**UNITEDSTATESSECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON, D.C. 20549**

 

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**FORM10-Q**

 
| **(Mark One)**                                         |                                                                                          |
|--------------------------------------------------------|-----------------------------------------------------------------------------------------------|
|                                                   |                                                                                          |
| **ý**                                             | **QUARTERLY  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**  |
|                                                   |
| **For the quarterly period ended  September 30, 2005** |
| ** **                                             |
| **OR**                                                 |
| ** **                                             |
| **o**                                                  | **TRANSITION REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|                                                        |                                                                                               |  |

 

**For thetransition period from                to               **

 

**CommissionFile Number 333-124924**

 

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

(ExactName of Registrant as Specified in its Charter)

 
| **NEVADA**                                | ** ** | **20-1363044**         |
|-------------------------------------------|------------|------------------------|
| **NEVADA**                                | ** ** | **20-2546581**         |
| (State or Other  Jurisdiction             |       | (I.R.S. Employer       |
| of Incorporation or  Organization)        |       | Identification Number) |
|                                      |       |                   |
| **115 East Tropicana Avenue**             | ** ** | ** **             |
| **Las Vegas, Nevada**                     | ** ** | **10022**              |
| (Address of Principal  Executive Offices) |       | (Zip Code)             |

 

**(702)597-6076**

(Registrant’sTelephone Number, Including Area Code)

 

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Indicate by check mark whetherthe Registrant (1) has filed all reports required by Section 13 or 15(d) of theSecurities Exchange Act of 1934 during the preceding 12 months (or for suchshorter period that the Registrant was required to file such reports) and (2)has been subject to such filing requirements for the past 90days.    Yes ý  No o

 

Indicate by check mark whether the Registrantis an accelerated filer (as defined in Rule 12b-2 of the Securities ExchangeAct of 1934). Yes oNo ý

 

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

 

 

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| **PART I –  FINANCIAL INFORMATION**                                                            | ** **   |
|-----------------------------------------------------------------------------------------------------|--------------|
| ** **                                                                                          | ** **   |
| Item 1.  Financial Statements                                                                       |         |
| ** **                                                                                          |         |
| ***155 East Tropicana, LLC (A  development stage company)***                                        | *** *** |
| ** **                                                                                          | *** *** |
| *Condensed  Consolidated Balance Sheets (unaudited)*                                                | * *     |
| *Condensed  Consolidated Statements of Operations (unaudited)*                                      | * *     |
| *Condensed  Consolidated Statements of Cash Flows (unaudited)*                                      | * *     |
| *Notes to Condensed  Consolidated Financial Statements*                                             | * *     |
| ** **                                                                                          | * *     |
| ***Hôtel  San Rémo Casino and Resort***                                                   | *** *** |
| *Condensed Combined Balance Sheets (unaudited)*                                                     | * *     |
| *Condensed Combined Statements of Operations  (unaudited)*                                          | * *     |
| *Condensed Combined Statements of Cash Flows  (unaudited)*                                          | * *     |
| *Notes  to Condensed Combined Financial Statements*                                                 | * *     |
| ** **                                                                                          | * *     |
| Item 2. Management’s Discussion and  Analysis of Financial Condition and Results of Operations |         |
| ** **                                                                                          |         |
| Item 3.  Quantitative and Qualitative Disclosures About Market Risk                                 |         |
| ** **                                                                                          |         |
| Item 4. Controls and Procedures                                                                     |         |
| ** **                                                                                          |         |
| **PART  II – OTHER INFORMATION**                                                               | ** **   |
| ** **                                                                                          | ** **   |
| Item  1. Legal Proceedings                                                                          |         |
| ** **                                                                                          |         |
| Item 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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**PART I – FINANCIAL INFORMATION**

 

**Item 1.  Financial Statements.**

 

### **155 East Tropicana,LLC(A development stage company)**

 

 

### **Condensed ConsolidatedBalance Sheets**

 
| ** **                                        | ** ** | **September 30,** | ** **  | **December 31,** | ** ** |
|---------------------------------------------------|------------|-------------------|-------------|------------------|------------|
| ** **                                        | ** ** | **2005**          | ** **  | **2004**         | ** ** |
| ** **                                        | ** ** | **(unaudited)**   | ** **  | ** **       | ** ** |
| **Assets**                                        |       |              |        |             |       |
| Current assets:                                   |       |              |        |             |       |
| Cash and  cash equivalents                        |       | $                 | 15,992,380  |             | $          | 1,220,851 |   |
| Receivables                                       |       | 69,783            |        | 8,300            |       |
| Prepaid expenses                                  |       | 957,466           |        | 56,771           |       |
| Total  current assets                             |       | 17,019,629        |        | 1,285,922        |       |
| Property and equipment, net                       |       | 78,244,999        |        | 67,665,688       |       |
| Other long-term assets:                           |       |              |        |             |       |
| Restricted  cash                                  |       | 52,230,146        |        | 4,000,000        |       |
| Deferred  financing costs                         |       | 7,500,667         |        | 1,428,325        |       |
| Intangible  assets                                |       | 4,200,000         |        | 1,100,000        |       |
| Other assets                                      |       | 186,057           |        | 100,000          |       |
| Total other  long-term assets                     |       | 64,116,870        |        | 6,628,325        |       |
| Total assets                                      |       | $                 | 159,381,498 |             | $          | 75,579,935 |   |
|                                              |       |              |        |             |       |
| **Liabilities and Members’ Equity**          |       |              |        |             |       |
| Current liabilities:                              |       |              |        |             |       |
| Due to Hôtel  San Rémo                  |       | $                 | 509,000     |             | $          | 1,760,434 |   |
| Accounts  payable                                 |       | 1,168,217         |        | —           |       |
| Accrued interest  payable                         |       | 5,780,100         |        | —           |       |
| Total  current liabilities                        |       | 7,457,317         |        | 1,760,434        |       |
| Long-term debt                                    |       | 130,000,000       |        | 48,500,000       |       |
| Total  liabilities                                |       | 137,457,317       |        | 50,260,434       |       |
|                                              |       |              |        |             |       |
| Commitments and contingencies                     |       |              |        |             |       |
|                                              |       |              |        |             |       |
| Members’ equity:                             |       |              |        |             |       |
| Membership  interests                             |       | 29,333,375        |        | 26,233,375       |       |
| Deficit  accumulated during the development stage |       | (7,409,194        | )           | (913,874         | )          |
|                                              |       | 21,924,181        |        | 25,319,501       |       |
| Total  liabilities and members’ equity       |       | $                 | 159,381,498 |             | $          | 75,579,935 |   |

 

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

 

1

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**155 East Tropicana, LLC(A development stage company)**

 

 

### **Condensed ConsolidatedStatements of Operations**

 
| ** **                                                                                                                                                                                                                                                                                                                                           | ** ** | **Three  Months  Ended  September 30,** | ** ** | **Nine Months  Ended  September 30,** | ** ** | **For the  Period  from  Inception  (June 17,  2004)  through September 30,** | ** ** | **For the  Period  from  Inception  (June 17,  2004)  through  September 30,** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------|------------|---------------------------------------|------------|-------------------------------------------------------------------------------|------------|--------------------------------------------------------------------------------|------------|
| ** **                                                                                                                                                                                                                                                                                                                                           | ** ** | **2005**                                | ** ** | **2005**                              | ** ** | **2004**                                                                      | ** ** | **2005**                                                                       | ** ** |
| ** **                                                                                                                                                                                                                                                                                                                                           | ** ** | **(unaudited)**                         | ** ** | **(unaudited)**                       | ** ** | **(unaudited)**                                                               | ** ** | **(unaudited)**                                                                | ** ** |
| Revenues:                                                                                                                                                                                                                                                                                                                                            |       |                                    |       |                                  |       |                                                                          |       |                                                                           |       |
| Related-party  lease income                                                                                                                                                                                                                                                                                                                          |       | $                                       | 1,125,000  |                                  | $          | 5,064,324                                                                     |       | $                                                                              | 713,710    |   | $ | 7,214,706 |   |
| Interest  income                                                                                                                                                                                                                                                                                                                                     |       | 532,499                                 |       | 1,109,772                             |       | —                                                                        |       | 1,109,772                                                                      |       |
|                                                                                                                                                                                                                                                                                                                                                 |       | 1,657,499                               |       | 6,174,096                             |       | 713,710                                                                       |       | 8,324,478                                                                      |       |
| Operating costs  and expenses:                                                                                                                                                                                                                                                                                                                       |       |                                    |       |                                  |       |                                                                          |       |                                                                           |       |
| Pre-opening  expenses                                                                                                                                                                                                                                                                                                                                |       | 1,169,808                               |       | 1,769,844                             |       | 5,388                                                                         |       | 1,873,253                                                                      |       |
| Depreciation                                                                                                                                                                                                                                                                                                                                         |       | 410,071                                 |       | 1,222,633                             |       | 270,854                                                                       |       | 1,999,768                                                                      |       |
| Total  operating costs and expenses                                                                                                                                                                                                                                                                                                                  |       | 1,579,879                               |       | 2,992,477                             |       | 276,242                                                                       |       | 3,873,021                                                                      |       |
| Operating  income                                                                                                                                                                                                                                                                                                                                    |       | 77,620                                  |       | 3,181,619                             |       | 437,468                                                                       |       | 4,451,457                                                                      |       |
| Other  expenses:                                                                                                                                                                                                                                                                                                                                     |       |                                    |       |                                  |       |                                                                          |       |                                                                           |       |
| Interest  expense, net of capitalized interest of $172,525, $261,424, $5,346, and  $284,460 for the three months ended September 30, 2005, and nine months ended  September 30, 2005, period from inception (June 17, 2004) through September  30, 2004, and for the period from inception (June 17, 2004) through September  30, 2005, respectively |       | 2,984,255                               |       | 7,430,413                             |       | 446,512                                                                       |       | 9,614,125                                                                      |       |
| Loss on  extinguishment of debt                                                                                                                                                                                                                                                                                                                      |       | —                                  |       | 2,246,526                             |       | —                                                                        |       | 2,246,526                                                                      |       |
| Total other  expenses                                                                                                                                                                                                                                                                                                                                |       | 2,984,255                               |       | 9,676,939                             |       | 446,512                                                                       |       | 11,860,651                                                                     |       |
| Net loss                                                                                                                                                                                                                                                                                                                                             |       | $                                       | (2,906,635 | )                                     | $          | (6,495,320                                                                    | )          | $                                                                              | (9,044     | ) | $ | (7,409,194 | ) |

 

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

 

2

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**155 East Tropicana, LLC(A development stage company)**

 

 

### **Condensed ConsolidatedStatements of Cash Flows**

 
| ** **                                                                       | ** ** | **Nine months  ended  September 30,  2005** | ** ** | **For the Period  from Inception  (June 17, 2004)  through  September 30,  2004** | ** ** | **For the Period  from Inception  (June 17, 2004)  through  September 30,  2005** | ** ** |
|----------------------------------------------------------------------------------|------------|---------------------------------------------|------------|-----------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------|------------|
| ** **                                                                       | ** ** | **(unaudited)**                             | ** ** | **(unaudited)**                                                                   | ** ** | **(unaudited)**                                                                   | ** ** |
| ** **                                                                       | ** ** | ** **                                  | ** ** | ** **                                                                        | ** ** | ** **                                                                        | ** ** |
| **Cash  Flow From Operating Activities**                                         |       |                                        |       |                                                                              |       |                                                                              |       |
| Net loss                                                                         |       | $                                           | (6,495,320 | )                                                                                 | $          | (9,044                                                                            | )          | $ | (7,409,194 | ) |
| Adjustments  to reconcile net loss to net cash provided by operating activities: |       |                                        |       |                                                                              |       |                                                                              |       |
| Depreciation                                                                     |       | 1,222,633                                   |       | 270,854                                                                           |       | 1,999,768                                                                         |       |
| Amortization  of debt issuance costs                                             |       | 846,184                                     |       | 100,233                                                                           |       | 1,222,057                                                                         |       |
| Loss on  extinguishment of debt                                                  |       | 2,246,526                                   |       | —                                                                            |       | 2,246,526                                                                         |       |
| Changes in  assets and liabilities:                                              |       |                                        |       |                                                                              |       |                                                                              |       |
| Accounts  payable                                                                |       | 1,168,217                                   |       | —                                                                            |       | 1,168,217                                                                         |       |
| Receivables                                                                      |       | (61,483                                     | )          | (8,300                                                                            | )          | (69,783                                                                           | )          |
| Prepaid  expenses                                                                |       | (900,695                                    | )          | (66,762                                                                           | )          | (957,457                                                                          | )          |
| Accrued  interest                                                                |       | 5,780,100                                   |       | —                                                                            |       | 5,780,100                                                                         |       |
| Net cash  provided by operating activities                                       |       | 3,806,162                                   |       | 286,981                                                                           |       | 3,980,234                                                                         |       |
|                                                                             |       |                                        |       |                                                                              |       |                                                                              |       |
| **Cash  Flow From Investing Activities**                                         |       |                                        |       |                                                                              |       |                                                                              |       |
| Acquisition  of Hôtel San Rémo – transaction costs and expenses   |       | —                                      |       | (2,466,981                                                                        | )          | (2,466,981                                                                        | )          |
| Capital  expenditures                                                            |       | (11,801,945                                 | )          | (524,663                                                                          | )          | (12,777,794                                                                       | )          |
| Restricted  cash                                                                 |       | (48,230,146                                 | )          | (4,000,000                                                                        | )          | (52,230,146                                                                       | )          |
| Other assets                                                                     |       | (86,057                                     | )          | —                                                                            |       | (186,057                                                                          | )          |
| Net cash  used in investing activities                                           |       | (60,118,148                                 | )          | (6,991,644                                                                        | )          | (67,660,978                                                                       | )          |
|                                                                             |       |                                        |       |                                                                              |       |                                                                              |       |
| **Cash  Flow From Financing Activities**                                         |       |                                        |       |                                                                              |       |                                                                              |       |
| Cash  contributions from Florida Hooters LLC                                     |       | —                                      |       | 5,133,375                                                                         |       | 5,133,375                                                                         |       |
| Payment of  debt financing costs                                                 |       | (7,803,301                                  | )          | (1,804,200                                                                        | )          | (9,607,501                                                                        | )          |
| Extinguishment  of debt                                                          |       | (48,500,000                                 | )          | (43,745,708                                                                       | )          | (92,245,708                                                                       | )          |
| Loan  penalties from extinguishment of debt                                      |       | (1,361,750                                  | )          | —                                                                            |       | (1,361,750                                                                        | )          |
| Proceeds  from issuance of long-term debt                                        |       | 130,000,000                                 |       | 48,500,000                                                                        |       | 178,500,000                                                                       |       |
| Due to Hôtel  San Rémo                                                 |       | (1,251,434                                  | )          | 107,021                                                                           |       | (745,292                                                                          | )          |
| Net cash  provided by financing activities                                       |       | 71,083,515                                  |       | 8,190,488                                                                         |       | 79,673,124                                                                        |       |
|                                                                             |       |                                        |       |                                                                              |       |                                                                              |       |
| Increase in  cash and cash equivalents                                           |       | 14,771,529                                  |       | 1,485,825                                                                         |       | 15,992,380                                                                        |       |
| Cash and  cash equivalents, beginning of period                                  |       | 1,220,851                                   |       | —                                                                            |       | —                                                                            |       |
| Cash and cash  equivalents, end of period                                        |       | $                                           | 15,992,380 |                                                                              | $          | 1,485,825                                                                         |       | $ | 15,992,380 |   |

 

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

 

3

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**155 East Tropicana, LLC(A development stage company)**

 

 

**Condensed Consolidated Statement of CashFlows (continued)**

 
| ** **                                                                                  | ** ** | **Nine months  ended  September 30,  2005** | ** ** | **For the Period  from Inception  (June 17, 2004)  through  September 30,  2004** | ** ** | **For the Period  from Inception  (June 17, 2004)  through  September 30,  2005** | ** ** |
|---------------------------------------------------------------------------------------------|------------|---------------------------------------------|------------|-----------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------|------------|
| ** **                                                                                  | ** ** | **(unaudited)**                             | ** ** | **(unaudited)**                                                                   | ** ** | **(unaudited)**                                                                   | ** ** |
| ** **                                                                                  | ** ** | ** **                                  | ** ** | ** **                                                                        | ** ** | ** **                                                                        | ** ** |
| **Supplemental  disclosure of cash flow information**                                       |       |                                        |       |                                                                              |       |                                                                              |       |
| Cash paid  for interest, net of capitalized interest                                        |       | $                                           | 1,126,418  |                                                                              | $          | —                                                                            |       | $ | 2,934,257 |   |
|                                                                                        |       |                                        |       |                                                                              |       |                                                                              |       |
| Noncash investing  and financing activities:                                                |       |                                        |       |                                                                              |       |                                                                              |       |
| Contribution  by Florida Hooters LLC of intangible assets pursuant to assignment agreements |       | $                                           | 3,100,000  |                                                                              | $          | 1,100,000                                                                         |       | $ | 4,200,000 |   |
|                                                                                        |       |                                        |       |                                                                              |       |                                                                              |       |
| Due to Hôtel  San Rémo - amount due to existing owner                             |       | $                                           | —     |                                                                              | $          | 1,254,292                                                                         |       | $ | 1,254,292 |   |
|                                                                                        |       |                                        |       |                                                                              |       |                                                                              |       |
| Issuance of  membership interest with priority return to EW Common LLC                      |       | $                                           | —     |                                                                              | $          | 20,000,000                                                                        |       | $ | 20,000,000 |   |

 

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

 

4

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**155East Tropicana, LLC(A development stage company)**

 

 

### **Notes to CondensedConsolidated Financial Statements (unaudited)**

**September30, 2005**

 

**1. Organizational and Basis ofPresentation**

 

155 East Tropicana, LLC, a Nevada limited-liabilitycompany (the “Company”), was incorporated on June 17, 2004 to acquire thereal property and assets of the Hôtel San Rémo in Las Vegas, Nevada, with theintention of renovating the existing facility with a “Hooters” entertainmentconcept and theme. The Company and its wholly owned subsidiary, 155 EastTropicana Finance Corp., completed a $130 million Senior Secured Notes offeringon 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 $5.0 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 $20.0 million deemed capitalcontribution.

 

Florida Hooters LLC is a joint venture betweenHooters Gaming LLC and Lags Ventures, LLC. Hooters Gaming LLC is owned by theholders of licenses to operate Hooters restaurants in the Tampa Bay, Chicagoand Manhattan areas, as well as for the sale of wholesale foods and calendarsand Nevada hotel/gaming, and includes most of the original founders of theHooters brand. Lags Ventures, LLC is owned by a holder of the license rights toHooters restaurants in South Florida and the State of Nevada. Pursuant to theselicense rights, the owners of Florida Hooters LLC operate 39 Hootersrestaurants, publish Hooters calendars and operate a Hooters food business. Theowner of Lags Ventures, LLC is also the founder of the Dan Marino conceptrestaurants, and owns and operates five Dan Marino concept restaurants.

 

EW Common LLC is owned 90% by Eastern &Western Hotel Corporation (“Eastern & Western”) and 10% by Michael J. Hessling.Eastern & Western is beneficially owned by Sukeaki and Toyoroku Izumi.Eastern & Western and its affiliates owned the real property andnon-gaming assets of Hôtel San Rémo from November 1988 until the Company’sacquisition of the Hôtel San Rémo in August 2004. Mr. Hessling servedas the executive vice president and the chief operating officer of the HôtelSan Rémo from January 1989 until the acquisition, at which time he becamethe chief operating officer of the Company.

 

Florida Hooters LLC and EW Common LLC entered into ajoint venture agreement for the purpose of forming the Company and documentingthe terms of their investments and business venture. Under the terms of thejoint venture agreement, the venture progresses in three stages.

 

The first stage involved the formation of theCompany and the conveyance of all the real property and non-gaming assets ownedby and associated with the Hôtel San Rémo, the leaseback of these assets toEastern & Western pursuant to the casino and hotel lease agreements,and the contribution through assignment agreements of certain intellectualproperty rights to the Company by the respective members of Florida HootersLLC. The second stage relates to the raising of financing to fund the redesignand renovation of the Hôtel San Rémo to a Hooters Casino Hotel, the refinancingof the Company’s current

 

5

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**155East Tropicana, LLC(A development stage company)**

 

 

**Notes toCondensed Consolidated Financial Statements (unaudited) (continued)**

 

**1. Organizational and Basis ofPresentation (continued)**

 

debt structure and other working capitalrequirements, which occurred on March 29, 2005. The final stage involved theCompany’s securing of all licenses necessary to conduct gaming at the hotelcasino and the subsequent termination of the hotel and casino leases.   In October 2005, the Company secured theirgaming and liquor licenses and on November 1, 2005, assumed the operations ofthe hotel and casino.  The hotel andcasino leases were terminated on October 31, 2005.

 

Pursuant to the joint venture agreement, FloridaHooters LLC and EW Common LLC entered into an operating agreement. Under theterms of the operating agreement, Florida Hooters LLC has the right to appointsix managers and EW Common LLC has the right to appoint three managers to amanagement board. Certain transactions, including key operational matters, thesale of all or substantially all of the Company’s assets, a merger orconsolidation and various governance matters require the unanimous approval ofthe management board. 

 

The accompanying condensed consolidated financialstatements have been prepared by the Company, without audit, pursuant to therules and regulations of the Securities and Exchange Commission. Accordingly,the condensed consolidated financial statements contain all adjustments(consisting of normal recurring adjustments) that, in the opinion ofmanagement, are necessary to present fairly the Company’s financial position,results of operations and cash flows for the interim periods included herein.The 2005 interim results reflected in these financial statements are notnecessarily indicative of results to be expected for the full 2005 fiscal year.

 

Certain of the Company’s accounting policies requirethat the Company apply significant judgment in defining the appropriateassumptions for calculating financial estimates. By their nature, thesejudgments are subject to an inherent degree of uncertainty. The Company’sjudgments are based in part on its historical experience, terms of existingcontracts, observance of trends in the gaming industry and information obtainedfrom independent valuation experts or other outside sources. There is noassurance, however, that actual results will conform to estimates.  

 

The accompanying condensedconsolidated financial statements should be read in conjunction with thefinancial statements and notes thereto for the year ended December 31, 2004,included in the Company’s Registration Statement on Form S-4/A filed June 16,2005. Significant intercompany transactions between the Company and its whollyowned subsidiary have been eliminated in consolidation.

 

**2.Acquisition**

 

In August 2004, theCompany agreed to the acquisition of the real property and other assets of theHôtel San Rémo for approximately $72.5 million including transaction costsand expenses.  Initially, the Companyacquired $67.5 million of the real property and non-gaming assets and agreedthat the remaining $5.0 million in assets would be transferred to the Companyupon obtaining the gaming and 

 

6

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**155 East Tropicana, LLC(A development stage company)**

 

 

**Notes toCondensed Consolidated Financial Statements (unaudited) (continued)**

 

**2. Acquisition (continued)**

 

liquor licenses necessary to take over operations ofthe hotel and casino.  In October 2005,the Company secured their gaming and liquor licenses and on November 1, 2005,assumed the operations of the hotel and casino. The hotel and casino leases were terminated on October 31, 2005.  The acquisition was funded by the Companythrough a term loan totaling $48.5 million which was used to extinguishthe Hôtel San Rémo’s existing indebtedness of $43.7 million, a commitmentto pay the former owner of Hôtel San Rémo $1.3 million and the issuance toEW Common LLC of a 331¤3% membership interest with priority return valued at$20.0 million.

 

The acquisition of the Hôtel San Rémo has beenaccounted for as a purchase. The following table sets forth the determinationof the purchase price (in thousands):

 
| Membership  interest with priority return             |   | $      | 20,000 |   |
|-------------------------------------------------------|--------|--------|--------|--------|
| Cash paid to former owner of Hôtel San Rémo |   | 1,254  |   |
| Payoff of Hôtel San Rémo debt               |   | 43,746 |   |
| Transaction costs and expenses                        |   | 2,467  |   |
|                                                  |   | $      | 67,467 |   |

 

The preliminary allocation ofthe purchase price to the underlying Hôtel San Rémo assets acquired is asfollows (in thousands):

 
| Land                              |   | $      | 26,760 |   |
|-----------------------------------|--------|--------|--------|--------|
| Buildings and improvements        |   | 39,760 |   |
| Furniture, fixtures and equipment |   | 947    |   |
|                              |   | $      | 67,467 |   |

 

Management has developed the preliminary purchaseprice allocation based on comparable land sales, discounted cash flow analysisand other available information.  TheCompany retained a third-party appraiser to value the assets acquired to assistin finalizing the purchase price allocation. The purchase price will be increased by $5.0 million at November 1, 2005at the termination of the hotel and casino leases, at which time the remainingassets are transferred to the Company by Hôtel San Rémo.  The purchase price will also be adjusted toreflect the purchase of net working capital from Hôtel San Rémo at November 1,2005.

 

**3. Intangible Assets**

 

The Company has entered into an assignment agreementwith Florida Hooters LLC, which grants the Company the right to use certainintellectual property in connection with the operations of the Hooters CasinoHotel.  The intellectual propertyconsists of (i) an exclusive license for the Hooters trademark and logoinsignia in connection with gaming, casino or combined hotel, gaming and casinooperations, (ii) a non-exclusive license to use the Hooters restaurant concept,(iii) an exclusive license to operate and promote restaurants, taverns, loungesand “Dan Marino’s Fine Food & Spirits” and “Martini Bar” and (iv) anon-exclusive, royalty-free license to use the Pete & Shorty’s mark at arestaurant, bar and lounge, in

 

7

----

 

**155East Tropicana, LLC(A development stage company)**

 

 

**Notes toCondensed Consolidated Financial Statements (unaudited) (continued)**

 

**3. Intangible Assets (continued)**

 

each case solely for the purposes of a HootersCasino Hotel located at the Hôtel San Rémo property.  The Hooters restaurant concept is theexclusive property of Hooters of America, Inc., an unrelated party.  These intangible assets were preliminarilyvalued at $1.1 million by management and have subsequently been valued at $4.2million by a third party appraisal firm. Management believes the intellectual property acquired through theassignment agreements to be indefinite life intangibles.

 

**4.Long-term Debt**

 

**NotesOffering**

 

On March 29, 2005, theCompany issued $130.0 million aggregate principal amount of 83⁄4% Senior SecuredNotes due 2012, in a private placement. On August 5, 2005, the Companysuccessfully exchanged all of the private placement notes for new notes(“Notes”). The Notes have substantially identical terms as the original notes,except that the new notes have been registered under the Securities Act of 1933and will be freely tradable. Interest payments on the Notes are due semiannually, on each April 1 and October 1. The first payment was made on October 1, 2005. The Notes are secured byall of the Company’s and, to the extent in existence, subsidiary guarantors’  1) existing and future assets  (otherthat certain excluded existing and future assets), 2) the Company’s equityinterest in any guarantors and 3) existing renovation disbursement and interestreserve accounts as described below. The Notes are redeemable at the option ofthe Company on or after April 1, 2009. The indenture governing the Notesrequires the Company to establish a renovation disbursement account in theamount of $50.8 million and interest reserve account in the amount of $11.2million. The indenture also contains certain provisions which restrict or limitthe Company’s 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. The Company used the proceeds from theNotes offering to refinance existing indebtedness and will (together with cashfrom operations and proceeds from equipment financing), renovate the hotelcasino and provide working capital. 

 

**New Senior Secured CreditFacility**

 

The Company entered into a new $15.0 million seniorsecured credit facility concurrently with the offering of the Notes. The newsenior credit facility is secured by a four-year revolving credit facility ofup to the lesser of $15.0 million or three times trailing twelve month EBITDA throughSeptember 30, 2006 and two times thereafter; provided that the multiple ofEBITDA requirement will not apply if outstanding borrowings are less than $7.5million. EBITDA is defined for any fiscal period as the Company’s consolidatednet income (or loss), minus extraordinary gains (as defined) and interestincome, plus interest expense, income taxes and depreciation and amortizationfor such period, and subject to other adjustments as defined in the creditfacility agreement. 

 

8

----

 

**155East Tropicana, LLC(A development stage company)**

 

 

**Notes toCondensed Consolidated Financial Statements (unaudited) (continued)**

 

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

 

At the Company’s option, the interest rate will beeither the lender’s prime rate plus 2.00% per annum or LIBOR plus 3.50% perannum. All the obligations under the new senior secured credit facility aresecured by first priority liens on and security interest in all of theCompany’s and guarantor’s existing and future properties and assets. The lienon the collateral that secures the Notes are contractually subordinated to theliens securing the principal amount of borrowings under the senior securedcredit facility of up to $15.0 million (plus related interest, fees, indemnities,costs and expenses). The senior secured credit facility required the Company topay a closing fee of $225,000, and unused commitment fees of 0.50% per annum onany unused portion of the new senior secured credit facility, and, ifterminated prior to the third anniversary date, a prepayment premium of 1.00%of the maximum credit amount for each year or partial year remaining from thetermination date to the third anniversary date.  The  new senior  secured  credit facility  also  contains customary  financial covenants andother events of default. The Company had no borrowings outstanding under thiscredit facility at September 30, 2005 or December 31, 2004.

 

**Intercreditor Agreement**

 

Concurrently with the closingof the Notes offering and new senior secured credit facility, the Companyentered into an intercreditor agreement, which defines the rights of thelenders under the new senior secured credit facility in relation to the rightsof the trustee and the holders of the Notes with respect to the collateralsecuring the Notes. The intercreditor agreement, among other things, providesthat the liens securing the Notes and any guarantees thereof are contractuallysubordinated (other than the security interests in the renovation disbursementaccount, which will be senior, and interest reserve account, which will notsecure the new senior secured credit facility) to the liens securing theprincipal amount of indebtedness of up to $15.0 million (plus related interest,fees, indemnities, costs and expenses) under the proposed new senior securedcredit facility. The trustee’s ability to exercise rights and remedies inrespect of the collateral are also subject to the terms of the intercreditoragreement.

 

**5. Lease Agreements**

 

The Company, as lessor, entered into a casino leaseand hotel lease with Eastern & Western covering the real property andnon-gaming assets of the Hôtel San Rémo acquired by the Company.  These leases were subsequently terminated onOctober 31, 2005 and the operations of the hotel and casino were assumed by theCompany.   

 

**Casino Lease**

 

Prior to its termination at October 31, 2005,the casino lease covered those portions of the Hôtel San Rémo containing theshowroom, gaming and liquor servicing areas, the casino floor where gaming activitiesoccurred, surveillance areas, count rooms, the cashier’s cage and other areasancillary to the casino footprint.

 

9

----

 

**155East Tropicana, LLC(A development stage company)**

 

 

**Notes toCondensed Consolidated Financial Statements (unaudited) (continued)**

 

**5. LeaseAgreements (continued)**

 

Minimum monthly base-rent payments of $125,000 weredue from August 3, 2004 until the termination of the lease on October 31, 2005.

 

Under the provisions of the casino lease, Eastern& Western was allowed to deposit $30,000 into a “Capital Reserve Account”each month for capital improvements to the casino such as the purchase ofgaming devices. The casino lease also provided for Eastern & Western tofund $120,000 each month to a “Change in Control Reserve” and $55,000 toestablish an “Expense Reserve” to be used for the payment of legal, accounting,and professional fees and other general business expenses including licensingrenewal costs. Eastern & Western was required to fund any excess cash flowremaining after payment of rent and funding of the reserves into a restrictedcash account to be used to secure Eastern & Western’s guarantee of theCompany’s existing borrowings.  As ofSeptember 30, 2005, there were no excess cash flows required to be funded intoany of these reserve accounts.

 

**Hotel Lease**

** **

The hotel lease between Eastern & Western andthe Company covered those portions of the Hôtel San Rémo containing allnon-casino areas, including the hotel. The hotel lease was terminated on October 31, 2005.

 

Minimum lease payments due under the Hotel Leaseconsist of a minimum rent and a percentage rent. The minimum rent is $250,000per month. The percentage rent is equal to 100% of all revenues received fromthe operations of the hotel, less actual operational expenses (includingminimum rent) and working capital reserves which are determined and agreed uponmonthly between the Company and Eastern & Western. No working capitalreserves were agreed to for the lease period from August 3, 2004 to September30, 2005. While the minimum rent is paid on a monthly basis, the percentagerent must be paid to the Company in arrears on the first day of each calendarquarter. There was no percentage rental income earned for the quarter endingSeptember 30, 2005.  Percentage rentalincome earned for the nine months ending September 30, 2005 was $1,689,324 andfor the period from inception (June 17, 2004) through September 30, 2005percentage rental income was $2,000,996. There were no rent receivables atSeptember 30, 2005 or December 31, 2004.

 

**6.Commitments and Contingencies**

 

**ConstructionContracts**

 

The Company has entered into design and constructioncontracts related to the renovation totaling $39.0 million at September 30,2005.

 

10

----

 

**155East Tropicana, LLC(A development stage company)**

 

 

**Notes toCondensed Consolidated Financial Statements (unaudited) (continued)**

 

**6.Commitments and Contingencies (continued)**

 

**Other Contracts**

 

The Company has entered into equipment and otheroperational contracts totaling $8.5 million at September 30, 2005.

 

**Litigation**

 

The Company is not involved in any materiallitigation at September 30, 2005 that in the opinion of management would have amaterial impact on the Company’s financial position, cash flows, or results ofoperations.

 

11

----

 

**Hôtel San Rémo Casino and Resort(Division of S.I. Enterprises, Inc.)**

 

 

### **Condensed CombinedBalance Sheets**

 
| ** **                                                                                                  | ** ** | **September 30,  2005** | ** ** | **December 31,  2004** | ** ** |
|-------------------------------------------------------------------------------------------------------------|------------|-------------------------|------------|------------------------|------------|
| ** **                                                                                                  | ** ** | **(unaudited)**         | ** ** | ** **             | ** ** |
| **Assets**                                                                                                  |       |                    |       |                   |       |
| Current  assets:                                                                                            |       |                    |       |                   |       |
| Cash and  cash equivalents                                                                                  |       | $                       | 3,346,854  |                   | $          | 4,470,919 |   |
| Accounts  receivable, net of allowance for doubtful accounts of  $134,500 in 2005 and $146,845 in 2004 |       | 1,273,922               |       | 1,161,510              |       |
| Due from 155  East Tropicana, LLC                                                                           |       | 509,000                 |       | 1,760,434              |       |
| Inventories                                                                                                 |       | 193,298                 |       | 274,957                |       |
| Prepaid  expenses                                                                                           |       | 478,571                 |       | 681,698                |       |
| Deferred tax  assets                                                                                        |       | 13,746                  |       | 13,746                 |       |
| Total  current assets                                                                                       |       | 5,815,391               |       | 8,363,264              |       |
| Property and  equipment:                                                                                    |       |                    |       |                   |       |
| Furniture,  fixtures and equipment                                                                          |       | 7,140,345               |       | 7,140,345              |       |
| Construction  in progress                                                                                   |       | —                  |       | 15,699                 |       |
|                                                                                                        |       | 7,140,345               |       | 7,156,044              |       |
| Less  accumulated depreciation                                                                              |       | (5,987,180              | )          | (5,705,503             | )          |
| Net property  and equipment                                                                                 |       | 1,153,165               |       | 1,450,541              |       |
| Deferred tax  asset                                                                                         |       | 2,294,404               |       | 2,401,372              |       |
| Other assets                                                                                                |       | 302,088                 |       | 81,547                 |       |
| Total assets                                                                                                |       | $                       | 9,565,048  |                   | $          | 12,296,724 |   |
|                                                                                                        |       |                    |       |                   |       |
| **Liabilities  and Division Equity**                                                                        |       |                    |       |                   |       |
| Current  liabilities:                                                                                       |       |                    |       |                   |       |
| Accounts  payable                                                                                           |       | $                       | 1,365,034  |                   | $          | 1,610,160 |   |
| Accrued  expenses                                                                                           |       | 1,590,846               |       | 1,827,381              |       |
| Income taxes  payable to S.I. Enterprises, Inc.                                                             |       | 1,150,763               |       | 1,150,763              |       |
| Current  portion of long-term debt                                                                          |       | 34,181                  |       | 235,905                |       |
| Total  current liabilities                                                                                  |       | 4,140,824               |       | 4,824,209              |       |
|                                                                                                        |       |                    |       |                   |       |
| Commitments  and contingencies                                                                              |       |                    |       |                   |       |
|                                                                                                        |       |                    |       |                   |       |
| Division  equity                                                                                            |       | 5,424,224               |       | 7,472,515              |       |
| Total  liabilities and division equity                                                                      |       | $                       | 9,565,048  |                   | $          | 12,296,724 |   |

 

*Theaccompanying notes are an integral part of these unaudited condensed combinedfinancial**statements.*

 

12

----

 

**Hôtel San Rémo Casino and Resort**

**(Division of S.I. Enterprises, Inc.)**

 

 

### **Condensed CombinedStatements of Operations(unaudited)**

 
| ** **                           | ** ** | **Three Months Ended**   | ** ** | **Nine Months Ended**    | ** ** |
|--------------------------------------|------------|--------------------------|------------|--------------------------|------------|
| ** **                           | ** ** | **September 30,   2005** | ** ** | **September 30,   2004** | ** ** | **September 30,   2005** | ** ** | **September 30,   2004** | ** ** |
| ** **                           | ** ** | ** **               | ** ** | ** **               | ** ** | ** ** | ** ** | ** ** | ** ** |
| Operating revenues:                  |       |                     |       |                     |       |   |   |   |   |
| Casino                               |       | $                        | 2,461,045  |                     | $          | 3,130,042 |   | $ | 8,675,069 |   | $ | 9,630,421 |   |
| Food and  beverage                   |       | 1,476,440                |       | 1,931,640                |       | 5,112,109 |   | 6,060,433 |   |
| Hotel and  other                     |       | 2,826,326                |       | 3,326,354                |       | 11,277,080 |   | 11,186,371 |   |
|                                 |       | 6,763,811                |       | 8,388,036                |       | 25,064,258 |   | 26,877,225 |   |
| Less promotional allowances          |       | (477,089                 | )          | (543,485                 | )          | (1,588,815 | ) | (1,690,224 | ) |
| Net operating revenues               |       | 6,286,722                |       | 7,844,551                |       | 23,475,443 |   | 25,187,001 |   |
| Operating expenses:                  |       |                     |       |                     |       |   |   |   |   |
| Casino                               |       | 1,620,781                |       | 1,698,911                |       | 5,044,035 |   | 5,155,495 |   |
| Food and  beverage                   |       | 1,462,516                |       | 1,571,659                |       | 4,604,495 |   | 4,809,542 |   |
| Hotel and  other                     |       | 1,034,798                |       | 1,105,043                |       | 3,232,981 |   | 3,339,410 |   |
| General and  administrative          |       | 1,770,277                |       | 1,964,558                |       | 5,803,855 |   | 5,354,533 |   |
| Depreciation  expense                |       | 93,749                   |       | 240,589                  |       | 281,677 |   | 1,325,839 |   |
| Related  party lease expense         |       | 1,125,000                |       | 713,710                  |       | 5,064,324 |   | 713,710 |   |
| Restructuring  costs                 |       | —                   |       | 44,755                   |       | — |   | 1,026,042 |   |
| Total operating expenses             |       | 7,107,121                |       | 7,339,225                |       | 24,031,367 |   | 21,724,571 |   |
| Operating (loss) income              |       | (820,399                 | )          | 505,326                  |       | (555,924 | ) | 3,462,430 |   |
| Other income (expense):              |       |                     |       |                     |       |   |   |   |   |
| Interest  income                     |       | 106,466                  |       | 227,939                  |       | 312,831 |   | 362,425 |   |
| Interest  expense                    |       | (1,555                   | )          | (22,442                  | )          | (6,489 | ) | (1,474,114 | ) |
| Foreign  currency translation        |       | —                   |       | 375,736                  |       | — |   | 660,184 |   |
| Loss on sale  of asset               |       | —                   |       | —                   |       | — |   | (1,842 | ) |
| Other income (expense), net          |       | 104,911                  |       | 581,233                  |       | 306,342 |   | (453,347 | ) |
| (Loss) income before income taxes    |       | (715,488                 | )          | 1,086,559                |       | (249,582 | ) | 3,009,083 |   |
| (Benefit) provision for income taxes |       | (348,371                 | )          | 338,029                  |       | (108,968 | ) | 936,126 |   |
| Net (loss) income                    |       | $                        | (367,117   | )                        | $          | 748,530 |   | $ | (140,614 | ) | $ | 2,072,957 |   |

 

*Theaccompanying notes are an integral part of these unaudited condensed combinedfinancial**statements.*

 

13

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**Hôtel San Rémo Casino and Resort**

**(Division of S.I. Enterprises, Inc.)**

 

 

### **Condensed CombinedStatements of Cash Flows(unaudited)**

 
| ** **                                                                                | ** ** | **Nine Months Ended**   | ** ** |
|-------------------------------------------------------------------------------------------|------------|-------------------------|------------|
| ** **                                                                                | ** ** | **September 30,  2005** | ** ** | **September 30,  2004** | ** ** |
| **Cash  Flow From Operating Activities**                                                  |       |                    |       |   |   |
| Net (loss)  income                                                                        |       | $                       | (140,614   | ) | $ | 2,072,957 |   |
| Adjustments  to reconcile net (loss) income to net cash provided by operating activities: |       |                    |       |   |   |
| Depreciation                                                                              |       | 281,677                 |       | 1,325,839 |   |
| Deferred  income tax                                                                      |       | 106,968                 |       | — |   |
| Foreign  currency translation                                                             |       | —                  |       | (660,184 | ) |
| Change in  operating assets and liabilities:                                              |       |                    |       |   |   |
| Accounts  receivable                                                                      |       | (100,067                | )          | (638,780 | ) |
| Provision  for doubtful accounts                                                          |       | (12,345                 | )          | (10,928 | ) |
| Inventories                                                                               |       | 81,659                  |       | (7,993 | ) |
| Prepaid  expenses                                                                         |       | 203,127                 |       | (345,538 | ) |
| Accounts  payable                                                                         |       | 245,126                 |       | 471,199 |   |
| Accrued  expenses                                                                         |       | (236,535                | )          | 530,452 |   |
| Income taxes  payable to S.I. Enterprises, Inc.                                           |       | —                  |       | 936,126 |   |
|                                                                                      |       |                    |       |   |   |
| Net cash  (used in) provided by operating activities                                      |       | (61,256                 | )          | 3,673,150 |   |
|                                                                                      |       |                    |       |   |   |
| **Cash  Flow From Investing Activities**                                                  |       |                    |       |   |   |
| Capital  expenditures                                                                     |       | 15,699                  |       | (669,915 | ) |
| Other assets                                                                              |       | (220,541                | )          | 35,000 |   |
|                                                                                      |       |                    |       |   |   |
| Net cash  used in investing activities                                                    |       | (204,842                | )          | (634,915 | ) |
|                                                                                      |       |                    |       |   |   |
| **Cash  Flow From Financing Activities**                                                  |       |                    |       |   |   |
| Due from 155  East Tropicana, LLC                                                         |       | 1,251,434               |       | (1,279,756 | ) |
| Principal  payments on long-term debt                                                     |       | (201,724                | )          | (736,881 | ) |
| Advances  (to) from affiliates, net                                                       |       | (1,907,677              | )          | 589,751 |   |
| Net cash  used in financing activities                                                    |       | (857,967                | )          | (1,426,886 | ) |
|                                                                                      |       |                    |       |   |   |
| (Decrease)  increase in cash and cash equivalents                                         |       | (1,124,065              | )          | 1,611,349 |   |
| Cash and  cash equivalents, beginning of period                                           |       | 4,470,919               |       | 2,703,229 |   |
| Cash and  cash equivalents, end of period                                                 |       | $                       | 3,346,854  |   | $ | 4,314,578 |   |

 

*The accompanying notes arean integral part of these unaudited condensed combined financial**statements.*

 

14

----

 

**Hôtel San Rémo Casino and Resort**

**(Division of S.I. Enterprises, Inc.)**

 

 

**Condensed CombinedStatements of Cash Flows (continued)(unaudited)**

 
| ** **                                                              | ** ** | **Nine Months Ended**   | ** ** |
|-------------------------------------------------------------------------|------------|-------------------------|------------|
| ** **                                                              | ** ** | **September 30,  2005** | ** ** | **September 30,  2004** | ** ** |
| ** **                                                              | ** ** | ** **              | ** ** | ** ** | ** ** |
| **Supplemental disclosure of cash flow  information:**                  |       |                    |       |   |   |
| Cash paid during period for interest                                    |       | $                       | 6,489      |   | $ | 1,474,114 |   |
|                                                                    |       |                    |       |   |   |
| Non-cash investing and financing activities                             |       |                    |       |   |   |
| *Assets acquired under capital leases*                                  |       | $                       | —     |   | $ | 221,709 |   |
|                                                                    |       |                    |       |   |   |
| Transfer of real property and non-gaming  assets to  EW Common LLC |       | $                       | —     |   | $ | (25,956,004 | ) |
|                                                                    |       |                    |       |   |   |
| Transfer of long-term debt to EW Common LLC                             |       | $                       | —     |   | $ | 43,745,708 |   |

 

*Theaccompanying notes are an integral part of these unaudited condensed combinedfinancial**statements.*

 

15

----

 

**Hôtel San Rémo Casino and Resort**

**(ADivision of S.I. Enterprises, Inc.)**

 

 

### **Notes to CondensedCombined Financial Statements (unaudited)**

**September30, 2005**

 

**1. Organizational and Basis ofPresentation**

 

The accompanying condensed combined financialstatements present the operations of Hôtel San Rémo Casino and Resort (“HôtelSan Rémo”), a division of S.I. Enterprises, Inc. (the “Parent Company”), aNevada Corporation, which is located in Las Vegas, Nevada. Hôtel San Rémocommenced gaming operations on February 16, 1990. The accompanyingcondensed combined financial statements represent the assets, liabilities andoperations of the hotel and gaming facilities and include certain accounts ofEastern & Western Hotel Corporation (“Eastern & Western”) andI&P Corporation, Colorado (“I&P”), both Nevada corporations. ThroughOctober 31, 2005, Eastern & Western held the gaming license in Nevadaand owned all gaming assets used by Hôtel San Rémo. I&P owned the realproperty and non-gaming assets of Hôtel San Rémo until August 3, 2004 atwhich time they were acquired by 155 East Tropicana, LLC (see Note 2) and thenleased back to Hôtel San Rémo pursuant to the casino lease and hotel leasearrangements (see Note 3).

 

OnJuly 28, 2004, I&P was merged with and into Eastern &Western, with Eastern & Western assuming all assets and liabilities ofI&P including the real property and non-gaming assets of Hôtel San Rémo.

 

Allsignificant intercompany accounts and transactions have been eliminated in thecombined financial statements.

 

The accompanying condensed combined financialstatements have been prepared by Hôtel San Rémo, without audit, pursuant to therules and regulations of the Securities and Exchange Commission. Accordingly,the condensed combined financial statements contain all adjustments (consistingof normal recurring adjustments) that, in the opinion of management, arenecessary to present fairly the Hôtel San Rémo’s financial position, results ofoperations and cash flows for the interim periods included herein. The 2005interim results reflected in these combined financial statements are notnecessarily indicative of results to be expected for the full 2005 fiscal year.

 

The accompanying condensed combined financialstatements should be read in conjunction with the December 31, 2004 financialstatements and notes thereto included in the Registration Statement on FormS-4/A of 155 East Tropicana, LLC and 155 East Tropicana Finance Corp. filedwith the SEC on June 16, 2005.

 

**2. Acquisition by 155 EastTropicana, LLC.**

 

In August 2004, the 155 East Tropicana, LLC(“155”) agreed to the acquisition of the real property and other assets of theHôtel San Rémo for approximately $72.5 million including transaction costsand expenses. 155 is a joint venture between Florida Hooters LLC and EW CommonLLC.  EW Common LLC was formed to holdEastern & Western’s membership interest in 155.  EW Common LLC is owned 90% by Eastern& Western and 10% by Michael J. Hessling, the executive vice president andchief operating officer of Hôtel San Rémo. Initially, 155 acquired $67.5million of the real property and non-gaming assets and agreed  that  the remaining  $5.0  million in  assets would be transferred to155 upon 

 

16

----

 

**Hôtel San Rémo Casino and Resort**

 

**(A Divisionof S.I. Enterprises, Inc.)**

 

 

**Notes toCondensed Combined Financial Statements (unaudited) (continued)**

 

**2. Acquisition by 155 EastTropicana, LLC. (continued)**

 

obtaining the gaming and liquor licenses necessaryto take over operations of the hotel and casino.  In October 2005, 155 secured their gaming andliquor licenses and on November 1, 2005, assumed the operations of the hoteland casino.  The casino and hotel leaseswere terminated on October 31, 2005.   Immediatelyprior to the acquisition, the real property and non-gaming assets of Hôtel SanRémo with a net book value of $25,956,004 and long-term debt of $43,745,708were transferred to EW Common LLC. Because EW Common LLC and HôtelSan Rémo are entities under common control, these transfers were reflected asdivision equity transactions.

 

The acquisition was funded by 155 through a termloan totaling $48.5 million which was used to extinguish the Hôtel SanRémo’s existing indebtedness of $43.7 million, a commitment to pay theformer owner of Hôtel San Rémo $1.3 million and the issuance to EW CommonLLC of a 331¤3% membership interest with priority return valued at$20.0 million.  

 

On March 29, 2005, 155 successfully completed theissuance of $130 million in principal amount 83⁄4%, Senior Secured Notes due 2012(the “Notes”). Proceeds from the Notes offering will be used principally torenovate the Hôtel San Rémo into the Hooters Casino Hotel.

 

**3. Casino and Hotel Leases**

 

In connection with the acquisition of Hôtel SanRémo’s real property and non-gaming assets by 155, Eastern & Western, aslessee, entered into lease agreements with 155 to lease back the casino andhotel property previously owned by Hôtel San Rémo. Upon the receipt of gamingand liquor licensing by 155, these leases were terminated on October 31, 2005and the operations of the hotel and casino were assumed by 155.

 

The casino lease between Eastern & Western and155 covered those portions of the Hôtel San Rémo containing the showroom,gaming and liquor servicing areas, and the casino ancillary to the casinofootprint.

 

Monthly base rent payments of $125,000 were due fromAugust 3, 2004 until termination at October 31, 2005. Upon certain definedevents and, to the extent that Hôtel San Rémo had available cash flow fromcasino operations, Eastern & Western was to set aside reserves to cover$30,000, $120,000, and $55,000 each month to cover capital improvements, changein control payments, and licensing expenses, respectively.  To the extent that these reserves were notused, they were to be paid to Eastern & Western at the termination of thelease.

 

17

----

 

**Hôtel San Rémo Casino and Resort**

**(A Divisionof S.I. Enterprises, Inc.)**

 

 

**Notes toCondensed Combined Financial Statements (unaudited) (continued)**

 

**3. Casinoand Hotel Leases (continued)**

 

**HotelLease**

 

The hotel lease between Eastern & Western and155 covered those portions of the Hôtel San Rémo containing all non-casinoareas including the hotel.

 

Minimum lease payments due under the hotel leaseconsist of a minimum rent and a percentage rent. The minimum rent was $250,000per month. The percentage rent was equal to 100% of all revenues received fromthe operation of the hotel, less actual operational expenses (including minimumrent) and working capital reserves which were determined and agreed uponmonthly by 155 and Eastern & Western. No capital reserves were agreed tofor the period from August 3, 2004 to September 30, 2005. While the minimum rentwas paid on a monthly basis, the percentage rent was paid in arrears to 155 onthe first day of each calendar quarter. There was no percentage rental expenseincurred for the three month period ended September 30, 2005.  Percentage rental expense incurred for thenine month period ended September 30, 2005 totaled $1,689,324. Total rentalexpense was $1,125,000 and $5,064,324 during the quarter and nine months endedSeptember 30, 2005, respectively.

 

18

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**Item 2. Management’s Discussion and Analysis of Financial Condition and Resultsof Operations.**

 

The following discussion and analysis should be readin conjunction with the “Selected Financial Data” and the audited financialstatements and related notes included in our Registration Statement on Form S**-**4/A filed with the SEC on June 16, 2005.

 

**155 East Tropicana, LLC (Owner ofHotel Casino)**

** **

***Overview***

*** ***

155 East Tropicana, LLC (the “Company”) wasformed on June 17, 2004 to acquire the Hôtel San Rémo from Eastern & WesternHotel Corporation (“Eastern & Western”). Our common membership interestsare held two-thirds through Florida Hooters LLC and one-third through EW CommonLLC.

 

Florida Hooters LLC is a joint venturebetween Hooters Gaming LLC and Lags Ventures, LLC. Hooters Gaming LLC is ownedby the holders of licenses to operate Hooters restaurants in the Tampa Bay,Chicago and Manhattan areas as well as for wholesale foods, calendars andNevada hotel/gaming, and includes most of the original founders of the Hootersbrand. Lags Ventures, LLC is owned by a holder of the license rights to Hootersrestaurants in South Florida and the State of Nevada. Pursuant to these licenserights, the owners of Florida Hooters LLC operate 39 Hooters restaurants,publish Hooters calendars, and operate a Hooters foods business. The owner ofLags Ventures, LLC is also the founder of the Dan Marino concept restaurantsand owns and operates five Dan Marino concept restaurants.

 

Eastern & Western owns 90% of EW CommonLLC while our chief operating officer, Michael Hessling, owns the balance.Eastern & Western is beneficially owned by Sukeaki and Toyoroku Izumi.Eastern & Western owned the Hôtel San Rémo from November 1988 until ouracquisition of the Hôtel San Rémo in 2004. Mr. Hessling served as Hôtel SanRémo’s executive vice president and chief operating officer from January 1989until the acquisition, at which time he became our chief operating officer.

 

Our affiliates have granted us assignments ofcertain license agreements pertaining to the use of the Hooters brand as wellas the Dan Marino, Martini Bar and Pete & Shorty’s concept restaurants,which will allow us to operate the Hooters Casino Hotel. Pursuant to theHooters license assignment, we are required to pay the owner of the Hooterstrademark, Hooters of America, Inc., a royalty fee. The original founders ofthe Hooters brand sold the trademark rights (excluding certain rights theyretained for themselves) to Hooters of America, Inc. in 2001.

 

As a result, Hooters of America, Inc. is thetrademark owner of the Hooters brand and the operator and franchisor ofapproximately 380 Hooters restaurants. We are not affiliated with Hooters ofAmerica, Inc.

 

During the nine months ended September 30,2005, the Hôtel San Rémo was leased to Eastern & Western as the licensedoperator under two lease agreements for the hotel and the casinooperations.  In October 2005, we receivedthe gaming and liquor licenses necessary to operate the hotel casino.  On November 1, 2005, the operations of thehotel casino were assumed by the Company as the casino and hotel leases withHôtel San Rémo were terminated on October 31, 2005. 

 

In August 2004, the Company agreed to theacquisition of the real property and other assets of the Hôtel San Rémo forapproximately $72.5 million including transaction costs and expenses.  Initially, the Company acquired $67.5 millionof the real property and non-gaming assets and agreed that the remaining $5.0million in assets would be transferred to the Company upon obtaining the gamingand liquor licenses necessary to take over operations of the hotel andcasino.  In connection with the initialacquisition, we refinanced $43.7 million of Eastern & Western’s existingindebtedness, incurred

 

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additional expenses and obligations of $4.8million, and issued to Eastern & Western $20.0 million of preferredmembership interest representing one-third of our common membership interests.EW Common LLC was formed to hold Eastern & Western’s membership interestsin us. Concurrently, we issued to Florida Hooters LLC two-thirds of our commonmembership interests in exchange for $5.0 million cash and the assignment ofcertain rights with respect to trademarks and licenses valued at $4.2 million,based on an appraisal from a third-party appraiser.

 

As of September 30, 2005, we conducted nobusiness or operations other than in connection with the acquisition andsubsequent leasing of the Hôtel San Rémo. 

 

On March 29, 2005, we issued$130.0 million aggregate principal amount of 83⁄4% Senior Secured Notes due2012 (the “Notes”), in a private placement. The Notes were subsequently exchanged with the notes registered with theSecurities and Exchange Commission. Interest payments on the Notes are due semi-annually, on each April 1and October 1. The Company used the proceeds from the Notes offering torefinance existing indebtedness and is using the remaining proceeds (togetherwith cash from operations and proceeds from equipment financing), to renovatethe hotel casino and to provide working capital. The indenture governing theNotes required the Company to establish a renovation disbursement account inthe amount of $50.8 million and interest reserve account in the amount of $11.2million.  These accounts are presented onthe Company’s balance sheet as restricted cash. On October 1, 2005, the first semi-annual payment was made, using fundsfrom the interest reserve account.

 

In connection with theoffering of the Notes, the Company formed a wholly owned subsidiary, 155 EastTropicana Finance Corp., solely for the purpose of facilitating the Notesoffering as a co-issuer of the Notes.

 

The Company also entered into a$15.0 million senior secured credit facility concurrently with theoffering of the Notes. The Company has not drawn on this line of credit duringthe first nine months of 2005.

 

From inception (June 17, 2004) throughSeptember 30, 2005, the Company is a development stage company.

 

***Results of Operations — Comparison of Quarter ended September 30, 2005with the Period from Inception (June 17, 2004) through September 30, 2004***

*** ***

*RentalIncome***—**During thethird quarter of 2005, we leased the hotel and casino to Eastern & Westernunder two separate lease agreements. Pursuant to the casino lease arrangement,the casino, showroom, liquor servicing areas and other casino related areas areleased for $125,000 per month. Rental income of $375,000 was received under thecasino lease for the quarter ended September 30, 2005 compared to $237,903 forthe period from inception (June 17, 2004) through September 30, 2004. Thecasino lease did not begin until August 3, 2004.  Pursuant to the lease for the hotel,restaurants and other areas of the hotel casino property, rental income was$250,000 per month, plus a percentage rent equal to 100% of all revenuesreceived by Eastern & Western from the operation of the hotel andrestaurants, less operating expenses and working capital reserves, as definedin the hotel lease agreement. Rental income of $750,000 was earned under thehotel lease for the quarter ended September 30, 2005 as compared to $475,807for the period from inception (June 17, 2004) through September 30, 2004.  Again, the hotel lease was not in effectuntil August 3, 2004.

 

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In October 2005, we received the gaming andliquor licenses necessary to operate the hotel casino.  On November 1, 2005, the operations of thehotel casino were assumed by the Company and the leases with Hôtel San Rémowere terminated on October 31, 2005. As aresult, we will cease to receive the rental income under the lease agreementsand we will receive any cash flows only from the operations of the casinohotel.

 

*InterestIncome***—**On March 29,2005, the Company issued the Notes in a private placement. Interest income of$0.5 million was earned for the three months ended September 30, 2005, largelyon the invested net proceeds of the Notes.  No interest income was earned during the period from inception (June 17,2004) through September 30, 2004.

 

*Pre-OpeningExpenses*******—**For the quarter ended September 30, 2005,****pre-opening expense of $1.2million consist of salaries and wages, legal, professional, general and othergeneral administrative expenses.  For theperiod from inception (June 17, 2004) through September 30, 2004, pre-openingexpenses of $5,388 consist of professional expenses.  

 

*InterestExpense***—**For the quarter ended September 30, 2005,****interest expense on the$130.0 million in Notes was $3.0 million, which included amortization of loanfees of $0.3 million.  For the periodfrom inception (June 17, 2004) through September 30, 2004, interest expense was$0.4 million, which included amortization of loan fees of $0.2 million.

 

*IncomeTaxes***—**We are alimited-liability company and are treated as a partnership for federal incometax purposes. Accordingly, we have not recorded any provision for federalincome taxes in our financial statements because the taxable income or loss forthe Company will be included in the income tax returns of the members.

 

*DepreciationExpense***—**The Hôtel SanRémo acquisition price was allocated between land ($26.8 million), building($39.8 million), and equipment ($0.9 million). Depreciation expense of $0.4million was incurred for the third quarter of 2005 and $0.3 million for theperiod from inception (June 17, 2004) through September 30, 2004, relating tothe building and equipment owned by the Company.

 

***Comparison of Nine Months Ended September 30, 2005 with the Period fromInception (June 17, 2004) through September 30, 2004***

*** ***

*RentalIncome***—**Pursuant to theterms of the casino and hotel lease arrangements described previously, rentalincome of $5.1 million was earned under the leases during the nine monthsending September 30, 2005, as compared to $0.7 million for the period frominception (June 17, 2004) through September 30, 2004.  The hotel and casino leases were not in placeuntil August 3, 2004, so the $0.7 million rental income in 2004 is for a periodof less than two months.

 

We obtained liquor andgaming licenses in October of 2005 which allowed us to take over operations ofthe existing Hôtel San Rémo on November 1, 2005, which will be, upon completionof the remodeling, the Hooters Casino Hotel. The two lease agreements for thehotel and casino terminated on October 31, 2005. As a result, we will cease toreceive the rental income under the lease agreements for periods after October31, 2005 and we will receive any cash flows only from the operations of thecasino hotel.

 

*InterestIncome***—**On March 29,2005, the Company issued the Notes, in a private placement. Interest income of$1.1 million was earned for the nine months ended September 30, 2005, largelyon the invested net proceeds of the Notes. There was no interest income during the period from inception (June 17,2004) through September 30, 2004.

 

21

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*Pre-OpeningExpenses***—**During the nine months ended September 30,2005,****pre-opening expenses of $1.8million consist of salaries and wages, legal, professional, general and otheradministrative expenses.  For the periodfrom inception (June 17, 2004) through September 30, 2004, pre-opening expensesof $5,388 consist of professional fees.

 

*InterestExpense***—**In connectionwith the acquisition of the Hôtel San Rémo, we incurred debt of $48.5 million.Interest expense (net of interest capitalized) on this loan was $1.3 millionfor the period from January 1, 2005 through the date that the loan was paid-offon March 29, 2005, which includes $0.2 million for the amortization of loanfees. For the nine months ended September 30, 2005, interest expense on the$130.0 million in Notes was $6.1 million, which included amortization of loanfees of $0.6 million.  For the periodfrom inception (June 17, 2004) through September 30, 2004, interest expense was$0.4 million, which included $0.2 million for the amortization of loan fees.This interest expense related to the $48.5 million dollar loan incurred atAugust 3, 2004 in connection with the acquisition of the Hôtel San Rémo.

 

*IncomeTaxes***—**We are alimited-liability company and are treated as a partnership for federal incometax purposes. Accordingly, we have not recorded any provision for federalincome taxes in our financial statements because the taxable income or loss forthe Company will be included in the income tax returns of the members.

 

*DepreciationExpense***—** Depreciationexpense of $1.2 million was incurred for the first nine months of 2005 and $0.3million was incurred for the period from inception (June 17, 2004) throughSeptember 30, 2004.  All depreciationrelated to the building and equipment owned by the Company.

 

***Results of Operations — For the Period from Inception (June 17, 2004)through September 30, 2005***

*** ***

*RentalIncome***—**Pursuant to theterms of the casino and hotel lease arrangements described previously, rentalincome of $7.2 million was earned under the leases from the period frominception (June 17, 2004) through September 30, 2005. 

 

*InterestIncome***—**Interest incomeof $1.1 million was earned on the net proceeds from the Notes and other cashinvestments. 

 

*Pre-OpeningExpenses***—**Pre-openingexpense of $1.9 million consists of salaries and wages, legal, professional andother general administrative expenses.

 

*DepreciationExpense***—**Depreciationexpense of $2.0 million was incurred for the period from Inception (June 17,2004) through September 30, 2005 relating to the building and equipment ownedby the Company. 

 

*InterestExpense***—**Interestexpense under our old bank debt (net of interest capitalized) was $3.5 millionfor the period from inception (June 17, 2004) through March 29, 2005, whichincludes $0.6 million for the amortization of loan fees. Interest expense onthe $130.0 million Notes was $6.1 million, which included amortization of loanfees of $0.6 million.

 

***Liquidity and Capital Resources***

*** ***

The members of 155 East Tropicana, LLCcontributed $5.0 million to the Company in initial capital contributions duringthe period from inception (June 17, 2004) through September 30, 2005. $4.0million of this capital contribution was set aside in a restricted account andused as collateral for the $48.5 million loan obtained by the Company topurchase the Hôtel San Rémo and to pay expenses involved with the

 

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purchase. The Company also issued $20.0million in membership interests with priority returns to Eastern & WesternHotel Corporation representing a one-third common interest as part of theacquisition of the real property and non-gaming assets of Hôtel San Rémo.

 

During the first nine months of 2005, themost significant events affecting our liquidity and capital resources were cashflows generated from financing activities of $71.1 million consisting of thesuccessful completion of the Notes offering, whose proceeds were used to payoffexisting indebtedness of $51.1 million, make a $1.3 million payment to theformer owner of the Hôtel San Rémo and pay $7.8 million in debt financingcosts. 

 

The following schedule summarizes our completedand projected use of the proceeds from the Notes offering (in millions):

 

| Payoff of  existing debt                                      |   | $    | 51.1   |   |
|---------------------------------------------------------------|--------|------|--------|--------|
| Renovations                                                   |   | 46.5 |   |
| Interest reserve                                              |   | 11.2 |   |
| Fees and expenses                                             |   | 6.6  |   |
| Gaming equipment                                              |   | 1.2  |   |
| Working capital, pre-opening, and general corporate  purposes |   | 13.4 |   |
| Total                                                         |   | $    | 130.0  |   |

 

For the nine months ended September 30, 2005,$60.1 million of cash was used in investing activities, consisting of anincrease to restricted funds of $48.2 million, and capital expenditures andother assets of $11.9 million. Upon repayment of the existing indebtedness onMarch 29, 2005, $4.0 million in restricted funds were released. At September30, 2005, $52.2 million of the proceeds from the Notes offering are held asrestricted cash.

 

During the first nine months of 2005, theCompany expended $11.8 million of its cash in renovation activities largely forarchitectural, design fees, equipment, and building construction. Therenovation project which will convert the Hôtel San Rémo into the HootersCasino Hotel is expected to be completed in the first quarter of 2006. 

 

The Notes indenture contains certainprovisions which restrict or limit the Company’s ability to, among otherthings, incur more debt, pay dividends, redeem stock or make otherdistributions, enter into transactions with affiliates or transfer or sellassets. 

 

The Company entered into a $15.0 millionsenior secured credit facility concurrently with the offering of the Notes. Thesenior credit facility is a four year revolving credit facility of up to thelesser of $15.0 million or three times trailing twelve month EBITDAthrough September 30, 2006 and two times thereafter; provided that themultiple of EBITDA requirement will not apply if the borrowings are less than$7.5 million. EBITDA is defined in the senior credit facility and allowsfor the exclusion of certain expenditures. The Company does not have anyborrowings outstanding on this credit facility at September 30, 2005.

 

All of the obligations underthe new senior secured credit facility are secured by first priority liens onand security interests in all of the Company’s properties and assets. The lienon the collateral that secures the Notes are contractually subordinated (otherthan the security interests in the renovation disbursement account, which issenior and interest reserve accounts, which will not secure the senior securedcredit facility) to the liens securing the principal amount of potentialborrowings of up $15.0 million (plus related interest, fees, indemnities,costs and expenses) under the senior secured credit facility. The senior

 

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secured credit facilityrequires the Company to pay a fee of 0.50% per annum on any unused portion ofthe senior secured credit facility, and, if terminated prior to the thirdanniversary date, a prepayment premium of 1.00% of the maximum credit amountfor each year or partial year remaining from the termination date to the thirdanniversary date. The senior secured credit facility also contains customaryfinancial covenants and other covenants and events of default. The seniorcredit facility can be used for additional working capital or capitalexpenditures, at the Company’s discretion. Currently, the Company meets therequirements necessary to borrow the full $15.0 million.

 

In addition to the Notes and the seniorsecured credit facility, we intend to enter into furniture, fixtures andequipment financing of $5.9 million during the year ending December 31, 2005. 

 

The Company generated net cash flow fromoperations of $3.8 million for the nine months ended September 30, 2005,principally from rental income under the casino and hotel leases.

 

It is anticipated that existing operations atHôtel San Rémo will continue throughout the renovation period, including verylimited operations during a training period of approximately thirty days priorto the grand opening of Hooters Casino Hotel in the first quarter of 2006. 

 

We believe that we have additionalflexibility to cover contingencies that may arise during the renovation periodthrough the use of our cash and cash equivalents (which were $16.0 million atSeptember 30, 2005), the interest reserve account which covers the first twointerest payments on the Notes (the first of which was paid on October 1, 2005 inthe amount of $5.75 million and the second payment, which will be due April 1,2006, and is estimated to be $5.69 million), our rental income from Eastern& Western (through October 31, 2005), and our ability to draw against ournew $15.0 million senior secured credit facility.

 

We believe the cash from operations, currentcash and the available borrowings under the senior secured credit facility willbe adequate to meet the anticipated working capital, capital expenditure,renovation and debt service obligations in the immediate future. However, wecannot predict with certainty the duration of the renovation and shutdownperiods due to the many variables involved in the renovation process. Noassurances can be given that the renovation project will be completed asscheduled. Additionally, we cannot assure you that our sources of financingwill be sufficient to cover all contingencies which may arise in the renovationproject or meet our other capital and liquidity requirements or that additionalfinancing, if required, will be available, or, if available, will be on termsfavorable to us.

 

**Hôtel San Rémo (Predecessor)**

 

***Overview***

 

The Hôtel San Rémo commenced gamingoperations on February 16, 1990. The condensed combined financialstatements represent the assets, liabilities and operations of the hotel andgaming facilities and include only certain accounts of Eastern & Westernand I&P Corporation, Colorado (which has merged into Eastern &Western). Members of the Izumi family are 100% owners of S.I. Enterprises, Inc.which owns 100% of Eastern & Western. The principal business of Eastern& Western is the ownership and operation of hotels. 

 

For the quarter ended September 30, 2005,Eastern & Western held the gaming license in Nevada and owned all gamingassets used by the Hôtel San Rémo. Under a casino lease and a hotel lease,Eastern & Western, through the Hôtel San Rémo, operated the hotel casinoproperty through October 31, 2005.  OnNovember 1, 2005, the operations of the hotel casino were assumed by theCompany and the leases with the Hôtel San Rémo were terminated.

 

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***Results of Operations***

 

The Hôtel San Rémo generates hotel, casino,food and beverage, entertainment and retail revenues at the hotel casinoproperty. In the nine months ending September 30, 2005, approximately 34.6% ofthe gross revenue was derived from the casino, 45.0% from hotel rooms and 20.4%from food and beverage. 

 

Casino revenue is derived primarily frompatrons wagering on slot machines, table games and other gaming activities.Table games include blackjack, craps, roulette, and specialty games. Casinorevenue is defined as the win from gaming activities, computed as thedifference between gaming wins and losses, not the total amount wagered. “Tablegame drop” and “slot handle” are casino industry specific terms used toidentify the amount wagered by patrons for a casino table game or slot machine,respectively. “Table game hold” and “slot hold” represent the percentage of thetotal amount wagered by the patron that the casino has won. Hold is derived bydividing the amount won by the casino (“table game win” and “slot win”) by theamount wagered by the patron. Casino revenue is recognized at the end of eachgaming day. 

 

Room revenue is derived from rooms and suitesrented to guests. “Average daily rate” is an industry specific term used todefine the average amount of revenue per rented room per day. “Occupancypercentage” defines the total percentage of rooms occupied, and is computed bydividing the number of rooms occupied by the total number of rooms available.Room revenue is recognized at the time the room is provided to the guest. 

 

Food and beverage revenues are derived fromfood and beverage sales in the food outlets of the hotel casino, includingrestaurants, room service and banquets. Food and beverage revenue is recognizedat the time food and/or beverage is provided to the guest. “Covers” are thenumber of patrons served in a food outlet. “Average check” is the averageamount of food and beverage revenue charged to patrons on their restaurantchecks.

 

Casino revenues vary from time to time due togeneral economic conditions, table game hold, slot hold, and occupancypercentages at the Hôtel San Rémo and other hotels in Las Vegas. Casinorevenues also vary depending upon the amount of gaming activity as well asvariations in the odds for different games of chance. Casino revenues, roomrevenues, food and beverage revenues, and other revenues vary due to general economicconditions and competition. During the first nine months of 2005, Las Vegas hascontinued to experience an upward trend in total visitation, as well as gamingwin, hotel occupancy and hotel daily average room rates. We believe the HôtelSan Rémo has benefited from these trends; however, we further believeconstruction activity at the hotel casino during the nine months endedSeptember 30, 2005 has disrupted our operations and has caused decreases inmost of our revenue centers.

 

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The following table summarizes our results ofoperations (in thousands):

 

| ** **                          | ** ** | **Nine months**                | ** ** | **Nine months**                | ** ** | ** **               | ** ** |
|-------------------------------------|------------|--------------------------------|------------|--------------------------------|------------|--------------------------|------------|
| ** **                          | ** ** | **Ended  September 30,  2005** | ** ** | **Ended  September 30,  2004** | ** ** | **%  Change  2005-2004** | ** ** |
|                                |       |                           |       |                           |       |                     |       |
| Casino revenues                     |       | $                              | 8,675      |                           | $          | 9,630                    |       | -9.9 | % |
| Casino expenses                     |       | 5,044                          |       | 5,156                          |       | -2.2                     | %          |
| Profit margin                       |       | 41.9                           | %          | 46.5                           | %          |                     |       |
|                                |       |                           |       |                           |       |                     |       |
| Food and beverage revenues          |       | $                              | 5,112      |                           | $          | 6,060                    |       | -15.6 | % |
| Food and beverage expenses          |       | 4,605                          |       | 4,810                          |       | -4.3                     | %          |
| Profit margin                       |       | 9.9                            | %          | 20.6                           | %          |                     |       |
|                                |       |                           |       |                           |       |                     |       |
| Hotel and other revenues            |       | $                              | 11,277     |                           | $          | 11,186                   |       | 0.8 | % |
| Hotel and other expenses            |       | 3,233                          |       | 3,340                          |       | -3.2                     | %          |
| Profit margin                       |       | 71.3                           | %          | 70.1                           | %          |                     |       |
|                                |       |                           |       |                           |       |                     |       |
| Promotional allowances              |       | $                              | 1,589      |                           | $          | 1,690                    |       | -6.0 | % |
| Percent of gross revenues           |       | 6.3                            | %          | 6.3                            | %          |                     |       |
|                                |       |                           |       |                           |       |                     |       |
| General and administrative expenses |       | $                              | 5,804      |                           | $          | 5,355                    |       | 8.4 | % |
| Percent of net revenues             |       | 24.7                           | %          | 21.3                           | %          |                     |       |

 

The following discussion presents an analysisof Hôtel San Rémo’s results of operations for the three months ended and ninemonths ended September 30, 2005 and 2004, respectively.

 

***Comparison of Quarter ended September 30, 2005 with Quarter endedSeptember 30, 2004***

 

The Hôtel San Rémo recorded a loss beforeincome taxes of $0.7 million for the quarter ended September 30, 2005 comparedwith income before income taxes of $1.1 million for the quarter ended September30, 2004. The decrease in income before taxes was due to a decline in netoperating revenue of $1.6 million, which was only partially offset by adecrease of $0.2 million in operating expenses. In addition, Hôtel San Rémo generated $0.4 million income from foreigncurrency translation during the quarter ended September 30, 2004 related to itsbank loans denominated in Japanese Yen. The decline in revenues was the resultof a general decline in business due to construction disruption.  During the third quarter of 2005,approximately 300 rooms were out of service for remodeling; the Paparazzirestaurant was closed on June 28, 2005; the Saizen restaurant was closed onSeptember 5, 2005; and approximately 230 slot machines were progressivelyremoved from the casino floor during the quarter.

* *

*Casino***—**Casino revenuestotaled $2.5 million for the quarter ended September 30, 2005, compared to $3.1million for the quarter ended September 30, 2004, a decrease of $0.6 million or21.4%. Table games revenue was down by $49,000 in the third quarter 2005 as aresult of a table game drop decline of $0.7 million or 15.0% offset by anincrease to 20.0% in the table game hold percentage from 18.1% in the prioryear quarter. Slot revenue of $1.7 million for the third quarter of 2005 wasdown by $0.6 million or 27.3% as compared with the same quarter in the prioryear. The decline in casino revenue is attributable

 

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to construction disruption. During thequarter, approximately one-half of the casino floor was closed because ofremodeling of the casino floor.

 

The operating margin for the casino decreasedfrom 45.7% of casino revenue during the quarter ended September 30, 2004 to34.1% in 2005. 

* *

*Foodand Beverage***—**Food andbeverage revenue was $1.5 million for the quarter ended September 30, 2005 ascompared to $1.9 million for 2004, a decrease of 23.6%. Food revenue decreasedby $0.5 million or 31.9% for the quarter ended September 30, 2005. Thisdecrease was a result of covers in the restaurants declining by 51,000, or35.1%, largely due to a significant decrease in covers for the Coffee Shopduring construction.  This decline in coverswas combined with a $0.77 decrease in average guest check.  The decline in average guest check waslargely due to the closure of the high-end steak house, Paparazzi, on June 28,2005 and the Japanese restaurant, Saizen, on September 5, 2005, where checksaveraged $25.52 and $23.50, respectively. Gross beverage revenue (whichincludes complimentary beverages) increased by $5,300 or 1.1%, largely in thecategory of complimentary beverages served on the casino floor. 

 

The profit margin for the food and beveragedepartments declined to 0.9% for the quarter ended September 30, 2005 ascompared to a margin of 18.6% for the quarter ended September 30, 2004.

* *

*Hoteland Other***—**Hotel and otherrevenue decreased by $0.5 million, or 15.0%, to $2.8 million for the quarterended September 30, 2005 as compared to $3.3 million for the quarter endedSeptember 30, 2004. The occupancy rate decreased to 79.7% for the quarter endedSeptember 30, 2005 as compared to 86.6% for the quarter ended September 30,2004. The decline in occupancy was due to the remodeling of approximately 300hotel rooms during the quarter, along with general business disruption causedby construction. The decline in hotel and other revenue was somewhat offset byan increase of 7.2% in average daily room rate to $70.01 for the quarter endedSeptember 30, 2005 from $65.32 for the quarter ended September 30, 2004. Therewas also a general increase in average daily room rates in the Las Vegas marketin 2005. According to the Las Vegas Convention and Visitors Authority, the LasVegas average daily room rates increased by $13.92, or 17.4%, for the twomonths ended August 31, 2005 as compared to the same two months in 2004. 

 

Hôtel San Rémo’s room operating margindecreased to 63.4% for the quarter ended September 30, 2005 from 66.8% for thequarter ended September 30, 2004. This decrease in profitability in the hotelis due to inefficiencies caused by lower business volumes. 

* *

*Generaland Administrative***—**General and administrative expenses includes costs associated withcorporate, marketing, information technology, finance, accounting, and propertyoperations. General and administrative expense was $1.8 million for the quarterended September 30, 2005, a decrease of $0.2 million compared to $2.0 millionfor the quarter ended September 30, 2004. This decrease was principally due todecreased payroll expense resulting from the allocation of payroll expenses to155 East Tropicana, LLC during the third quarter.

* *

*Depreciation***—**Depreciationexpense of $0.1 million for the quarter ended September 30, 2005 was a decreaseof $0.1 million, or 61.0%, from $0.2 million for the quarter ended September30, 2004. This decrease was the result of the acquisition of the real propertyand non-gaming assets of the Hôtel San Rémo by 155 East Tropicana, LLC in August2004. The depreciable assets (net of accumulated depreciation) of $1.2 millionremaining at September 30, 2005 are assets that will be transferred to 155 EastTropicana, LLC at October 31, 2005.

* *

*InterestIncome***—**Interest incomedecreased by $0.1 million, or 53.3%, to $0.1 million for the quarter endedSeptember 30, 2005 as compared to $0.2 million for the quarter ended September30, 2004.

 

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*InterestExpense***—**Interestexpense for the quarter ended September 30, 2005, decreased by $20,000, or93.1%, as compared to the quarter ended September 30, 2004. This was the resultof the extinguishment of the Hôtel San Rémo’s existing indebtedness in August2004 as part of the acquisition of the Hôtel San Rémo’s real property andnon-gaming assets by 155 East Tropicana, LLC.

* *

*Provision (Benefit) for Income Taxes***— **The provision (benefit) for income taxes for the quarter endedSeptember 30, 2005 of $0.3 million benefit varies from the tax calculated byapplying the federal statutory rate (35%) to income before income taxes due topermanent tax differences and an adjustment for income taxes based onyear-to-date income before income taxes. 

 

***Comparison of Nine Months Ended September 30, 2005 with Nine MonthsEnded September 30, 2004***

 

The Hôtel San Rémo recorded a loss beforeincome taxes of $0.2 million for the nine months ended September 30, 2005compared with income before income taxes of $3.0 million for the nine monthsended September 30, 2004, a decline of $3.2 million. The decrease in incomebefore taxes was due to an increase in related party lease expense of $4.3million associated with the hotel and casino property leases with 155 EastTropicana LLC, a decrease of $1.7 million in operating revenue, ($1.6 millionof the revenue decline was generated in the third quarter of 2005), offset by adecline in restructuring costs of $1.0 million and interest expense of $1.5million when compared to the same period in 2004. 

* *

*Casino* — Casinorevenues totaled $8.7 million for the nine months ended September 30, 2005,compared to $9.6 million for the nine months ended September 30, 2004. Tablegames revenue was down slightly by $82,500 in the first nine months of 2005 asa result of a table game drop decline of $1.0 million, offset by a slightincrease to 19.1% in the table game hold percentage from 18.4% in the prioryear’s first nine months. Slot revenue of $5.9 million for the first ninemonths of 2005 was down from slot revenue of $6.8 million for the nine monthsended September 30, 2004. Slot coin-in and revenue was affected by constructiondisruption beginning in May 2005, which escalated when approximately 230machines were progressively removed from the casino floor during thequarter.  In addition, the loweroccupancy rates in the hotel negatively affected casino revenues in the thirdquarter of 2005.  

 

The operating margin for the casino decreasedfrom 46.5% of casino revenue during the nine months ended September 30, 2004 to41.9% in 2005. 

* *

*Foodand Beverage***—**Food andbeverage revenue was $5.1 million for the nine months ended September 30, 2005as compared to $6.1 million for the nine months ended September 30, 2004. Foodrevenue decreased by $1.0 million or 21.5% for the nine months ended September30, 2005. This decrease was a result of covers in the restaurants declining by98,200, or 21.8%, combined with a $0.34 decrease in average guest check. Asnoted in the third quarter results, multiple restaurant closings andinterruptions due to construction have adversely affected food and beveragerevenue.

 

The profit margin for the food and beveragedepartments declined to 9.9% for the nine months ended September 30, 2005 ascompared to a margin of 20.6% for the nine months ended September 30, 2004.

* *

*Hoteland Other***—**Hotel and otherrevenue increased by $0.1 million, or 0.8%, to $11.3 million for the ninemonths ended September 30, 2005 as compared to $11.2 million for the ninemonths ended September 30, 2004. The occupancy rate decreased slightly to 83.7%for the nine months ended September 30, 2005 as compared to 85.1% for the ninemonths ended September 30, 2004. The improvement in hotel and other revenue wasthe result of an increase of 5.5% in average daily room rate to $66.91 for thenine months ended September 30, 2005 from $63.41 for the nine months endedSeptember 30, 2004. There was also a general increase in average daily roomrates in the Las Vegas market in 2005. According to the Las Vegas Conventionand Visitors Authority, the Las Vegas average

 

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daily room rates increased by $12.73, or14.3%, for the eight months ended August 31, 2005 as compared to the same eightmonths in 2004.  As discussed in theresult of operations in the third quarter, the remodeling of rooms anddisruptions during construction has resulted in a decline in hotel and otherrevenue.

 

Hôtel San Rémo’s room operating marginincreased slightly to 71.3% for the nine months ended September 30, 2005 from70.1% for the nine months ended September 30, 2004. This increase inprofitability in the hotel is due to higher revenue per room based on theincrease in average daily room rate. 

* *

*Generaland Administrative***—**General and administrative expenses includes costs associated withcorporate, marketing, information technology, finance, accounting, and propertyoperations. General and administrative expense increased $0.4 million to $5.8million for the nine months ended September 30, 2005 compared to $5.4 millionfor the nine months ended September 30, 2004. This increase was principally dueto increased professional fees, payroll expense and insurance.

* *

*Depreciation***—**Depreciationexpense of $0.3 million for the nine months ended September 30, 2005 was adecrease of $1.0 million, or 78.8%, from $1.3 million for the nine months endedSeptember 30, 2004. This decrease was the result of the acquisition of the realproperty and non-gaming assets of the Hôtel San Rémo by 155 East Tropicana, LLCin August 2004. The depreciable assets (net of accumulated depreciation) of$1.2 million remaining at September 30, 2005 are gaming assets that weretransferred to 155 East Tropicana, LLC at October 31, 2005.

* *

*InterestIncome***—**Interest incomedecreased slightly by $50,000 to $0.31 million for the nine months endedSeptember 30, 2005, as compared to $0.36 million for nine months endedSeptember 30, 2004. 

* *

*InterestExpense***—**Interestexpense for the nine months ended September 30, 2005 decreased by $1.5 million,or 99.6%, as compared to the nine months ended September 30, 2004. This was theresult of the extinguishment of the Hôtel San Rémo’s existing indebtedness inAugust 2004 as part of the acquisition of the Hôtel San Rémo’s real propertyand non-gaming assets by 155 East Tropicana, LLC.

* *

*Provision(Benefit) for Income Taxes***— **The benefit forincome taxes for the nine months ended September 30, 2005 of ($0.1) millionvaries from the tax calculated by applying the federal statutory rate (35%) toincome before income taxes due to permanent tax differences resulting fromdisallowed employment taxes and other items. ** **

 

***Liquidity and Capital Resources***

 

For the nine months ended September 30, 2005,Hôtel San Rémo used $0.1 million in cash in operations compared to $3.7 milliongenerated for the same nine months in 2004. This decrease was due to a $4.0million decline in operating income largely as a result of declining revenuesand the $4.4 million increase in related party lease expense. This waspartially offset by a decrease of $1.5 million in interest expense for thefirst nine months in 2005 as compared to the first nine months 2004 as a resultof the pay-off of our bank debt. Net cash of $0.2 million was used in investingactivities as a result of purchasing other assets. Net cash of $0.8 million wasused in financing activities as a result of net advances to affiliates. 

 

In August 2004, existing borrowings of theHôtel San Rémo were extinguished as described above. 

 

Up until November 1, 2005, Eastern &Western, through Hôtel San Rémo, operated the hotel and casino operations undertwo separate leases. The leases terminated on October 31, 2005, the last day ofthe month following receipt by 155 East Tropicana, LLC of all licensingrequired by the appropriate

 

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governmental and regulatory authorities toconduct gaming and liquor sales at the Hôtel San Rémo. Under the casino andhotel leases, the minimum rental payments totaled $375,000 each month. Inaddition to the minimum base rent, Eastern & Western also paid a percentagerent which was equal to 100% of the non-gaming profits. On November 1, 2005,the operations of the hotel casino were assumed by 155 East Tropicana,LLC.  After paying various creditors, thecash and other current assets and liabilities that are not specifically beingtransferred to 155 East Tropicana, LLC will be distributed to the owners ofHôtel San Rémo. 

 

In connection with the renovation, asubstantial amount of the current gaming equipment owned by the Hôtel San Rémowill be replaced. The Hôtel San Rémo has entered into contracts for thepurchase of approximately $7.1 million in slot machine equipment. Payments onthe equipment will not be due until after the reopening. 155 East Tropicana,LLC anticipates assuming these contracts upon receiving its gaming license. 

* *

*IncomeTaxes***—**Hôtel SanRémo’s results of operations are included in the consolidated federal taxreturn filed by S.I. Enterprises, Inc. Accordingly, the current federal incometax liability or benefit resulting from the taxable income or loss generated bythe Hôtel San Rémo is recognized by the S.I. Enterprises, Inc. in itsconsolidated tax return and the resulting provision/benefit for income taxeshas been reflected in the Hôtel San Rémo’s combined financial statements.

*** ***

***Critical Accounting Policies andEstimates***

 

A description of critical accounting policies andestimates is included in the management discussion and analysis included in theRegistration Statement on Form S**-**4/A of 155East Tropicana, LLC and 155 East Tropicana Finance Corp. filed with the SEC onJune 16, 2005.

 

**Item 3.  Quantitative andQualitative Disclosures About Market Risk.**

 

The following discusses 155 East Tropicana,LLC’s and the Hôtel San Rémo’s exposure to market risk related to changes ininterest rates, equity prices and foreign currency exchange rates. 155 EastTropicana, LLC and the Hôtel San Rémo do not believe that their respectiveexposure to market risk is material. 

 

Market risk is risk of loss arising fromchanges in market rates and prices, such as interest rates, foreign currencyexchange rates and commodity prices. At September 30, 2005, the Hôtel San Rémois not exposed to market risks. 155 East Tropicana, LLC’s Notes carry a fixedinterest rate of 83⁄4%, provided no events of default have occurred. 155 EastTropicana, LLC has market risk associated with funds that may be borrowed inthe future on the new $15 million senior secured credit facility, due to aninterest rate that floats with LIBOR. The term of the senior secured creditfacility will mature on March 30, 2009. No amounts are outstanding under thisvariable rate credit facility at September 30, 2005.

 

Neither 155 East Tropicana, LLC nor the Hôtel SanRémo has any significant foreign currency exchange rate risk or commodity pricerisk and does not currently trade any market sensitive instruments.

 

**Item 4.  Controls and Procedures.**

 

##### ***Evaluation of Disclosure Controls***

 

We evaluated the effectiveness of ourdisclosure controls and procedures as of the six months ended September 30,2005.  This evaluation was done with theparticipation of management.

 

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Disclosure controls and procedures arecontrols and other procedures that are designed to ensure that informationrequired to be disclosed by us in the reports that we file or submit under theSecurities Exchange Act of 1934 are recorded, processed, summarized andreported within the time periods specified in the Securities and ExchangeCommission’s rules and forms.  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 management, as appropriate to allow timely decisionsregarding required disclosure. 

 

##### ***Limitations on the Effectiveness of Controls***

 

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

 

##### ***Conclusions***

 

Based on this evaluation, we concluded that,subject to the limitations noted above, our disclosure controls and proceduresare effective to ensure that information we are required to disclose in reportsthat we file or submit under the Securities Exchange Act of 1934 are recorded,processed, summarized, and reported within the time periods specified in theSecurities and Exchange Commission’s rules and forms.

 

##### ***Changes in Internal Controls***

 

There were no changes in ourinternal controls over financial reporting that occurred during our last fiscalquarter, *i.e.*, the quarter endedSeptember 30, 2005, that have materially affected, or are reasonably likely tomaterially affect, our internal controls over financial reporting.

 

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**PART II – OTHER INFORMATION**

 

**Item1.  Legal Proceedings.**

 

None.

 

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

 

None.

 

**Item 3.  Defaults Upon SeniorSecurities.**

 

None.

 

**Item 4.  Submission of Matters toa Vote of Security Holders.**

 

None.

 

**Item5.  Other Information.**

 

None.

 

**Item 6. Exhibits.**

 

(a)                                  Exhibits:

 

31.1                           Certification pursuant to §302 of theSarbanes-Oxley Act of 2002, Deborah J. Pierce

 

31.2                           Certification pursuant to §302 of theSarbanes-Oxley Act of 2002, Neil G. Kiefer

 

32.1                           Certification pursuant to §906 of theSarbanes-Oxley Act of 2002, Deborah J. Pierce

 

32.2                           Certification pursuant to §906 of theSarbanes-Oxley Act of 2002, Neil G. Kiefer

 

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**SIGNATURES**

 

Pursuant to the requirementsof the Securities Exchange Act of 1934, the registrant has duly caused thisreport to be signed on its behalf by the undersigned thereunto duly authorized.

 

 
| 155 EAST TROPICANA, LLC          |                                   |
|----------------------------------|----------------------------------------|
|                             |                                   |   |
|                             |                                   |   |
| By:                              |   /s/ Deborah J. Pierce      |   | November 14, 2005 |
|                             |   Deborah J. Pierce          |   |
| * *                         |   *Chief  Financial Officer* | * * |
|                             |                                   |   |
|                             |                                   |   |
| 155 EAST TROPICANA FINANCE CORP. |                                   |
|                             |                                   |   |
|                             |                                   |   |
| By:                              |   /s/ Deborah J. Pierce      |   | November 14, 2005 |
|                             |   Deborah J. Pierce          |   |
| * *                         |   *Chief  Financial Officer* | * * |

 

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