** **

## **Item1. Financial Statements.**

## ** **

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

### ** **

### **CONDENSED CONSOLIDATEDBALANCE SHEETS**

 
| ** **                                                                                                         | ** ** | **September 30,** | ** **  | **December 31,** | ** ** |
|--------------------------------------------------------------------------------------------------------------------|------------|------------------------|-------------|-----------------------|------------|
| ** **                                                                                                         | ** ** | **2007**               | ** **  | **2006**              | ** ** |
|                                                                                                               |       | **(unaudited)**        |        |                  |       |
| **Assets**                                                                                                         |       |                   |        |                  |       |
| Current  assets:                                                                                                   |       |                   |        |                  |       |
| Cash  and cash equivalents                                                                                         |       | $                      | 5,775,933   |                  | $          | 6,164,192 |   |
| Accounts  receivable, net of allowance for doubtful accountsof $80,025 and $99,921 in 2007 and 2006,  respectively |       | 2,223,090              |        | 1,609,756             |       |
| Inventories                                                                                                        |       | 877,691                |        | 846,651               |       |
| Prepaid  expenses                                                                                                  |       | 1,693,719              |        | 1,569,980             |       |
| Total  current assets                                                                                              |       | 10,570,433             |        | 10,190,579            |       |
| Property  and equipment, net                                                                                       |       | 118,585,903            |        | 122,135,784           |       |
| Other  long-term assets:                                                                                           |       |                   |        |                  |       |
| Deferred  financing costs                                                                                          |       | 5,320,028              |        | 6,366,625             |       |
| Intangible  assets                                                                                                 |       | 6,518,186              |        | 6,557,119             |       |
| Other  assets                                                                                                      |       | 343,273                |        | 343,273               |       |
| Total  other long-term assets                                                                                      |       | 12,181,487             |        | 13,267,017            |       |
| Total  assets                                                                                                      |       | $                      | 141,337,823 |                  | $          | 145,593,380 |   |
|                                                                                                               |       |                   |        |                  |       |
| **Liabilities and Members’ (Deficit) Equity**                                                                 |       |                   |        |                  |       |
| Current  liabilities:                                                                                              |       |                   |        |                  |       |
| Accounts  payable                                                                                                  |       | $                      | 3,782,864   |                  | $          | 2,969,064 |   |
| Accrued  interest payable                                                                                          |       | 5,687,500              |        | 2,843,750             |       |
| Accrued  liabilities                                                                                               |       | 1,612,703              |        | 2,266,740             |       |
| Deposit                                                                                                            |       | 1,500,000              |        | —                |       |
| Current  portion of long-term debt                                                                                 |       | 2,069,897              |        | 1,859,319             |       |
| Total  current liabilities                                                                                         |       | 14,652,964             |        | 9,938,873             |       |
| Long-term  debt                                                                                                    |       | 133,687,954            |        | 133,081,099           |       |
| Related  party royalties payable                                                                                   |       | 2,517,452              |        | 1,461,881             |       |
| Total  liabilities                                                                                                 |       | 150,858,370            |        | 144,481,853           |       |
|                                                                                                               |       |                   |        |                  |       |
| Commitments  and contingencies                                                                                     |       |                   |        |                  |       |
|                                                                                                               |       |                   |        |                  |       |
| Members’  (deficit) equity :                                                                                  |       |                   |        |                  |       |
| Membership  interests                                                                                              |       | 34,333,375             |        | 34,333,375            |       |
| Accumulated  deficit                                                                                               |       | (43,853,922            | )           | (33,221,848           | )          |
|                                                                                                               |       | (9,520,547             | )           | 1,111,527             |       |
| Total  liabilities and members’ (deficit) equity                                                              |       | $                      | 141,337,823 |                  | $          | 145,593,380 |   |

 

*The accompanying notes are an integral part of these condensedconsolidated financial statements.*

 

3

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**155 EASTTROPICANA, LLC****(ANEVADA LIMITED-LIABILITY COMPANY)**

 

### **CONDENSEDCONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)**

 
| ** **                                                                                               | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended** | ** ** |
|----------------------------------------------------------------------------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **                                                                                               | ** ** | **September 30,**           | ** ** | **September 30,**          | ** ** | **September 30,** | ** ** | **September 30,** | ** ** |
| ** **                                                                                               | ** ** | **2007**                         | ** ** | **2006**                        | ** ** | **2007** | ** ** | **2006** | ** ** |
| ** **                                                                                               | ** ** | ** **                       | ** ** | ** **                      | ** ** | ** ** | ** ** | ** ** | ** ** |
| Operating revenues:                                                                                      |       |                             |       |                            |       |   |   |   |   |
| Casino                                                                                                   |       | $                                | 5,654,460  |                            | 6,405,573  |   | $ | 17,957,723 |   | 19,610,659 |   |
| Food, beverage and  entertainment                                                                        |       | 6,014,952                        |       | 6,325,313                       |       | 18,295,165 |   | 17,906,291 |   |
| Hotel and other                                                                                          |       | 5,857,564                        |       | 5,716,407                       |       | 18,890,868 |   | 16,591,885 |   |
|                                                                                                     |       | 17,526,976                       |       | 18,447,293                      |       | 55,143,756 |   | 54,108,835 |   |
| Less promotional  allowances                                                                             |       | (1,569,591                       | )          | (1,441,165                      | )          | (4,662,165 | ) | (4,172,527 | ) |
| Net operating revenues                                                                                   |       | 15,957,385                       |       | 17,006,128                      |       | 50,481,591 |   | 49,936,308 |   |
|                                                                                                     |       |                             |       |                            |       |   |   |   |   |
| Operating expenses:                                                                                      |       |                             |       |                            |       |   |   |   |   |
| Casino                                                                                                   |       | 3,436,836                        |       | 3,273,999                       |       | 10,603,157 |   | 9,719,935 |   |
| Food, beverage and  entertainment                                                                        |       | 4,668,613                        |       | 4,814,995                       |       | 13,986,611 |   | 14,420,906 |   |
| Hotel and other                                                                                          |       | 2,274,361                        |       | 2,326,674                       |       | 6,673,196 |   | 6,523,292 |   |
| General and  administrative                                                                              |       | 4,453,311                        |       | 4,935,211                       |       | 14,305,142 |   | 14,051,953 |   |
| Depreciation and  amortization                                                                           |       | 1,142,595                        |       | 1,840,144                       |       | 4,680,165 |   | 4,661,695 |   |
| Pre-opening expenses                                                                                     |       | —                           |       | —                          |       | — |   | 5,292,834 |   |
| Related party royalties  expenses                                                                        |       | 337,601                          |       | 343,642                         |       | 1,055,570 |   | 1,084,118 |   |
| Loss on disposal of  assets                                                                              |       |                             |       | —                          |       |   |   | 1,199,470 |   |
| Total operating  expenses                                                                                |       | 16,313,317                       |       | 17,534,665                      |       | 51,303,841 |   | 56,954,203 |   |
| Operating loss                                                                                           |       | (355,932                         | )          | (528,537                        | )          | (822,250 | ) | (7,017,895 | ) |
|                                                                                                     |       |                             |       |                            |       |   |   |   |   |
| Other income (expense):                                                                                  |       |                             |       |                            |       |   |   |   |   |
| Interest income                                                                                          |       | 25,648                           |       | 38,251                          |       | 78,089 |   | 440,099 |   |
| Interest expense, net  of capitalized interest of $202,873 for the nine months ended September 30,  2006 |       | (3,306,898                       | )          | (3,246,518                      | )          | (9,887,913 | ) | (9,490,319 | ) |
| Other income (expense),  net                                                                             |       | (3,281,250                       | )          | (3,208,267                      | )          | (9,809,824 | ) | (9,050,220 | ) |
| Net loss                                                                                                 |       | $                                | (3,637,182 | )                               | $          | (3,736,804 | ) | $ | (10,632,074 | ) | $ | (16,068,115 | ) |
|                                                                                                          |            |                                  |            |                                 |            |  |  |  |  |  |  |  |  |

 

*The accompanying notes are an integral part of these condensedconsolidated financial statements.*

 

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**155 EASTTROPICANA, LLC****(ANEVADA LIMITED-LIABILITY COMPANY)**

 

### **CONDENSEDCONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)**

 
| ** **                                                                  | ** ** | **Nine Months Ended**** ****September 30,**** ****2007** | ** **  | **Nine Months Ended**** ****September 30,**** ****2006** | ** ** |
|-----------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------|-------------|-----------------------------------------------------------------------------------|------------|
| ** **                                                                  | ** ** | ** **                                                                        | ** **  | ** **                                                                        | ** ** |
| **Cash Flow From Operating Activities**                                     |       |                                                                              |        |                                                                              |       |
| Net  loss                                                                   |       | $                                                                                 | (10,632,074 | )                                                                                 | $          | (16,068,115 | ) |
| Adjustments  to reconcile net loss to net cashused by operating activities: |       |                                                                              |        |                                                                              |       |
| Depreciation  and amortization                                              |       | 4,680,165                                                                         |        | 4,661,695                                                                         |       |
| Amortization  of deferred financing costs                                   |       | 1,046,597                                                                         |        | 972,523                                                                           |       |
| Amortization  of intangible asset                                           |       | 38,933                                                                            |        | 38,932                                                                            |       |
| Loss  on disposal of assets                                                 |       | —                                                                            |        | 1,199,470                                                                         |       |
| Changes  in operating assets and liabilities:                               |       | —                                                                            |        |                                                                              |       |
| Accounts  receivable                                                        |       | (613,334                                                                          | )           | (513,844                                                                          | )          |
| Inventories                                                                 |       | (31,040                                                                           | )           | (683,321                                                                          | )          |
| Prepaid  expenses                                                           |       | (123,739                                                                          | )           | (1,162,692                                                                        | )          |
| Accounts  payable                                                           |       | 813,800                                                                           |        | (169,678                                                                          | )          |
| Related  party royalties payable                                            |       | 1,055,571                                                                         |        | 1,086,838                                                                         |       |
| Accrued  interest payable                                                   |       | 2,843,750                                                                         |        | 2,829,739                                                                         |       |
| Accrued  liabilities                                                        |       | (654,037                                                                          | )           | 278,494                                                                           |       |
| Net  cash used in operating activities                                      |       | (1,575,408                                                                        | )           | (7,529,959                                                                        | )          |
|                                                                        |       |                                                                              |        |                                                                              |       |
| **Cash Flow From Investing Activities**                                     |       |                                                                              |        |                                                                              |       |
| Capital  expenditures                                                       |       | (1,130,284                                                                        | )           | (19,283,351                                                                       | )          |
| Decrease  in construction payable                                           |       | —                                                                            |        | (6,034,450                                                                        | )          |
| Change  in restricted cash                                                  |       | —                                                                            |        | 29,345,513                                                                        |       |
| Change  in other assets                                                     |       | —                                                                            |        | 564,746                                                                           |       |
| Net  cash (used in) provided by investing activities                        |       | (1,130,284                                                                        | )           | 4,592,458                                                                         |       |
|                                                                        |       |                                                                              |        |                                                                              |       |
| **Cash Flow From Financing Activities**                                     |       |                                                                              |        |                                                                              |       |
| Due  from (to) Hotel San Remo                                               |       | —                                                                            |        | 30,508                                                                            |       |
| Payment  of debt financing costs                                            |       | —                                                                            |        | (240,557                                                                          | )          |
| Proceeds  from issuance of long-term debt                                   |       | 2,317,133                                                                         |        | —                                                                            |       |
| Draw-down  on revolving line of credit                                      |       | —                                                                            |        | 681,572                                                                           |       |
| Principal  payments on debt                                                 |       | (1,499,700                                                                        | )           | (1,543,139                                                                        | )          |
| Deposit                                                                     |       | 1,500,000                                                                         |        | —                                                                            |       |
| Net  cash provided by (used in) financing activities                        |       | 2,317,433                                                                         |        | (1,071,616                                                                        | )          |
|                                                                        |       |                                                                              |        |                                                                              |       |
| Decrease  in cash and cash equivalents                                      |       | (388,259                                                                          | )           | (4,009,117                                                                        | )          |
| Cash  and cash equivalents, beginning of period                             |       | 6,164,192                                                                         |        | 14,191,385                                                                        |       |
| Cash  and cash equivalents, end of period                                   |       | $                                                                                 | 5,775,933   |                                                                              | $          | 10,182,268 |   |
|                                                                        |       |                                                                              |        |                                                                              |       |
| **Supplemental disclosure of cash flow information**                        |       |                                                                              |        |                                                                              |       |
| Cash  paid for interest, net of capitalized interest                        |       | $                                                                                 | 5,997,565   |                                                                              | $          | 6,660,580 |   |
|                                                                        |       |                                                                              |        |                                                                              |       |
| Assets  acquired through equipment loans                                    |       | $                                                                                 | 312,619     |                                                                              | $          | 6,218,347 |   |

* *

*The accompanying notes are anintegral part of these condensed consolidated financial statements.*

 

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**155 EASTTROPICANA, LLC****(ANEVADA LIMITED-LIABILITY COMPANY)**

 

**Notes to Condensed Consolidated FinancialStatements (unaudited)**

** **

**September 30, 2007**

 

**1.  Organizationand Basis of Presentation**

** **

155East Tropicana, LLC, a Nevada limited-liability company (the “Company”) wasincorporated on June 17, 2004 to acquire the real and personal property ofthe Hôtel San Rémo Casino and Resort (the “Hôtel San Rémo”) in Las Vegas,Nevada with the intention of renovating the existing casino and hotel facilitywith a “Hooters” entertainment concept and theme. The renovations werecompleted and the Hôtel San Rémo property was reopened as the new HootersCasino Hotel on February 3, 2006. The Company’s business is concentrated at theone casino and hotel property in Las Vegas, Nevada. The renovations werefinanced by the Company and it’s wholly owned subsidiary, 155 East TropicanaFinance Corp., through a $130.0 million Senior Secured Notes offering thatclosed on March 29, 2005. The Company’s membership interests are held two-thirdsthrough Florida Hooters LLC and one-third through EW Common LLC. The initialcapitalization of the Company was provided by Florida Hooters LLC in the formof a $5.1 million cash contribution and the assignment of rights withrespect to the Hooters trademark and logo and other intellectual property andby EW Common LLC in the form of a $25.0 million deemed capitalcontribution. The deemed capital contribution from EW Common LLC carries withit a priority return of four percent on the contribution annually. The paymentof this priority return is subject to meeting certain financial covenantsassociated with the Company’s debt.

 

FloridaHooters LLC is a joint venture between Hooters Gaming LLC and Lags Ventures,LLC. Hooters Gaming LLC is owned by the holders of licenses to operate Hootersrestaurants in Tampa Bay, Florida, Chicago, Illinois and downtown Manhattan inNew York as well as for the sale of wholesale foods and calendars and Nevadahotel/gaming and includes most of the original founders of the Hooters brand.Pursuant to these license rights, the owners of Florida Hooters LLC operateHooters restaurants, publish Hooters calendars, and operate a Hooters foodbusiness. Lags Ventures, LLC is owned by a holder of the license rights toHooters restaurants in South Florida and the State of Nevada. The owner of LagsVentures, LLC is also the founder of the Dan Marino concept restaurants andowns and operates two Dan Marino concept restaurants.

 

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

 

FloridaHooters LLC and EW Common LLC entered into a joint venture agreement for thepurpose of forming the Company and documenting the terms of their investmentsand business venture.

 

6

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OnFebruary 3, 2006, the newly renovated and re-branded Hooters Casino Hotel wasopened for business. The Hooters Casino Hotel currently features a casino floorwith 656 slot and video poker machines, 31 table games, 696 newly renovatedhotel rooms including 17 suites, a tropical pool area, retail outlets, a dayspa, and dining and entertainment options which include a Hooters restaurant,Dan Marino’s Fine Food, a coffee shop restaurant, a sports bar, and severalbars. The renovations included a redesign of the main entrance, a renovationand expansion of the casino and restaurant areas, a remodel of the hotel roomsand a renovation and expansion of the pool area.

 

Aspermitted by the rules and regulations of the Securities and ExchangeCommission, certain information and footnote disclosures normally included infinancial statements prepared in accordance with generally accepted accountingprinciples have been condensed or omitted. These condensed consolidatedfinancial statements should be read in conjunction with the Company’s 2006annual consolidated financial statements and notes thereto included in theCompany’s Annual Report on Form 10-K for the year ended December 31, 2006.

 

Inthe opinion of management, the accompanying unaudited condensed consolidatedfinancial statements contain all adjustments – which include normal recurringadjustments – necessary to present fairly the Company’s financial position asof September 30, 2007 and the results of its operations for the three month andnine month periods ended September 30, 2007 and 2006. The results of operationsfor such periods are not necessarily indicative of the results to be expectedfor the full year.

 

**2. Reclassifications**

 

Certain reclassifications,having no effect on net loss, have been made to the previously issued unauditedcondensed consolidated financial statements to conform to the current period’spresentation of the Company’s condensed consolidated financial statements.

 

**3.****    ****Recently Issues Accounting Pronouncements**

 

In September 2006, the FASB issued Statement of Financial AccountingStandards No. 157, *Fair ValueMeasurement* (“SFAS 157”). SFAS 157 defines fair value, establishes aframework for measuring fair value in generally accepted accounting principlesand provides for expanded disclosure about fair value measurements. Thisstatement applies under other accounting pronouncements that require or permitfair value measurements. This guidance was issued to increase consistency andcomparability in fair value measurements and to expand disclosures about fairvalue measurements. This statement is effective for financial statements issuedfor fiscal years beginning after November 15, 2007. Management iscurrently evaluating the impact that the adoption of SFAS 157 will have on theCompany’s financial position, results of operations and cash flows.

 

7

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In February 2007, the FASBissued Statement of Financial Accounting Standards No. 159, *The Fair Value Option for Financial Assets andFinancial Liabilities*(“SFAS 159”). SFAS 159 permits entitiesto choose to measure many financial instruments and certain other items at fairvalue. The objective of the guidance is to improve financial reporting byproviding entities with the opportunity to mitigate volatility in reportedearnings caused by measuring related assets and liabilities differently withouthaving to apply complex hedge accounting provisions. SFAS 159 is effective asof the beginning of the first fiscal year after November 15, 2007. Earlyadoption is permitted as of the beginning of the fiscal year on or beforeNovember 15, 2007, provided the provisions of SFAS 157 are also applied.Management is currently evaluating the impact that the adoption of SFAS 159will have on the Company’s financial position, results of operations and cashflows.

 

**4.Long-term debt consists of the following:**

** **
| ** **                                   | ** ** | **September 30,** | ** **  | **December 31,** | ** ** |
|----------------------------------------------|------------|------------------------|-------------|-----------------------|------------|
| ** **                                   | ** ** | **2007**               | ** **  | **2006**              | ** ** |
| 8.75%  Senior secured notes (1)              |       | $                      | 130,000,000 |                  | $          | 130,000,000 |   |
| Senior  secured credit facility (2)          |       | 2,917,123              |        | 912,610               |       |
| Equipment  purchase financing agreements (3) |       | 2,840,726              |        | 4,027,808             |       |
| Total  debt                                  |       | 135,757,849            |        | 134,940,418           |       |
| Less:  Current portion of debt               |       | (2,069,897             | )           | (1,859,319            | )          |
| Total  long-term debt                        |       | $                      | 133,687,952 |                  | $          | 133,081,099 |   |

 

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(1)   $130.0 million aggregate principal amount of8.75% Senior Secured Notes (the “Notes”) issued on March 29, 2005 and due in2012.

 

(2)   Outstanding draws against the senior securedcredit facility (the “Credit Facility”) as of September 30, 2007 and December31, 2006, due on March 30, 2009. At the Company’s option, the interest rate isthe lender’s prime rate plus 2.00% per annum or LIBOR plus 3.50% per annum. Asof September 30, 2007, the Credit Facility carried an interest rate of 8.86%per annum.

 

(3)   During the nine months ended September 30,2007, the Company entered into a $0.3 million loan agreement to purchaseapproximately $0.4 million in hotel equipment. The loan, which iscollateralized by the equipment purchased, has a term of 18 months with animputed interest rate of 12.7%.

 

8

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**5. RelatedParty Transactions**

** **

**Royalties Expense**

 

Pursuant to agreements related to the use of certain trademarks, theCompany must pay fees and royalties to related parties. A fee equal to 3% ofall 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 and 13 Martini Bar is payable to Lags Ventures, Inc. and afee of 4% of cash sales from the Hooters branded restaurant, and 3% of thegross sales with any merchandise with a Hooters logo, is payable to Las VegasWings, Inc. The total fees accrued at September 30, 2007 for Hooters GamingCorporation, Lags Venture, Inc., and Las Vegas Wings, Inc. were $1.3 million,$0.4 million, and $0.8 million, respectively. The Company began accruing thesefees when the Hooters Casino Hotel opened on February 3, 2006. The payment ofthese royalty fees is restricted under the indenture governing the Notes.

 

**Provident Advertising & Marketing, Inc.**

 

The majorityshareholder 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 wasengaged by the Company to provide services related to the planning anddevelopment of an initial advertising and marketing plan and for the continueddevelopment and implementation of a strategic marketing plan for the HootersCasino Hotel. Provident continues to be involved as the Company’s advertisingfirm. In addition, the Company purchases Hooters logo items from Provident foruniforms and for resale in the Company’s gift shops. The amounts paid toProvident during the nine months ended September 30, 2007 and 2006 totaled $1.4million and $2.5 million, respectively.

 

**6.Commitments and Contingencies**

 

***Litigation***

*** ***

From time to time, the Company is a party to various claims arising inthe normal course of business. Management believes, however, that there are noproceedings 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 contracts totaling $6.1 million atSeptember 30, 2007, for services in connection with casino/hotel operations.

 

9

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**Hooters of America Royalty Payments**

 

Beginning on February 3, 2006, the Company was required to pay theowner of the Hooters trademark, Hooters of America, a royalty fee equal to 2%of all net revenues of the hotel and casino (excluding the Dan Marino’sRestaurant and 13 Martini Bar) and 1% of revenues from the Pete and Shorty’sTavern less miscellaneous expenses. The total fees paid to Hooters of Americawere $0.9 million for both the nine months ended September 30, 2007 and thenine months ended September 2006. These fees are included in general andadministrative expenses on the accompanying condensed consolidated statementsof operations.

 

**Preferred Return**

 

The Company’s membership interests include anEW Common LLC preferred account, which accumulates a preferred return rate of4% per annum on the $25.0 million account balance. Such preferred return beganaccumulating on March 1, 2006, and accumulates whether or not there are profitsor funds available for the payment of the preferred return. Under the Notesindenture, the preferred return to EW Common LLC is payable only if the Company’scoverage ratio of EBITDA to fixed charges (as defined in the indenture andafter giving effect to the payment of the preferred return) is 1.5 to 1 for thefiscal year as measured after the close of the fiscal year. As of September 30,2007, $1.6 million relating to the preferred account has accumulated, but hasnot been paid. As the Company’s coverage ratio of EBITDA to fixed charges didnot meet this defined ratio, no liability has been recorded in the accompanyingconsolidated financial statements at September 30, 2007 and December 31, 2006.

 

***7.  AssetPurchase Agreement***

*** ***

OnApril 30, 2007, the Company entered into a definitive Asset Purchase Agreement(the “Agreement”) with Hedwigs Las Vegas Top Tier, LLC (the “Buyer”), and onMay 3, 2007, the Company entered into a definitive Casino Operations Lease (the“Lease”) with the Buyer. On May 7, 2007, the Company entered into a FirstAmendment to Asset Purchase Agreement with the Buyer. Additionally, on August8, 2007, the Company entered into a Second Amendment to Asset PurchaseAgreement with the Buyer.

 

Under the terms of theAgreement, as amended, the Buyer has offered to purchase essentially all of theassets of the Company for a purchase price of $95.0 million in cash, thepayment of certain accrued royalties, and the assumption of certain outstandingliabilities of the Company. The Buyer will also be responsible for theCompany’s $130.0 million in principal amount of 8.75% Senior Secured Notes due2012. In connection with the Agreement, as amended, the Company has receivedtwo nonrefundable deposit payments from the Buyer, including (1) a $1.0 millionpayment on May 7, 2007 and (2) a $0.5

 

10

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million payment onAugust 14, 2007. A final deposit payment of $1.5 million, due by 5:00 p.m. onNovember 15, 2007, has not yet been received.

 

All deposits willbe applied against the purchase price if the transaction closes. The Agreement,as amended, provides for a closing date on or before December 31, 2007, whichthe Buyer may extend under certain conditions by paying $0.5 million for eachmonth the Agreement is extended. Any such extension fees paid are notrefundable and will not be credited toward the purchase price. Notwithstandingthe Buyer’s right to extend the closing date, the Company may terminate theAgreement if the closing has not occurred on or before June 30, 2008.Additionally, prior to receipt of the $1.5 million deposit due on November 15,2007, the Company may solicit competing offers from parties other than theBuyer, but may not enter into an agreement relating to such offers.

 

As provided in theAgreement, the closing will be subject to the completion of due diligence,financing, and licensing, among other customary conditions. There can be noassurance that (i) the conditions to closing under Agreement will ever besatisfied, or (ii) any transaction contemplated under the Agreement will beconsummated, or (iii) if a transaction is consummated, it will be on the sameor similar terms as currently provided under the Agreement.

 

 

11

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**Item 2.Management’s Discussion and Analysis of Financial Condition and Results ofOperations.**

** **

The following discussion and analysis should be readtogether with our unaudited condensed consolidated financial statements and theaccompanying notes. This discussion contains forward-looking statements, withinthe meaning of Section 27A of Securities Act of 1933, as amended, Section 21Eof the Securities Exchange Act of 1934, as amended, and the Private SecuritiesLitigation Reform Act of 1995, including statements regarding our expectedfinancial position, business and financing plans. Some of the forward-lookingstatements can be identified by the use of forward-looking term such as “believes,”“expects,” “may,” “will,” “should,” “could,” “seek,” “intends,” “plans,” “estimates,”“anticipates,” or other comparable terms. Forward-looking statements involveinherent risks and uncertainties which could cause actual results to differmaterially from those in the forward-looking statement, including thosediscussed herein and elsewhere in our Annual Report on Form 10-K filed with theSecurities and Exchange Commission (“Commission”) on April 2, 2007,particularly under the heading “Risk Factors.” We caution readers not to placeundue reliance upon any such forward-looking statements, which speak only as ofthe date made.

 

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

 

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

 

Florida Hooters LLC is a joint venture between Hooters Gaming LLC andLags Ventures, LLC. The owners of Hooters Gaming LLC, which include most of theoriginal founders of the Hooters brand, hold licenses to sell wholesale foodsand calendars and to operate hotel casinos in Nevada and Hooters restaurants inTampa Bay, Florida, Chicago, Illinois, and downtown Manhattan in New York. LagsVentures, LLC is owned by a holder of the license rights to Hooters restaurantsin South Florida and the State of Nevada. Pursuant to these license rights, theowners of Florida Hooters LLC operate 38 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 two Dan Marino concept restaurants.

 

Eastern & Western owns 90% of EW Common LLC, while our Presidentowns the balance. Eastern & Western owned the Hôtel San Rémo from November1988 until our acquisition of the Hôtel San Rémo in 2004.

 

Our affiliates have granted us assignments of certain licenseagreements pertaining to the use of the Hooters brand as well as the DanMarino, 13 Martini Bar and Pete & Shorty’s concept restaurants, which willallow us to operate the Hooters Casino Hotel. The original founders of theHooters brand sold the trademark rights (excluding certain rights they retainedfor themselves) to Hooters of America in 2001. As a result, Hooters of Americais the trademark owner of the Hooters brand and the operator and franchisor ofHooters restaurants. Pursuant to the Hooters license assignment; we arerequired to pay Hooters of America a royalty fee, which totaled approximately$0.9 million for both the nine months ended September 30, 2007 and the nine monthsended September 30, 2006. Aside from the abovementioned royalty fee, we are nototherwise affiliated with Hooters of America.

 

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

 

On March 29, 2005, we issued $130.0 million aggregate principalamount of 83⁄4% Senior Secured Notes due 2012, or the old notes, in a privateplacement. The old notes were subsequently exchanged with new notes, or theNotes, registered under the Securities Act of 1933 on Form S-4. Interestpayments on the Notes are due semi-annually, on each April 1 and October 1. Weused the proceeds from the offering to refinance existing indebtedness, andused the remaining proceeds (together with cash from operations and proceedsfrom equipment financing) to renovate the hotel casino and to provide workingcapital.

 

In connection with the offering, we formed a wholly owned subsidiary,155 East Tropicana Finance Corp., solely for facilitating the offering as a co-issuerof the old notes.

 

We also entered into a $15.0 million senior secured creditfacility (“Credit Facility”) concurrently with the offering. At September 30,2007, $2.9 million was outstanding on the Credit Facility. On October 1, 2007,an additional $3.2 million was drawn against the credit line.

 

***Results of Operations***

 

We generate hotel, casino,food, beverage, entertainment, and retail revenues at the hotel casinoproperty. During the quarter ended September 30, 2007, approximately 32.3% ofthe gross revenue was derived from the casino, 34.3% from food, beverage,entertainment, and 33.4% from hotel and other.

 

Casino revenue is derived primarily from patrons wagering on slotmachines, table games and other gaming activities. Table games includeblackjack, craps, roulette, and specialty games. Casino revenue is defined asthe win from gaming activities, computed as the difference between gaming winsand losses, not the total amount wagered. “Table game drop” and “slot handle”are casino industry specific terms used to identify the amount wagered bypatrons for a casino table game or slot machine, respectively. “Table game hold”and “slot hold” represent the percentage of the total amount wagered by thepatron that the casino has won. Hold is derived by dividing the amount won bythe casino (“table game win” and “slot win”) by the amount wagered by the patron.Casino revenue is recognized at the end of each gaming day.

 

Casino revenues vary from time to time due to general economicconditions, table game hold, slot hold, and occupancy percentages at theHooters Casino Hotel and other hotels in Las Vegas. Casino revenues also varydepending upon the amount of gaming activity as well as variations in the oddsfor different games of chance. Casino revenues, room revenues, food andbeverage revenues, and other revenues vary due to general economic conditionsand competition.

 

Room revenue is derived from rooms and suites rented to guests. “Averagedaily rate” is an industry specific term used to define the average amount ofrevenue per rented room per day. “Occupancy percentage” defines the totalpercentage of rooms occupied, and is computed by dividing the number of roomsoccupied by the total number of rooms available. Room revenue is recognized atthe time the room is provided to the guest.

 

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Food, beverage and entertainment revenues are derived from food andbeverage sales in the food, bar and entertainment outlets of the hotel casino,including restaurants, 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.

 

The following table summarizes the results of operations of 155, doingbusiness as the Hooters Casino Hotel (which opened on February 3, 2006), forthe quarter and nine months ended September 30, 2007 and 2006 (in thousands,except for percentages):

 
| ** **                                 | ** ** | **Quarter  Ended  September 30,********2007** | ** ** | **Quarter  Ended  September 30,********2006** | ** ** | **%  Change  2007-2006** | ** ** | **Nine Months  Ended  Septeme 30,  2007** | ** ** | **Nine Months  Ended  September 30,********2006** | ** ** | **%  Change  2007-2006** | ** ** |
|--------------------------------------------|------------|----------------------------------------------------|------------|----------------------------------------------------|------------|--------------------------|------------|-----------------------------------------------------|------------|-------------------------------------------------------------|------------|--------------------------|------------|
| ** **                                 | ** ** | **(in thousands)**                            | ** ** | ** **                                         | ** ** | **(in thousands)**  | ** ** | ** **                                          | ** ** |
| Casino  revenues                           |       | $                                                  | 5,654      |                                               | $          | 6,406                    |       | -11.7                                               | %          | $                                                           | 17,958     |                     | $          | 19,611 |   | -8.4 | % |
| Casino  expenses                           |       | 3,437                                              |       | 3,274                                              |       | 5.0                      | %          | 10,603                                              |       | 9,720                                                       |       | 9.1                      | %          |
| Profit  margin                             |       | 39.2                                               | %          | 48.9                                               | %          |                     |       | 41.0                                                | %          | 50.4                                                        | %          |                     |       |
|                                       |       |                                               |       |                                               |       |                     |       |                                                |       |                                                        |       |                     |       |
| Food,  beverage and entertainment revenues |       | $                                                  | 6,015      |                                               | $          | 6,325                    |       | -4.9                                                | %          | $                                                           | 18,295     |                     | $          | 17,906 |   | 2.2 | % |
| Food,  beverage and entertainment expenses |       | 4,669                                              |       | 4,815                                              |       | -3.0                     | %          | 13,987                                              |       | 14,421                                                      |       | -3.0                     | %          |
| Profit  margin                             |       | 22.4                                               | %          | 23.9                                               | %          |                     |       | 23.5                                                | %          | 19.5                                                        | %          |                     |       |
|                                       |       |                                               |       |                                               |       |                     |       |                                                |       |                                                        |       |                     |       |
| Hotel  and other revenues                  |       | $                                                  | 5,858      |                                               | $          | 5,716                    |       | 2.5                                                 | %          | $                                                           | 18,891     |                     | $          | 16,592 |   | 13.9 | % |
| Hotel  and other expenses                  |       | 2,274                                              |       | 2,327                                              |       | -2.3                     | %          | 6,673                                               |       | 6,523                                                       |       | 2.3                      | %          |
| Profit  margin                             |       | 61.2                                               | %          | 59.3                                               | %          |                     |       | 64.7                                                | %          | 60.7                                                        | %          |                     |       |
|                                       |       |                                               |       |                                               |       |                     |       |                                                |       |                                                        |       |                     |       |
| Promotional  allowances                    |       | $                                                  | 1,570      |                                               | $          | 1,441                    |       | 9.0                                                 | %          | $                                                           | 4,662      |                     | $          | 4,173 |   | 11.7 | % |
| Percent  of gross revenues                 |       | 9.0                                                | %          | 7.8                                                | %          |                     |       | 8.5                                                 | %          | 7.7                                                         | %          |                     |       |
|                                       |       |                                               |       |                                               |       |                     |       |                                                |       |                                                        |       |                     |       |
| General  and administrative expenses       |       | $                                                  | 4,453      |                                               | $          | 4,935                    |       | -9.8                                                | %          | $                                                           | 14,305     |                     | $          | 14,052 |   | 1.8 | % |
| Percent  of net revenues                   |       | 27.9                                               | %          | 29.0                                               | %          |                     |       | 28.3                                                | %          | 28.1                                                        | %          |                     |       |
|                                       |       |                                               |       |                                               |       |                     |       |                                                |       |                                                        |       |                     |       |
| Preopening  expenses                       |       | $                                                  | —     |                                               | $          | —                   |       |                                                |       | $                                                           | —     |                     | $          | 5,293 |   | -100.0 | % |
| Percent  of net revenues                   |       | —                                             |       | —                                             |       |                     |       | $                                                   | —     |                                                        | 10.6       | %                        |       |   |

 

***Comparison of Quarter Ended September 30, 2007 withthe Quarter Ended September 30, 2006***

 

Net operating revenues for the quarter endedSeptember 30, 2007 were $16.0 million, a decrease of $1.0 million or 6.2%, from$17.0 million generated during the same period in the previous year.

 

*Casino.*Casino revenues decreased by $0.7 million or 11.7% to $5.7 million for thequarter ended September 30, 2007, compared to $6.4 million for the quarterended September 30, 2006. This decline in casino revenue is the result of ageneral decline in the property’s visitor traffic. Table games revenue was $2.3million for the quarter ended September 30, 2007 a decrease of $0.3 million or12.9% compared to table game revenue of $2.6 million from the prior year’squarter. During the quarter ended September 2007, we had a reduction of tablegame volume by $3.0 million or 18.6%, which was partially offset by a higherhold percentage. The hold percentage for table game win was 17.3% in 2007compared to 16.2% for the quarter ended September 30, 2006.

 

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The table games generated an average win per table of $803 per day forthe quarter ended September 30, 2007 as compared to $866 per day for thequarter ended September 30, 2006. Slot revenue (net of participation fees) was$3.1 million for the quarter ended September 30, 2007, which was a decrease of$0.5 million or 13.5% compared to $3.6 million in the same period in 2006. The averagewin per machine per day (before deducting participation fees) was $59 for thequarter ended September 30, 2007 as compared to $68 for the quarter endedSeptember 30, 2006.

 

Casino expenses of $3.4 million for the quarterended September 30, 2007 were up $0.1 million from $3.3 million for the quarterended September 30, 2006 due to increased casino marketing costs, offsetpartially by decreased operating expenses on the casino floor. The profitmargin for casino operations decreased from 48.9% during the quarter endedSeptember 30, 2006 to 39.2% during the quarter ended September 30, 2007.

 

*Food, beverage, and entertainment.*Food, beverage, and entertainment revenuedecreased $0.3 million or 4.8% to $6.0 million for the quarters ended September30, 2007 compared to $6.3 million for the quarter ended September 30, 2006.Beverage revenue of $2.1 million (which includes complimentary beverages)decreased by $0.1 million, or 2.6%, from $2.2 million during the quarter endedSeptember 30, 2006. Our showroom, which opened mid April 2007, generated $0.3million in entertainment ticket revenues for the quarter ended September 30,2007.

 

Food revenue decreased from $4.2 million for the quarter endedSeptember 30, 2006 to $3.6 million for the quarter ended September 30, 2007 adecrease of $0.6 million or 13.7%. The decrease was due to revenue decreases inall restaurants except for a $0.2 million increase in Marino’s. Marino’soffered a new dinner special, which generated the additional revenue.

 

 Food, beverage, andentertainment expenses decreased from $4.8 million during the quarter endedSeptember 30, 2006 to $4.7 million during the quarter ended September 30, 2007,a decrease of $0.1 million. The profit margin for food, beverage, andentertainment operations decreased to 22.4% for the quarter ended September 30,2007 from 23.9% in the same quarter in 2006 primarily due to the decline inrevenues.

 

*Hotel and other.*Hotel and other revenue (which includes hotel room revenue, retail,spa, and other miscellaneous revenue) increased $0.2 million to $5.9 millionfor the quarter ended September 30, 2007 from $5.7 million for the quarterended September 30, 2006.

 

Room revenue was $4.3 million for the quarter ended September 30, 2007compared to $4.0 million in 2006. This increase was a result of an increase inoccupancy rates, offset by a decrease in average daily room rates. Averagedaily room rates decreased slightly from $78 for the quarter ended September30, 2006 to $77 for the quarter ended September 30, 2007, while occupancy ratesincreased from 80.7% for the quarter ended September 30, 2006 to 87.9% for thequarter ended September 30, 2007. Occupancy rates increased largely because ofsuccessful targeted marketing efforts in southern California and increased salesthrough the wholesalers, internet providers and our group sales.

 

Sales from our retail outlets selling Hooters logo merchandisedecreased 11.3% from $1.5 million for the quarter ended September 2006 to $1.3million for the quarter ended September 2007. Other miscellaneous revenueremained constant.

 

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Hotel and other expenses remained constant at $2.3million during both the quarter ended September 30, 2007 and September 30,2006. The profit margin for room sales was 65.7% in the third quarter of 2007compared to 61.2% for that same period in the prior year. Retail salesgenerated a profit margin of 41.2% for the quarter ended September 30, 2007compared to 45.3% for the quarter ended September 30, 2006.

 

*General and administrative.* General and administrative expense includes costs associated withmarketing, information technology, finance, accounting, and propertyoperations. General and administrative expense decreased $0.5 million to $4.4million for the quarter ended September 30, 2007 compared to $4.9 million forthe quarter ended September 30, 2006. This decrease was principally due tosignificant decreases in advertising and marketing expenses for the quarterended September 30, 2007 as compared to the same quarter in 2006.

 

*Depreciation and amortization expense.* Depreciation and amortization expense of$1.1 million for the quarter ended September 30, 2007 decreased by $0.7million, or 38.9%, from $1.8 million for the quarter ended September 30, 2006.This decrease in depreciation expense was due to an adjustment of depreciationrecorded in prior quarters of 2007.

 

*Related party royalties expense.*Beginning on February 3, 2006, we incurredrelated party royalty fees pursuant to agreements with Hooters GamingCorporation, Lags Ventures, Inc., and Las Vegas Wings, Inc. These related partyroyalties expense totaled $0.3 million during the quarters ended September 30,2007 and 2006. The payment of the related party royalties is restricted underthe Notes indenture. The fees can only be paid after the close of the fiscalyear and only if our debt coverage ratio is 1.5 to 1 for that fiscal year. Thepayments of the royalty fees are further limited to the sum of 2% of revenueand 3% of EBITDA, as defined in the indenture.

 

*Interest income.*Interest income was $26,000 for the quarter ended September 30, 2007, comparedto $38, 000 for the quarter ended September 30, 2006.

 

*Interest expense.* Interest expense was $3.3 million for the quarter ended September 30,2007, compared to $3.2 million for the quarter ended September 30, 2006, anincrease of $0.1 million. The increase in interest expense is largelyattributable to $0.1 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 is treated as a partnership forfederal income tax purposes. Accordingly, a provision for federal income taxesis not recorded on our consolidated financial statements. Taxable income orloss will be included in the income tax returns of the members.

 

***Comparison of Nine Months Ended September 30, 2007with the Nine Months Ended September 30, 2006***

 

During the nine months, ended September 30, 2006,operations were essentially closed from January 1 through February 2, 2006while substantial remodeling was performed on all public areas of the casinohotel. Minimal revenue of $0.6 million was generated during the remodel period.The property operated as Hooters Casino Hotel from February 3, 2006 throughSeptember 30, 2006. Net operating 

 

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revenues for the nine months ended September 30,2007 were $50.5 million, an increase of $0.6 million or 1.1%, from $49.9 millionof net operating revenues for the nine month ended September 30, 2006.

 

*Casino.*Casino revenues decreased by $1.6 million to $18.0 million for the nine monthsended September 30, 2007, compared to $19.6 million for the nine months endedSeptember 30, 2006. Table games revenue was $7.5 million in 2007, a decrease of$1.0 million, or 11.5%, compared to the table games revenue of $8.5 millionfrom the prior year’s first nine months. With the exception of $34,000, alltable games revenue was generated after the grand opening in 2006. Table gamedrop decreased to $44.5 million, or by 11.4% for the nine months endedSeptember 30, 2007 compared to $50.2 million for the nine months endedSeptember 30, 2006, while table game hold percentage remained constant at 17.0%for both nine-month periods. The table games generated an average win per tableof $882 per day for the first nine months of 2007 compared to $1,069 fromopening to September 30, 2006. Slot revenue (after participation fees) was $9.9million for the nine months ended September 30, 2007, which was a decrease of8.1% compared to $10.7 million in the same period in 2006. With the exceptionof $0.1 million, the entire slot revenue for the nine months ended September30, 2006 was generated after the grand opening. The average win per machine perday was $75 from February 3, 2006 to September 30, 2006 compared to $62 for thenine months ended September 30, 2007.

 

Casino expenses increased by $0.9 million or 9.1% to$10.6 million for the nine months ended September 30, 2007 compared to $9.7million for the nine months ended September 30, 2006 due to increases inpayroll and expenses relating to the slot rewards club when comparing a fullnine months of operations in 2007 to a short period of February 3, 2006 throughSeptember 30, 2006. The profit margin for casino operations decreased from50.4% during the nine months ended September 30, 2006 to 41.0% during the ninemonths ended September 30, 2007.

 

*Food, beverage, and entertainment.* Food, beverage, and entertainment revenuewas $18.3 million for the nine months ended September 30, 2007 as compared to$17.9 million for September 30, 2006, an increase of 2.2%. The food revenuesincreased $0.5 million or 4.8% to $10.8 million for the nine months endingSeptember 30, 2007 compared to $10.3 million for nine months ending September30, 2006. Beverage revenue (which includes complimentary beverages) decreasedby $0.7 million or 9.5% to $6.9 million for the nine months ended September 30,2007 from $7.6 million during the nine months ended September 30, 2006. Thedecline was largely due to the closing of the Martini Bar. Entertainment ticketrevenue was a $0.6 million for the nine months ended which was the result ofadding a showroom venue in place of the Martini Bar in April 2007. There was noentertainment revenue in 2006.

 

Food, beverage, and entertainment expenses decreased from $14.4 millionduring the nine months ended September 30, 2006 to $14.0 million during thenine months ended September 30, 2007, a decrease of $0.4 million, or 3.0%. Theprofit margin for food, beverage, and entertainment operations increased from19.5% during the nine months ended September 30, 2006 to 23.5% during the ninemonths ended September 30, 2007 due to operational efficiencies in payroll andcost of sales.

 

*Hotel and other.*Hotel and other revenue (which includes hotel room revenue, retail, spa, andother miscellaneous revenue) increased by $2.3 million, or 13.9%, to $18.9million for the nine months ended September 30, 2007 from $16.6 million for thenine months ended September 30, 2006. Room revenue increased $2.5 million or21.0% to $14.2 million for the nine months ended September 30, 2007 compared to$11.8 million in 2006. This increase was the result of hotel occupancy of 91.3%in 2007 compared to 76.7% in 2006, partially offset by a decrease in averagedaily room rate. Occupancy rates 

 

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increased largely because of successful targeted marketing efforts insouthern California and increased sales through the wholesalers, internetproviders and our group sales.

 

Hotel revenue in 2006 was negatively impacted when the Company stoppedrenting rooms from January 2, 2006 to February 2, 2006 to accommodate theremodeling activities for the grand opening. For the months of February throughSeptember 2006, room revenue was $11.4 million with an occupancy rate of 78.2%and average daily room rate of $92. The average daily room rate decreased to$82 for the nine months ended September 30, 2007.

 

Sales from the retail outlets was $4.1 million for the nine monthsended September 30, 2007, a decrease of $0.1 million from the nine months endedSeptember 30, 2006.

 

Hotel and other expenses increased by 2.3% from $6.5million during the nine months ended September 30, 2006 to $6.7 million duringthe nine months ended September 30, 2007 due to the lack of operationalexpenses during the partial closing of operations in 2006 from January 1through February 2. The profit margin for hotel and other was 64.7% for thenine months ended September 30, 2007 compared to 60.7% for the same period inthe prior year. Retail sales generated a profit margin of 42.1% for the ninemonths ended September 30, 2007 compared to 34.3% for the nine months endedSeptember 30, 2006.

 

*General and administrative.* General and administrative expense includes costs associated withcorporate marketing, information technology, and finance, accounting, andproperty operations. General and administrative expense increased $0.2 millionto $14.3 million for the nine months ended September 30, 2007 compared to $14.1million for the nine months ended September 30, 2006. Again, the lower expensesin the nine months ended September 30, 2006 was due to the closing ofoperations prior to February 3, 2006 due to the remodel.

 

*Depreciation and amortization expense.* Depreciation and amortization expense of$4.7 million for both the nine months ended September 30, 2007 and September30, 2006.

 

*Pre-opening expenses.* Pre-opening expenses are costs associated with the start-up activitiesfor the new Hooters Casino Hotel and consist of salaries and wages, legal,professional, advertising, marketing, and other general administrativeexpenses. Pre-opening expenses were $5.3 million for the nine months ended September30, 2006.

 

*Related party royalties expense.* Beginning on February 3, 2006, we incurredrelated party royalty fees pursuant to agreements with Hooters GamingCorporation, Lags Ventures, Inc., and Las Vegas Wings, Inc. These related partyroyalties expense totaled $1.1 million during both the nine months endedSeptember 30, 2007 and 2006. The payment of the related party royalties isrestricted under the Notes indenture. The fees can only be paid after the closeof the fiscal year and only if our debt coverage ratio is 1.5 to 1 for thatfiscal year. The payments of the royalty fees are further limited to the sum of2% of revenue and 3% of EBITDA as defined in the indenture.

 

*Loss on disposal of assets.* The loss on disposal of assets in 2006 of $1.2 million is the resultof retiring and replacing certain old slot machines and other equipment and thecarpeting on the casino floor in connection with the Hooters Casino Hotelremodel.

 

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*Interest income.*Interest income was $0.1 million for the nine months ended September 30, 2007,compared to $0.4 million for the nine months ended September 30, 2006. Thedecrease resulted from greater interest income earned during 2006 on theinvestment of $130.0 million in Notes proceeds.

 

*Interest expense.* Interest expense was $9.9 million for the nine months ended September30, 2007, compared to $9.5 million for the nine months ended September 30,2006, an increase of $0.4 million. This was largely due to the increased use ofthe Credit Facility and equipment financing entered into in 2006 and 2007.

 

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

 

***Contractual Obligations***

 

The following table summarizes the contractual commitments of 155 as ofSeptember 30, 2007:

 
| ** **                                   | ** ** | **Payments Due By Year** | ** ** |
|----------------------------------------------|------------|-----------------------------------------|------------|
| ** **                                   | ** ** | **Total**                               | ** ** | **Less than  1 year** | ** ** | **1-3 years** | ** ** | **3-5 years** | ** ** | **Thereafter** | ** ** |
| ** **                                   | ** ** | **(dollars in thousands)**    | ** ** |
| Equipment  purchase financing agreements (1) |       | $                                       | 2,840      |   | $ | 2,070 |   | $ | 756 |   | 14 |   | $ | — |   |
| Long-term  debt(2)                           |       | 132,918                                 |       | — |   | 2,918 |   | — |   | 130,000 |   |
| Operating  contracts (3)                     |       | 6,149                                   |       | 2,909 |   | 2,463 |   | 743 |   | 34 |   |
| Total                                        |       | $                                       | 141,907    |   | $ | 4,979 |   | $ | 6,137 |   | $ | 757 |   | $ | 130,034 |   |
|                                              |            |                                         |            |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

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(1)   155 entered into various equipment purchase financing agreements forthe new Hooters Casino Hotel.

 

(2)   The long-term debt represents the $130.0 million in Notes due in 2012,and amounts drawn against the Credit Facility during the nine months endedSeptember 30, 2007.

 

(3)   Operating contracts represent various contracts for services inconnection with casino/hotel operations.

 

***Liquidity and Capital Resources***

 

For the nine months ended September 30, 2007, weused $1.6 million of cash in operating activities, largely due to our net lossof $10.6 million, which was partially offset by $6.8 million of non-cashdepreciation and amortization charges and payment-restricted related partyroyalty fees and an increase of $2.8 million in interest payable.

 

For the nine months ended September 30, 2007, $1.1million of cash was used for capital expenditures.

 

For the nine months ended September 30, 2007, $2.3million of cash was provided from financing activities. We borrowed $2.3million against the Credit Facility and new equipment financing, which wasoffset by $1.5 million in principal payments on debt. During the nine months,we also 

 

19

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received $1.5 million deposit of earnest moneyrelating to the pending sale.

 

The Notes indenture contains certain provisions, which restrict orlimit our ability to, among other things, incur more debt, pay dividends,redeem stock or make other distributions, enter into transactions withaffiliates or transfer or sell assets.

 

Our Credit Facility is a four-year revolving Credit Facility of $15.0million, maturing on March 30, 2009. We had outstanding draws of $2.9 millionat September 30, 2007 and an additional draw of $3.2 million was made onOctober 1, 2007. All outstanding principal and interest under the CreditFacility is due and payable on March 30, 2009.

 

We believe that we have the flexibility to cover operationalcontingencies, working capital needs, capital expenditures, and debt serviceobligations expected as of September 30, 2007 over the next twelve monthsthrough; (1) the use of cash (which totaled $5.8 million at September 30,2007); (2) our cash generated from operations prior to debt service; and (3)our ability to draw against our Credit Facility (with an unused balance of $8.9million as of October 1, 2007), along with other available equipment financing.

 

On April 30, 2007, we entered into an Asset Purchase Agreement (the “Agreement”)with Hedwigs Las Vegas Top Tier, LLC (the “Buyer”) which was amended on May 7,2007 and August 8, 2007. Pursuant to the terms of the Agreement, the Buyer hasoffered to purchase essentially all of our assets for a purchase price of $95.0million in cash, the payment of certain accrued royalties, and the assumptionof certain outstanding debt. The Buyer also agreed to be responsible for theNotes. We received from the Buyer nonrefundable earnest money deposits of $1.5million, which will be applied against the purchase price if the transactioncloses. A final deposit payment of $1.5 million, due by 5:00 p.m. on November15, 2007, has not yet been received. There can be no assurance that theconditions to closing under the Agreement will ever be satisfied, or anytransaction contemplated under the Agreement will be consummated, or if atransaction is consummated, it will be on the same or similar terms ascurrently provided under the Agreement.

 

***Critical AccountingPolicies and Estimates***

 

A description of critical accounting policies and estimates is includedin the management discussion and analysis included in our Annual Report on Form10-K for the year ended December 31, 2006 filed with the Commission on April 2,2007.

 

**Item 3.Quantitative and Qualitative Disclosures About Market Risk.**

** **

The following discusses our exposure to market risk related to changesin interest rates, equity prices, and foreign currency exchange rates. We donot believe that our respective exposure to market risk is material.

 

Market risk is risk of loss arising from changes in market rates andprices, such as interest rates, foreign currency exchange rates and commodityprices. At September 30, 2007, we had $130,000,000 aggregate principal amountof Notes, slot equipment purchase agreements of $2.5 million carrying animputed interest rate of 3.327%, and hotel equipment purchase agreements of$0.3 million carrying an imputed interest rate of 12.7%. The Notes carry afixed interest rate of 83⁄4%, provided no events of default remain unresolved.Since the Notes and equipment purchase loans have fixed interest rates, there 

 

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is no market risk associated with these loans. We have market risk associatedwith funds that may be borrowed on the $15.0 million Credit Facility, dueto an interest rate that floats with the LIBOR or prime rate. The term of theCredit Facility will mature on March 30, 2009. At September 30, 2007, $2.9million was outstanding under the variable rate Credit Facility, carryinginterest at 8.86%.

 

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

 

**Item 4.Controls and Procedures.**

** **

***Evaluationof Disclosure Controls***

** **

We evaluated the effectiveness of our disclosurecontrols and procedures as of three months ended September 30, 2007. Thisevaluation was done with the participation of our management, including ourChief Executive Officer and Chief Financial Officer.

 

Disclosure controls and procedures are controls andother procedures that are designed to ensure that information required to bedisclosed by us in the reports that we file or submit under the SecuritiesExchange Act of 1934 are recorded, processed, summarized and reported withinthe time periods specified in the Commission’s rules and forms. Disclosurecontrols and procedures include, without limitation, controls and proceduresdesigned to ensure that information required to be disclosed by us in thereports that we file under the Securities Exchange Act of 1934 is accumulatedand communicated to our manager, as appropriate to allow timely decisionsregarding required disclosure.

 

***Limitationson the Effectiveness of Controls***

** **

Our management does not expect that our disclosurecontrols and procedures or our internal controls over financial reporting willprevent all error and all fraud. A control system, no matter how well conceivedand operated, can provide only reasonable, but not absolute, assurance that theobjectives of a control system are met. Further, any control system reflectslimitations on resources, and the benefits of a control system must beconsidered relative to its costs. Because of the inherent limitations in allcontrol systems, no evaluation of controls can provide absolute assurance thatall control issues and instances of fraud, if any, within us have beendetected. These inherent limitations include the realities that judgments indecision-making can be faulty and that breakdowns can occur because of simpleerror or mistake. Additionally, controls can be circumvented by the individualacts of some persons, by collusion of two or more people, or by managementoverride of a control. Because the design of a control system is based uponcertain 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, our Chief Executive Officerand Chief Financial Officer have evaluated our disclosure controls andprocedures (as defined in the Securities Exchange Act of 1934 Rules 13a-15(e)and 15d-15(e)) as of September 30, 2007, and have concluded that they 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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***Changesin Internal Controls***

** **

There were no changes in our internal controls over financial reportingthat occurred during our last fiscal quarter, *i.e.*,the quarter ended September 30, 2007, that have materially affected, or arereasonably likely to materially affect, our internal controls over financialreporting.

 

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# **PARTII – OTHER INFORMATION**

# ** **

**Item 1.Legal Proceedings.**

** **

None.

 

**Item 1A.Risk Factors.**

** **

A description ofour risk factors can be found in Item 1A of our Annual Report on Form 10K forthe year ended December 31, 2006. There were no material changes to those riskfactors during the nine months ended September 30, 2007.

 

**Item 2.Unregistered Sales of Equity Securities and Use of Proceeds.**

** **

None.

 

**Item 3.Defaults Upon Senior Securities.**

** **

None.

 

**Item 4.Submission of Matters to a Vote of Security Holders.**

** **

 None

 

**Item 5.Other Information.**

** **

None

 

**Item 6.Exhibits.**

** **

Exhibits:

 
| 31.1 |   | Certification  pursuant to §302 of the Sarbanes-Oxley Act of 2002, Deborah J. Pierce |
|------|--------|-------------------------------------------------------------------------------------------|
| 31.2 |   | Certification  pursuant to §302 of the Sarbanes-Oxley Act of 2002, Neil G. Kiefer    |
| 32.1 |   | Certification  pursuant to §906 of the Sarbanes-Oxley Act of 2002, Deborah J. Pierce |
| 32.2 |   | Certification  pursuant to §906 of the Sarbanes-Oxley Act of 2002, Neil G. Kiefer    |

 

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# ** **

# **SIGNATURES**

# ** **

Pursuant to the requirements of the Securities Exchange Act of 1934,the registrant has duly caused this report to be signed on its behalf by theundersigned thereunto duly authorized.

 

 
| **155 EAST TROPICANA, LLC** |                                                                          |
|-----------------------------|-------------------------------------------------------------------------------|
|                        |                                                                          |
|                        |                                                                          |
| By:                         | /s/ Deborah J. Pierce                                                         |   | November 14, 2007 |
|                        |                                                                          |   |
|                        | Deborah J. Pierce                                                             |   |
|                        | *Chief Financial Officer  (Principal Financial and Chief Accounting Officer)* | * * |
|                             |                                                                               |  |  |

 

 
| **155 EAST TROPICANA  FINANCE CORP.** |                                                                          |
|---------------------------------------|-------------------------------------------------------------------------------|
|                                  |                                                                          |
|                                  |                                                                          |
| By:                                   | /s/ Deborah J. Pierce                                                         |   | November 14, 2007 |
|                                  |                                                                          |   |
|                                  | Deborah J. Pierce                                                             |   |
|                                  | *Chief Financial Officer  (Principal Financial and Chief Accounting Officer)* | * * |
|                                       |                                                                               |  |  |

 

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