Tableof Contents

 

 

 

**UNITEDSTATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

 

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**FORM 10-Q**

 

**(Mark One)**

 

| **x** | ** ** | **QUARTERLY REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|-------|------------|--------------------------------------------------------------------------------------------------------|

 

**For thequarterly period ended September 30, 2009**

** **

**or**

 

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

 

**For thetransition period from                 to                      **

 

**Commission File Number 333-124924**

 

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**155 East Tropicana, LLC**

**155 East Tropicana Finance Corp.**

(Exact Name ofRegistrant as Specified in its Charter)

 

| **NEVADA**

**NEVADA**                                            | ** ** | **20-1363044**

**20-2546581**            |
|-------------------------------------------------------------------|------------|-------------------------------------------|
| (State or Other  Jurisdiction

of Incorporation  or Organization) |       | (I.R.S. Employer

Identification  Number) |
|                                                              |       |                                      |
| **115  East Tropicana Avenue**

**Las  Vegas, Nevada**            | ** ** | **89109**                                 |
| (Address of  Principal Executive Offices)                         |       | (Zip Code)                                |

 

**(702)597-6076**

(Registrant’sTelephone Number, Including Area Code)

 

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Indicate by check mark whether the 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  x    No  o

 

Indicate by check mark whether the registrant hassubmitted electronically and posted on its corporate Web site, if any, everyInteractive Date File required to be submitted and posted pursuant toRule 405 of Regulation S-T (232.405 of this chapter) during the preceding12 months (or for such shorter period that the registrant was required tosubmit and post such files).    Yes  o    No  o

 

Indicate by check mark whether the registrant is alarge accelerated filer, an accelerated filer, a non-accelerated filer, or asmaller reporting company.  Seedefinition of “large accelerated filer,” “accelerated filer” and “smallerreporting company” in Rule 12b-2 of the Exchange Act:

 

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

 

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

 

 

 

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Tableof Contents

 
| **PART I  – FINANCIAL INFORMATION**                     | **3**                                                                                       |
|-------------------------------------------------------------------|---------------------------------------------------------------------------------------------|
|                                                              |                                                                                        |
| Item 1.                                                           | Financial Statements                                                                        | 3 |
| ** **                                                        | ** **                                                                                  |
| **155  EAST TROPICANA, LLC (A Nevada Limited-Liability Company)** |                                                                                        |
|                                                              |                                                                                        |   |
|                                                              | Condensed Consolidated Balance Sheets (unaudited)                                           | 3 |
|                                                              | Condensed Consolidated Statements of Operations  (unaudited)                                | 4 |
|                                                              | Condensed Consolidated Statements of Cash Flows  (unaudited)                                | 5 |
|                                                              | Notes to Condensed Consolidated Financial Statements  (unaudited)                           | 6 |
|                                                              |                                                                                        |   |
| Item 2.                                                           | Management’s  Discussion and Analysis of Financial Condition and Results of Operations | 15 |
|                                                              |                                                                                        |   |
| Item 3.                                                           | Quantitative  and Qualitative Disclosures About Market Risk                                 | 26 |
|                                                              |                                                                                        |   |
| Item 4 T                                                          | Controls and Procedures                                                                     | 27 |
|                                                              |                                                                                        |   |
| **PART II  – OTHER INFORMATION**                        |                                                                                        |
|                                                              |                                                                                        |   |
| Item 3.                                                           | Defaults Upon  Senior Securities                                                            | 29 |
|                                                              |                                                                                        |   |
| Item 6.                                                           | Exhibits                                                                                    | 29 |
|                                                              |                                                                                        |   |
| **SIGNATURES**                                                    | **30**                                                                                      |

 

2

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Table of Contents

 

**PART I — FINANCIALINFORMATION**

 

**Item 1. Financial Statements.**

** **

**155 EAST TROPICANA, LLC**

**(A NEVADA LIMITED-LIABILITYCOMPANY)**

** **

**CONDENSED CONSOLIDATED BALANCESHEETS**

 
| ** **                                                                                                           | ** ** | **September 30,** | ** **  | **December 31,** | ** ** |
|----------------------------------------------------------------------------------------------------------------------|------------|------------------------|-------------|-----------------------|------------|
| ** **                                                                                                           | ** ** | **2009**               | ** **  | **2008**              | ** ** |
| ** **                                                                                                           | ** ** | **(unaudited)**        | ** **  | ** **            | ** ** |
| **Assets**                                                                                                           |       |                   |        |                  |       |
| Current assets:                                                                                                      |       |                   |        |                  |       |
| Cash and cash  equivalents                                                                                           |       | $                      | 5,560,343   |                  | $          | 4,980,299 |   |
| Accounts receivable,  net of allowance for doubtful accounts of $86,261 and $199,872 in 2009 and 2008,  respectively |       | 592,753                |        | 662,683               |       |
| Inventories                                                                                                          |       | 790,330                |        | 839,643               |       |
| Prepaid expenses                                                                                                     |       | 1,402,498              |        | 1,409,819             |       |
| Total current assets                                                                                                 |       | 8,345,924              |        | 7,892,444             |       |
| Property and equipment,  net                                                                                         |       | 111,176,547            |        | 111,254,020           |       |
| Other long-term assets:                                                                                              |       |                   |        |                  |       |
| Deferred financing  costs                                                                                            |       | 2,911,709              |        | 3,801,924             |       |
| Intangible assets                                                                                                    |       | 2,956,235              |        | 2,995,168             |       |
| Other assets                                                                                                         |       | 696,717                |        | 483,695               |       |
| Total other long-term  assets                                                                                        |       | 6,564,661              |        | 7,280,787             |       |
| Total assets                                                                                                         |       | $                      | 126,087,132 |                  | $          | 126,427,251 |   |
|                                                                                                                 |       |                   |        |                  |       |
| **Liabilities  and Members’ (Deficit) Equity**                                                                  |       |                   |        |                  |       |
| Current liabilities:                                                                                                 |       |                   |        |                  |       |
| Accounts payable                                                                                                     |       | $                      | 2,200,703   |                  | $          | 2,794,378 |   |
| Accrued interest  payable                                                                                            |       | 11,375,003             |        | 2,843,750             |       |
| Accrued liabilities                                                                                                  |       | 1,544,433              |        | 1,475,062             |       |
| Current portion of  long-term debt                                                                                   |       | 145,328,995            |        | 141,362,004           |       |
| Total current liabilities                                                                                            |       | 160,449,134            |        | 148,475,194           |       |
| Related party royalties  payable                                                                                     |       | 5,040,352              |        | 4,210,567             |       |
| Long-term debt                                                                                                       |       | 1,342,943              |        | —                |       |
| Total liabilities                                                                                                    |       | 166,832,429            |        | 152,685,761           |       |
|                                                                                                                 |       |                   |        |                  |       |
| Commitments and  contingencies                                                                                       |       |                   |        |                  |       |
|                                                                                                                 |       |                   |        |                  |       |
| Members’ (deficit)  equity:                                                                                     |       |                   |        |                  |       |
| Membership interests                                                                                                 |       | 34,333,375             |        | 34,333,375            |       |
| Accumulated deficit                                                                                                  |       | (75,078,673            | )           | (60,591,885           | )          |
|                                                                                                                 |       | (40,745,298            | )           | (26,258,510           | )          |
| Total liabilities and  members’ (deficit) equity                                                                |       | $                      | 126,087,132 |                  | $          | 126,427,251 |   |

 

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

 

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**155EAST TROPICANA, LLC**

**(ANEVADA LIMITED-LIABILITY COMPANY)**

**CONDENSED CONSOLIDATED STATEMENTSOF OPERATIONS (unaudited)**

 
| ** **                                                | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended**  | ** ** |
|-----------------------------------------------------------|------------|------------------------|------------|------------------------|------------|
| ** **                                                | ** ** | **September 30,** | ** ** | **September 30,** | ** ** | **September 30,** | ** ** | **September 30,** | ** ** |
| ** **                                                | ** ** | **2009**               | ** ** | **2008**               | ** ** | **2009** | ** ** | **2008** | ** ** |
|                                                      |       |                   |       |                   |       |   |   |   |   |
| Operating revenues:                                       |       |                   |       |                   |       |   |   |   |   |
| Casino                                                    |       | $                      | 3,978,597  |                   | $          | 5,943,748 |   | $ | 13,887,581 |   | $ | 19,289,157 |   |
| Food, beverage and  entertainment                         |       | 4,477,957              |       | 5,607,539              |       | 14,570,677 |   | 17,131,063 |   |
| Hotel and other                                           |       | 3,509,703              |       | 4,757,384              |       | 11,332,183 |   | 16,358,291 |   |
|                                                      |       | 11,966,257             |       | 16,308,671             |       | 39,790,441 |   | 52,778,511 |   |
| Less promotional allowances                               |       | (1,237,243             | )          | (2,097,428             | )          | (4,045,594 | ) | (6,006,344 | ) |
| Net operating revenues                                    |       | 10,729,014             |       | 14,211,243             |       | 35,744,847 |   | 46,772,167 |   |
|                                                      |       |                   |       |                   |       |   |   |   |   |
| Operating expenses:                                       |       |                   |       |                   |       |   |   |   |   |
| Casino                                                    |       | 2,595,294              |       | 3,783,791              |       | 8,459,972 |   | 11,312,701 |   |
| Food, beverage and  entertainment                         |       | 2,692,019              |       | 3,724,279              |       | 8,910,517 |   | 11,124,890 |   |
| Hotel and other                                           |       | 1,665,570              |       | 2,122,661              |       | 5,159,057 |   | 6,107,974 |   |
| General and  administrative                               |       | 3,244,067              |       | 4,474,740              |       | 10,179,745 |   | 12,866,923 |   |
| Restructuring expense                                     |       | 513,462                |       | 68,208                 |       | 1,444,682 |   | 111,437 |   |
| Depreciation and  amortization                            |       | 1,686,511              |       | 1,645,582              |       | 5,025,654 |   | 4,804,842 |   |
| Related party royalties  expenses                         |       | 248,154                |       | 334,070                |       | 829,785 |   | 1,055,863 |   |
| Total operating  expenses                                 |       | 12,645,077             |       | 16,153,331             |       | 40,009,412 |   | 47,384,630 |   |
| Operating loss                                            |       | (1,916,063             | )          | (1,942,088             | )          | (4,264,565 | ) | (612,463 | ) |
|                                                      |       |                   |       |                   |       |   |   |   |   |
| Other income (expense):                                   |       |                   |       |                   |       |   |   |   |   |
| Income on forfeited  deposits and extension fees          |       | —                 |       | —                 |       | — |   | 5,500,000 |   |
| Interest income                                           |       | 6                      |       | 29,853                 |       | 1,393 |   | 120,976 |   |
| Interest expense                                          |       | (3,461,517             | )          | (3,348,562             | )          | (10,223,616 | ) | (10,021,583 | ) |
| Other income (expense),  net                              |       | (3,461,511             | )          | (3,318,709             | )          | (10,222,223 | ) | (4,400,607 | ) |
| Net loss                                                  |       | $                      | (5,377,574 | )                      | $          | (5,260,797 | ) | $ | (14,486,788 | ) | $ | (5,013,070 | ) |
|                                                      |       |                   |       |                   |       |   |   |   |   |
| Loss allocable to  preferred and common member interests: |       |                   |       |                   |       |   |   |   |   |
| Income allocable to  preferred interest- EW Common, LLC   |       | $                      | 250,000    |                   | $          | 250,000 |   | $ | 750,000 |   | $ | 750,000 |   |
| Loss allocable to  common member interests                |       | (5,627,574             | )          | (5,510,797             | )          | (15,236,788 | ) | (5,763,070 | ) |
| Net loss                                                  |       | $                      | (5,377,574 | )                      | $          | (5,260,797 | ) | $ | (14,486,788 | ) | $ | (5,013,070 | ) |

 

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

 

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**155EAST TROPICANA, LLC**

**(ANEVADA LIMITED-LIABILITY COMPANY)**

 

**CONDENSED CONSOLIDATED STATEMENTSOF CASH FLOWS (unaudited)**

 
| ** **                                                                       | ** ** | **Nine  Months Ended********September 30,********2009** | ** **  | **Nine  Months Ended********September 30,********2008** | ** ** |
|----------------------------------------------------------------------------------|------------|--------------------------------------------------------------|-------------|--------------------------------------------------------------|------------|
|                                                                             | ** ** | ** **                                                   | ** **  | ** **                                                   | ** ** |
| **Cash  Flow From Operating Activities**                                         |       |                                                         |        |                                                         |       |
| Net loss                                                                         |       | $                                                            | (14,486,788 | )                                                            | $          | (5,013,070 | ) |
| Adjustments to  reconcile net loss to net cash provided by operating activities: |       |                                                         |        |                                                         |       |
| Depreciation and  amortization                                                   |       | 5,025,654                                                    |        | 4,804,840                                                    |       |
| Amortization of  deferred financing costs                                        |       | 890,215                                                      |        | 1,046,598                                                    |       |
| Amortization of  intangible asset                                                |       | 38,933                                                       |        | 38,933                                                       |       |
| Changes in operating  assets and liabilities:                                    |       |                                                         |        |                                                         |       |
| Accounts receivable                                                              |       | 69,930                                                       |        | 907,526                                                      |       |
| Inventories                                                                      |       | 49,313                                                       |        | 129,026                                                      |       |
| Prepaid expenses                                                                 |       | 7,321                                                        |        | (83,637                                                      | )          |
| Accounts payable                                                                 |       | (593,674                                                     | )           | 75,864                                                       |       |
| Related party royalties  payable                                                 |       | 829,785                                                      |        | 1,055,861                                                    |       |
| Accrued interest  payable                                                        |       | 8,531,253                                                    |        | 2,843,750                                                    |       |
| Accrued liabilities                                                              |       | 69,371                                                       |        | 621,889                                                      |       |
| Net cash provided by  operating activities                                       |       | 431,313                                                      |        | 6,427,580                                                    |       |
|                                                                             |       |                                                         |        |                                                         |       |
| **Cash  Flow From Investing Activities**                                         |       |                                                         |        |                                                         |       |
| Capital expenditures                                                             |       | (2,420,960                                                   | )           | (619,915                                                     | )          |
| Change in other assets                                                           |       | (213,022                                                     | )           | (145,000                                                     | )          |
| Net cash (used in)  investing activities                                         |       | (2,633,982                                                   | )           | (764,915                                                     | )          |
|                                                                             |       |                                                         |        |                                                         |       |
| **Cash  Flow From Financing Activities**                                         |       |                                                         |        |                                                         |       |
| Proceeds from issuance  of long-term debt                                        |       | 3,396,439                                                    |        | 550,622                                                      |       |
| Principal payments on  equipment purchase agreements                             |       | (613,726                                                     | )           | (1,548,040                                                   | )          |
| Loan fees                                                                        |       | —                                                       |        | (158,107                                                     | )          |
| Redemption of purchase  deposits and extension fees                              |       | —                                                       |        | (5,500,000                                                   | )          |
| Proceeds from purchase  deposit and extension fee payment                        |       | —                                                       |        | 2,000,000                                                    |       |
| Net cash provided by  (used in) financing activities                             |       | 2,782,713                                                    |        | (4,655,525                                                   | )          |
|                                                                             |       |                                                         |        |                                                         |       |
| Increase in cash and  cash equivalents                                           |       | 580,044                                                      |        | 1,007,140                                                    |       |
| Cash and cash  equivalents, beginning of period                                  |       | 4,980,299                                                    |        | 5,861,991                                                    |       |
| Cash and cash  equivalents, end of period                                        |       | $                                                            | 5,560,343   |                                                         | $          | 6,869,131 |   |
|                                                                             |       |                                                         |        |                                                         |       |
| **Supplemental  disclosure of cash flow information**                            |       |                                                         |        |                                                         |       |
| Cash paid for interest                                                           |       | $                                                            | 802,148     |                                                         | $          | 6,131,235 |   |
|                                                                             |       |                                                         |        |                                                         |       |
| Assets acquired through  equipment loans                                         |       | $                                                            | 2,527,221   |                                                         | $          | — |   |

 

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

 

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**155EAST TROPICANA, LLC**

**(ANEVADA LIMITED-LIABILITY COMPANY)**

 

**Notes to Condensed Consolidated Financial Statements (unaudited)**

 

**September 30,2009**

 

**1.  Organization and Basis of Presentation**

** **

155 East Tropicana, LLC,a Nevada limited-liability company (the “Company”), was formed on June 17,2004 to acquire the real and personal property of the Hôtel San Rémo Casino andResort (the “Hôtel San Rémo”) in Las Vegas, Nevada with the intention ofrenovating the existing casino and hotel facility with a “Hooters”entertainment concept and theme.  Therenovations were completed and the Hôtel San Rémo property was reopened as thenew Hooters Casino Hotel on February 3, 2006.  The Company’s business is concentrated at theone casino and hotel property in Las Vegas, Nevada.  The renovations were financed by the Companyand its wholly owned subsidiary, 155 East Tropicana Finance Corp., through a$130.0 million Senior Secured Notes offering that closed on March 29,2005.  The Company’s membership interestsare held two-thirds through Florida Hooters LLC and one-third through EW CommonLLC.  The initial capitalization of theCompany was provided by Florida Hooters LLC in the form of a $5.1 millioncash contribution and the assignment of rights with respect to the Hooterstrademark and logo and other intellectual property and by EW Common LLC in theform of a $25.0 million deemed capital contribution.  The deemed capital contribution from EWCommon LLC carries with it a priority return of four percent on thecontribution annually.  The payment ofthis priority return is subject to meeting certain financial covenantsassociated with the Company’s debt.

 

Florida Hooters LLC is ajoint venture between Hooters Gaming LLC and Lags Ventures, LLC.  Hooters Gaming LLC is owned by the holders oflicenses to operate Hooters restaurants in Tampa Bay, Florida, Chicago,Illinois and downtown Manhattan in New York as well as for the sale of wholesalefoods and calendars and Nevada hotel/gaming and includes most of the originalfounders of the Hooters brand.  Pursuantto these license rights, the owners of Florida Hooters LLC operate 39 Hootersrestaurants, publish Hooters calendars and operate a Hooters foodbusiness.  Lags Ventures, LLC is owned bya holder of the license rights to certain Hooters restaurants in Nevada andSouth Florida. The owner of Lags Ventures, LLC is also the founder of the DanMarino concept restaurants and owns and operates one other Dan Marino conceptrestaurant.

 

EW Common LLC is owned90% by Eastern & Western Hotel Corporation (“Eastern &Western”) and 10% by the president of the Company.  Eastern & Western and its affiliatesowned the real property and non-gaming assets of Hôtel San Rémo fromNovember 1988 until the Company’s acquisition of the Hôtel San Rémo inAugust 2004.

 

Florida Hooters LLC andEW Common LLC entered into a joint venture agreement for the purpose of formingthe Company and documenting the terms of their investments and businessventure.

 

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**155 EASTTROPICANA, LLC**

**(A NEVADALIMITED-LIABILITY COMPANY)**

 

**Notesto Condensed Consolidated Financial Statements (unaudited) (continued)**

** **

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

 

The Hooters Casino Hotelcurrently features a casino floor with 616 slot and video poker machines, 25table games, 696 hotel rooms including 17 suites, a tropical pool area, retailoutlets and dining and entertainment options which include a Hootersrestaurant, Dan Marino’s 24-hour restaurant (which will be re-branded as MadOnion restaurant effective December 1, 2009), a sports bar, several barsand Night Owl Showroom.

 

Significant inter-companytransactions between the Company and its wholly owned subsidiary have beeneliminated in consolidation.

 

As permitted by therules and regulations of the Securities and Exchange Commission, certaininformation and footnote disclosures normally included in financial statementsprepared in accordance with generally accepted accounting principles have beencondensed or omitted.  These condensedconsolidated financial statements should be read in conjunction with theCompany’s 2008 annual consolidated financial statements and notes theretoincluded in the Company’s Annual Report on Form 10-K for the year endedDecember 31, 2008.

 

In the opinion ofmanagement, the accompanying unaudited condensed consolidated financialstatements contain all adjustments — which include normal recurring adjustments— necessary to present fairly the Company’s financial position as ofSeptember 30, 2009 and the results of its operations for the three monthand nine month periods ended September 30, 2009 and 2008.  The results of operations for such periodsare not necessarily indicative of the results to be expected for the full year.

 

In preparing thesefinancial statements, the Company had evaluated events and transactions forpotential recognition or disclosure through November 16, 2009, the datethe financial statements were issued.

 

**2.  Liquidity and Financial Position**

 

The Company has significant indebtedness and financialcommitments in 2009.  As ofSeptember 30, 2009, the Company has $146.7 million in total debt.  Currently, the Senior Secured CreditFacility, (“Credit Facility”), is fully extended and the Company has noadditional availability to borrow against the Credit Facility.  The Company does not believe it will be ableto generate sufficient cash flows from operations to fund its financialcommitments over the next year and cannot provide any assurances that it willbe able to raise additional capital.

 

The Company’s currentexpectations for 2009 indicate that operating cash flow will be lower than in2008.  During the first nine months of2009, the Company generated $1.2 million in cash from operating

 

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 **155 EAST TROPICANA, LLC**

**(A NEVADALIMITED-LIABILITY COMPANY)**

 

**Notesto Condensed Consolidated Financial Statements (unaudited) (continued)**

** **

**2. Liquidity and FinancialPosition (continued)**

 

activities beforededucting cash paid for interest.  Forthe year ended December 31, 2008, the Company generated approximately $7.4million in cash from operating activities, excluding income from forfeitedpurchase deposit and extension fees related to the cancelled sale to Hedwigs andbefore deducting cash paid for interest.

 

Based on anticipatedfuture operations, the Company does not believe that cash on hand atSeptember 30, 2009 of $5.6 million and expected cash flows will beadequate to meet the total financial obligations which include(1) anticipated operational expenses, (2) debt service on equipmentleases and the Credit Facility, (3) capital expenses and(4) scheduled payments of interest on the Notes.  The Company was unable to make the interestpayment on the Notes due April 1, 2009 and October 1, 2009.Currently, our other obligations are being paid in the normal course ofbusiness.  Due to the Company’s inabilityto make the interest payments, an event of default occurred under the indenturegoverning the Notes.  As a result, thenote holders could exercise certain remedies provided under the indenture.  The Company has received Notice of Defaultand Reservation of Rights letters (the “Default Letters”) from the lendersunder the Credit Facility.  The DefaultLetters state that (i) an event of default exists under the CreditFacility as a result of the Company’s failure to obtain control agreements forone or more deposit accounts established and maintained by the Company and as aresult of failure to pay interest on the Notes, (ii) as a result of theevent of default, the lenders are under no further obligation to extend furthercredit under the Credit Facility, (iii) the lenders will continue toevaluate their response to the event of default, and (iv) the Company nolonger has an option of paying the LIBOR interest rate, but must pay the WellsFargo prime rate  plus the default rate,which is equal to four percentage points above prime rate.  The lenders have not elected to acceleratethe indebtedness under the Credit Facility. The Company has entered into discussions with the note holders and theCredit Facility lenders to attempt to negotiate forbearance agreements pursuantto which they would agree not to exercise, for a specified period of time,their remedies under the indenture or the Credit Facility.  The Company has engaged a financial advisorto assist with its evaluation of financial and strategic alternatives, whichmay include a recapitalization, refinancing, restructuring or reorganization ofits obligations or a sale of some or all of its business.  The Company and its advisors are activelyworking toward such a transaction.  TheCompany cannot be assured that it will be successful in negotiating forbearancewith the note holders or Credit Facility lender or in undertaking any suchalternative transaction in the near term.

 

If the Company is notsuccessful in obtaining a forbearance or entering into a transaction to addressits liquidity and capital structure, the note holders have the ability toaccelerate repayment of all amounts outstanding under the indenture ($141.4million at September 30, 2009) and the Credit Facility lenders have theability to accelerate repayment of all amounts outstanding under the CreditFacility ($14.5 million at September 30, 2009, plus an irrevocable letterof credit for $0.5 million at September 30, 2009).  If either the Notes indebtedness or theCredit Facility indebtedness were to be accelerated, the Company would berequired to refinance or restructure the payments on that debt.  The Company cannot be assured that it will besuccessful in completing a refinancing or restructuring.  If the Company is unable to do so, it maydetermine to seek protection under Chapter 11 of the U.S. Bankruptcy Code.

 

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**155 EASTTROPICANA, LLC**

**(A NEVADALIMITED-LIABILITY COMPANY)**

 

**Notesto Condensed Consolidated Financial Statements (unaudited) (continued)**

** **

**2. Liquidity and FinancialPosition (continued)**

 

The conditions and eventsdescribed above raise a substantial doubt about the Company’s ability tocontinue as a going concern.  The Companyhas classified most of its debt at September 30, 2009, and all debt atDecember 31, 2008, as a current liability on the balance sheet.  The accompanying condensed consolidatedfinancial statements do not include all adjustments to reflect the possiblefuture effects on the recoverability and classification of assets or the amountsand classifications of liabilities that may result should the Company be unableto continue as a going concern.

 

**3. Summary of SignificantAccounting Principles**

 

*Reclassifications.*Certain reclassifications, having no effect on net loss, have been made to thepreviously issued condensed consolidated financial statements to conform to thecurrent period’s presentation of the Company’s condensed consolidated financialstatements.

 

*Income (Loss) Allocable toPreferred and Common Member Interests*.  A schedule is presented on the condensedconsolidated statements of operations, which allocates net income (loss)between the preferred interest held by EW Common, LLC and the common memberinterests. As described in footnote 5, Preferred Return, a preferred returnbegan accumulating on March 1, 2006 and accumulates whether or not thereare profits or funds available for the payment of the preferred return. Underthe Notes indenture, the preferred return is payable only if the Company’scoverage ratio meets certain criteria. No payments have ever been made throughSeptember 30, 2009.

 

*Recently Issued Accounting Pronouncements.* In June 2009, the Financial AccountingStandards Boards (“FASB”) issued Accounting Standards Update No. 2009-01,“Generally Accepted Accounting Principles” (ASC Topic 105), which establishesthe FASB Accounting Standards Codification (“Codification” or “ASC”) as thesingle source of authoritative nongovernmental U.S. generally acceptedaccounting principles (“GAAP”). Effective for financial statements issued forinterim and annual periods ending after September 15, 2009, theCodification does not change current U.S. GAAP, but is intended to simplifyuser access to all authoritative U.S. GAAP by providing all the authoritativeliterature related to a particular topic in one place. All existing accountingstandard documents are superseded and all other accounting literature notincluded in the Codification will be considered non-authoritative. TheCodification also includes most, but not necessarily all, relevant Securitiesand Exchange Commission (“SEC”) guidance organized using the same topicalstructure in separate sections within the Codification.

 

The Company adopted theCodification, effective July 1, 2009, which requires references to authoritativeU.S. GAAP to refer to the appropriate section of the Codification. The adoptionof the Codification does not have an impact on the Company’s financialposition, results of operations or cash flows. In order to ease the transitionto the Codification, Codification cross-references are provided alongside thereferences to the Standards issued and adopted prior to the adoption of theCodification.

 

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**155 EASTTROPICANA, LLC**

**(A NEVADALIMITED-LIABILITY COMPANY)**

 

**Notesto Condensed Consolidated Financial Statements (unaudited) (continued)**

 

**3. Summary of SignificantAccounting Principles (continued)**

 

In August 2009, theFASB issued Accounting Standards Update (“ASU”) No. 2009-05, which amendsFair Value Measurements and Disclosures — Overall (ASC Topic 820-10) to provideguidance on the fair value measurement of liabilities. This update, among othermatters, provides guidance on how to measure fair value in circumstances inwhich a quoted price in an active market for the identical liability is notavailable. This update is effective beginning in the fourth quarter of 2009.

 

In June 2009, theFASB issued (“SFAS”) No. 167, “Amendments to FASB InterpretationNo. 46(R)” (ASC Topic 810). The guidance is intended to improve financialreporting by providing additional guidance to companies involved with variableinterest entities and by requiring additional disclosures about a company’sinvolvement in variable interest entities. This guidance is effective forinterim and annual periods ending after November 15, 2009.  The Company does not expect the adoption ofSFAS 167 to have a material impact on its consolidated financial statements.

 

In June 2009, theFASB issued SFAS No. 166, “Accounting for Transfers of Financial Assets”(ASC Topic 860) which will require more information about transfers offinancial assets and where companies have continuing exposure to the risk relatedto transferred financial assets. It eliminates the concept of a qualifyingspecial purpose entity, changes the requirements for derecognizing financialassets, and requires additional disclosure. This standard is effective forinterim and annual periods ending after November 15, 2009. The Companydoes not expect the adoption of SFAS 166 to have a material impact on itsconsolidated financial statements.

 

A variety of proposed orotherwise potential accounting standards are currently under study by standard-settingorganizations and certain regulatory agencies. Because of the tentative andpreliminary nature of such proposed standards, we have not yet determined theeffect, if any, that the implementation of such proposed standards would haveon our consolidated financial statements.

 

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**155 EASTTROPICANA, LLC**

**(A NEVADALIMITED-LIABILITY COMPANY)**

 

**Notesto Condensed Consolidated Financial Statements (unaudited) (continued)**

** **

**4.  Debt**

** **

Debtconsists of the following:

 
| ** **                          | ** ** | **September 30,** | ** **  | **December 31,** | ** ** |
|-------------------------------------|------------|------------------------|-------------|-----------------------|------------|
| ** **                          | ** ** | **2009**               | ** **  | **2008**              | ** ** |
| 8.75% Senior secured  notes (1)     |       | $                      | 130,000,000 |                  | $          | 130,000,000 |   |
| Senior secured credit  facility (2) |       | 14,476,215             |        | 11,079,776            |       |
| Equipment purchase  agreements (3)  |       | 2,195,723              |        | 282,228               |       |
| Total debt                          |       | $                      | 146,671,938 |                  | $          | 141,362,004 |   |

 

----

(1)          $130.0 million aggregateprincipal amount of 8.75% Notes issued on March 29, 2005 and due in2012.  The interest payments of $5.7 milliondue April 1, 2009 and October 1, 2009 on the Notes were not paid bythat date or within the 30-day grace period. The Notes are currently in default and the Note holders have the abilityto exercise the remedies set forth in the indenture, including accelerating repayment of allamounts outstanding under the indenture ($141.4 million in principal andinterest at September 30, 2009).

 

(2)          Outstanding draws againstthe Senior Secured Credit Facility as of September 30, 2009 andDecember 31, 2008 and due on September 30, 2011.  As of September 30, 2009, the CreditFacility carried an interest rate of 7.25% per annum. The Credit Facility iscurrently in default and the Note holders have the ability to accelerate repayment of allamounts outstanding under the credit agreement ($14.5 million in principal atSeptember 30, 2009).  The lenders have not elected toaccelerate the indebtedness under the Credit Facility.  The lenders have informed the Company that asa result of the defaults, the applicable interest rate was increased to thedefault rate, which equals the Wells Fargo prime rate plus four percentagepoints or 7.25% as of September 30, 2009. Interest payments on the CreditFacility are paid and current.

 

(3)          During the first quarter of2009, the Company entered into a $2.5 million equipment purchase agreement withIGT for a new slot system.  The monthlypayments are $78,000 per month for 36 months and the Company is current withpayments.  Principal payments of $852,780are due in the next year on equipment purchase agreements and the remainingbalance of $1,342,943 is long-term debt.

 

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**155 EASTTROPICANA, LLC**

**(A NEVADALIMITED-LIABILITY COMPANY)**

 

**Notesto Condensed Consolidated Financial Statements (unaudited) (continued)**

** **

**5.  RelatedParty Transactions**

** **

**Royalties Expense**

 

Pursuant to agreementsrelated to the use of certain trademarks, the Company must pay fees androyalties to related parties.  A fee equal to 3% of all net profits earnedfrom gaming activities is payable to Hooters Gaming Corporation, a consent feeequal to 6% of net revenues generated by the Dan Marino’s Restaurant  is payable to Lags Ventures, Inc. and afee of 4% of cash sales from the Hooters branded restaurant, and 3% of thegross sales with any merchandise with a Hooters logo, is payable to Las VegasWings, Inc.  The total fees accrued at September 30, 2009 forHooters Gaming Corporation, Lags Venture, Inc. and Las VegasWings, Inc. were $2.6 million, $0.9 million, and $1.6 million,respectively.  The Company began accruingthese fees when the Hooters Casino Hotel opened on February 3, 2006.  The payment of these royalty fees isrestricted under the indenture governing the Notes.

 

**Provident Advertising &Marketing, Inc.**

 

The majorityshareholder of Provident Advertising & Marketing, Inc.(“Provident”) is Edward C. Droste, a member of the Company’s management boardand an indirect beneficial owner of 3.96% of the Company’s membershipinterests.  Provident was engaged by theCompany to provide services related to the planning and development of aninitial advertising and marketing plan and for the continued development andimplementation of a strategic marketing plan for the Hooters Casino Hotel.  Provident continues to be involved as theCompany’s advertising firm.  In addition,the Company purchases Hooters logo items from Provident for uniforms and forresale in the Company’s gift shops.  Theamounts paid to Provident during the nine months ended September 30, 2009and 2008 totaled $0.8 million and $0.9 million, respectively.

 

**6. Commitments and Contingencies**

 

**Litigation**

*** ***

From time to time, theCompany is a party to various claims arising in the normal course ofbusiness.  Management believes, however,that there are no proceedings pending or threatened against the Company, which,if determined adversely, would have a material adverse effect on the Company’sfinancial condition, results of operations or liquidity.

 

**Contractual Commitments**

*** ***

The Company has enteredinto operating contracts totaling $5.8 million at September 30, 2009.

 

**Hootersof America Royalty Payments**

 

Beginning onFebruary 3, 2006, the Company was required to pay the owner of the Hooters

 

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**155 EASTTROPICANA, LLC**

**(A NEVADALIMITED-LIABILITY COMPANY)**

 

**Notesto Condensed Consolidated Financial Statements (unaudited) (continued)**

** **

**6.  Commitments andContingencies (continued)**

*** ***

trademark, Hooters ofAmerica, a royalty fee equal to 2% of all net revenues of the hotel and casino(excluding the Dan Marino’s Restaurant) and 1% of revenues from the Pete andShorty’s Tavern less miscellaneous expenses. The total fees paid to Hooters of America were $0.6 million and $0.8million for the nine months ended September 30, 2009 and 2008,respectively. These fees are included in general and administrative expenses onthe accompanying condensed consolidated statements of operations.

 

**PreferredReturn**

 

The Company’s membership interests include an EW Common LLC preferredaccount, which accumulates a preferred return rate of 4% per annum on the $25.0million account balance.  Such preferredreturn began accumulating on March 1, 2006, and accumulates whether or notthere are profits or funds available for the payment of the preferred return.  Under the Notes indenture, the preferredreturn to EW Common LLC is payable only if the Company’s coverage ratio ofEBITDA to fixed charges (as defined in the indenture and after giving effect tothe payment of the preferred return) is 1.5 to 1 for the fiscal year asmeasured after the close of the fiscal year. As of September 30, 2009, $3.6 million relating to the preferredaccount has accumulated, but has not been paid. As the Company’s coverage ratio of EBITDA to fixed charges did not meetthis defined ratio, no liability has been recorded in the accompanying consolidatedfinancial statements at September 30, 2009 and December 31, 2008.

 

**7.  Purchase Agreement**

*** ***

During 2007, the Companyentered into a definitive Asset Purchase Agreement with Hedwigs Las Vegas TopTier, LLC (“Hedwigs”), an affiliate of the investment group led by NTH AdvisoryGroup, LLC, and subsequently entered into a first, second and third amendmentto the Asset Purchase Agreement (collectively, the “Purchase Agreement”). Inconnection with the third amendment to the Purchase Agreement, Hedwigs was requiredto make a $0.5 million payment to the Company on or before June 6, 2008 orthe Purchase Agreement automatically terminated. Hedwigs did not make thepayment. Accordingly, the Purchase Agreement terminated on June 6, 2008.

 

Under the terms of thePurchase Agreement, Hedwigs offered to purchase substantially all of the assetsof the Company for a purchase price of $98.0 million in cash, the payment ofcertain accrued royalties, and the assumption of certain outstandingliabilities of the Company. The Purchase Agreement also provided that Hedwigswould be responsible for the Company’s $130.0 million in principal amount of 83⁄4% Senior Secured Notes due 2012. In connection with the Purchase Agreement,Hedwigs paid a total of $5.5 million in deposits and extension fees to theCompany, which were non-refundable and were fully earned on the dates ofpayment.  The deposits and extension feeswere included in income in June 2008.

 

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**155 EASTTROPICANA, LLC (A NEVADA LIMITED-LIABILITY COMPANY)**

 

**Notesto Condensed Consolidated Financial Statements (unaudited) (continued)**

** **

**8.  Fair Value Measurements**

*** ***

The Company measures thefair value of its long-term debt on a recurring basis pursuant to ASC Topic 820(formerly SFAS No. 157). ASC Topic 820 establishes a three-tier fair valuehierarchy, which prioritizes the inputs used in measuring fair value. Thesetiers include:

 

Level 1: Quoted pricesfor identical instruments in active markets.

 

Level 2: Quoted pricesfor similar instruments in active markets; quoted prices for identical orsimilar instruments in markets that are not active; and model-derivedvaluations whose inputs are observable or whose significant value driver isobservable.

 

Level 3: Unobservableinputs in which little or no market data is available, therefore requiring anentity to develop its own assumptions.

 

At this time, the Companyis unable to develop a reasonable estimate of the fair value of the Company’slong-term debt. The Notes and Credit Facility are currency in default and thereis no market data available on the trading value of the Notes. As of this date,the Company has not developed all of the assumptions necessary to determine afair value. The valuation will be addressed in the fourth quarter of 2009.

 

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**Item2.  Management’s Discussion and Analysisof Financial Condition and Results of Operations.**

*** ***

The following discussion and analysis should be readtogether with our unaudited condensed consolidated financial statements and theaccompanying notes.  This discussioncontains forward-looking statements, within the meaning of Section 27A ofSecurities Act of 1933, as amended, Section 21E of the Securities ExchangeAct of 1934, as amended, and the Private Securities Litigation Reform Act of1995, including statements regarding our expected financial position, businessand financing plans.  Some of theforward-looking statements can be identified by the use of forward-looking termsuch as “believes,” “expects,” “may,” “will,” “should,” “could,” “seek,”“intends,” “plans,” “estimates,” “anticipates,” or other comparable terms.  Forward-looking statements involve inherentrisks and uncertainties which could cause actual results to differ materiallyfrom those in the forward-looking statement, including those discussed hereinand elsewhere in our Annual Report on Form 10-K filed with the Securitiesand Exchange Commission (“Commission”) on March 31, 2009, particularlyunder the heading “Risk Factors.”  Wecaution readers not to place undue reliance upon any such forward-lookingstatements, which speak only as of the date made.

 

**Economic Conditions and RelatedRisks and Uncertainties**

 

The United States iscurrently experiencing a widespread recession accompanied by, among otherthings, weakness in the commercial and investment banking systems resulting inreduced credit and capital financing availability, and highly curtailed gamingand other recreational activities and general discretionary consumer spending,and is also engaged in war, all of which are likely to continue to havefar-reaching effects on economic conditions in the country for an indeterminateperiod. The effects and duration of these conditions and related risks anduncertainties on the Company’s future operations and cash flows, including itsaccess to capital or credit financing, cannot be estimated at this time, butmay likely be significant.

 

**Executive Overview**

 

***Liquidityand Financial Position***

 

We have significantindebtedness and financial commitments in 2009. As of September 30, 2009, we had $146.7 million in total debt.  Currently, the Credit Facility is fullyextended and we have no additional availability to borrow against the CreditFacility.  We do not believe we will beable to generate sufficient cash flows from operations to fund our  financial commitments over the next year andcannot provide any assurances that we will be able to raise additional capital.

 

Our current expectationsfor 2009 indicate that operating cash flow will be lower than in 2008.  During the first nine months of 2009, wegenerated $1.2 million in cash from operating activities before deducting cashpaid for interest.  For the year endedDecember 31, 2008, we generated approximately $7.4 million in cash fromoperating activities, excluding income from forfeited purchase deposit andextension fees related to the cancelled sale to Hedwigs and before deductingcash paid for interest.

 

Based on anticipatedfuture operations, we do not believe that cash on hand at September 30,2009 of $5.6 million and expected cash flows will be adequate to meet our totalfinancial obligations

 

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which include(1) anticipated operational expenses, (2) debt service on equipmentleases and Credit Facility, (3) capital expenses and (4) scheduledpayments of interest on the Notes.  Wewere unable to make the interest payment on the Notes due April 1, 2009and October 1, 2009.  Currently, ourother obligations are being paid in the normal course of business.  Due to our inability to make the interestpayments , an event of default occurred under the indenture governing theNotes.  As a result, the note holderscould exercise certain remedies provided under the indenture governing theNotes.  We received default andreservation of rights letters (“Default Letters”) from the lenders under theCredit Facility.  The Default Lettersstate that (i) an event of default exists under the Credit Facility as aresult of our failure to obtain control agreements for one or more depositaccounts established and maintained by us and also as a result of failure topay interest on the Notes, (ii) as a result of the event of default, thelenders are under no further obligation to extend further credit under theCredit Facility, (iii) the lenders will continue to evaluate theirresponse to the event of default, and (iv) we no longer have an option ofpaying the LIBOR interest rate, but must pay the Wells Fargo prime rate plusthe default rate, which is equal to four percentage points above primerate.  The lenders have not elected toaccelerate the indebtedness under the Credit Facility.  We have entered into discussions with thenote holders and the Credit Facility lenders to attempt to negotiateforbearance agreements pursuant to which they would agree not to exercise, fora specified period of time, their remedies under the indenture or the CreditFacility.  We have engaged a financialadvisor to assist with the evaluation of financial and strategic alternatives,which may include a recapitalization, refinancing, restructuring orreorganization of our obligations or a sale of some or all of ourbusiness.  Our advisors and we areactively working toward such a transaction. We cannot be assured that we will be successful in negotiatingforbearance with the note holders or Credit Facility lender or in undertakingany such alternative transaction in the near term.

 

If we are not successfulin obtaining a forbearance or entering into a transaction to address ourliquidity and capital structure, the note holders have the ability toaccelerate repayment of all amounts outstanding under the indenture ($141.4million at September 30, 2009) and the Credit Facility lenders have theability to accelerate repayment of all amounts outstanding under the CreditFacility ($14.5 million at September  30, 2009, plus an irrevocable letterof credit for $0.5 million at September 30, 2009).  If either the Notes indebtedness or theCredit Facility indebtedness were to be accelerated, we would be required torefinance or restructure the payments on that debt.  We cannot be assured that we would besuccessful in completing a refinancing or restructuring.  If we are unable to do so, we may determineto seek protection under Chapter 11 of the U.S. Bankruptcy Code.

 

The conditions and eventsdescribed above raise a substantial doubt about the Company’s ability tocontinue as a going concern.  We haveclassified most of our debt at September 30, 2009, and all debt atDecember 31, 2008, as a current liability on the balance sheet.  The accompanying condensed consolidatedfinancial statements do not include all adjustments to reflect the possiblefuture effects on the recoverability and classification of assets or theamounts and classifications of liabilities that may result should we be unableto continue as a going concern.

 

***Overviewfor 155 East Tropicana, LLC***

 

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

 

Florida Hooters LLC is ajoint venture between Hooters Gaming LLC and Lags Ventures, LLC.  The owners of Hooters Gaming LLC, whichinclude most of the original founders of the Hooters brand,

 

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hold licenses to sellwholesale foods and calendars and to operate hotel casinos in Nevada andHooters restaurants in Tampa Bay, Florida, Chicago, Illinois and downtown Manhattanin New York.  Lags Ventures, LLC is ownedby a holder of the license rights to certain Hooters restaurants in Nevada andSouth Florida.  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 of Lags Ventures, LLC is also thefounder of the Dan Marino concept restaurants and owns and operates two DanMarino concept restaurants.

 

Eastern &Western owns 90% of EW Common LLC, while our President owns the balance.  Eastern & Western owned the HôtelSan Rémo from November 1988 until our acquisition of the Hôtel San Rémo in2004.

 

Our affiliates havegranted us assignments of certain license agreements pertaining to the use ofthe Hooters brand as well as the Dan Marino (which will terminateDecember 1, 2009) and Pete & Shorty’s concept restaurants, whichwill allow us to operate the Hooters Casino Hotel.  The original founders of the Hooters brandsold the trademark rights (excluding certain rights they retained forthemselves) to Hooters of America in 2001. As a result, Hooters of America is the trademark owner of the Hootersbrand and the operator and franchisor of Hooters restaurants.  Pursuant to the Hooters license assignment,we are required to pay Hooters of America a royalty fee, which totaledapproximately $0.6 million for the nine months ended September 30,2009.  Aside from the abovementionedroyalty fee, we are not otherwise affiliated with Hooters of America.

 

On March 29, 2005,we issued $130.0 million aggregate principal amount of 8.75% SeniorSecured Notes due 2012, or the old notes, in a private placement.  The old notes were subsequently exchangedwith new notes (“Notes”) registered under the Securities Act of 1933 on Form S-4.  Interest payments on the Notes are duesemi-annually, on each April 1 and October 1.  We used the proceeds from the offering torefinance existing indebtedness, and used the remaining proceeds (together withcash from operations and proceeds from equipment financing) to renovate thehotel casino and to provide working capital.

 

In connection with theoffering, we formed a wholly owned subsidiary, 155 East Tropicana FinanceCorp., solely for the purpose of facilitating the offering as a co-issuer ofthe Notes.

 

We also entered into theCredit Facility concurrently with the offering. At December 31, 2008, $11.1 million was outstanding on the CreditFacility.  As of September 30, 2009,$14.5 million was outstanding on the Credit Facility, which, together with aletter of credit in the amount of $0.5 million, represents all of the fundsavailable under the Credit Facility.

 

***Results of Operations***

 

We generate hotel, casino,food, beverage, entertainment, and retail revenues at the hotel casinoproperty.  During the quarter endedSeptember 30, 2009, approximately 33.3% of the gross revenue was derivedfrom the casino, 37.4% from food, beverage and entertainment and 29.3% fromhotel and other.

 

Casino revenue is derivedprimarily from patrons wagering on slot machines, table games and other gamingactivities.  Table games includeblackjack, craps, roulette, and specialty games.  Casino revenue is defined as the win fromgaming activities, computed as the difference between gaming wins

 

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and losses, not the totalamount wagered.  “Table game drop” and“slot handle” are casino industry specific terms used to identify the amountwagered by patrons for a casino table game or slot machine, respectively.  “Table game hold” and “slot hold” representthe percentage of the total amount wagered by the patron that the casino haswon.  Hold is derived by dividing theamount won by the casino (“table game win” and “slot win”) by the amountwagered by the patron.  Casino revenue isrecognized at the end of each gaming day.

 

Casino revenues vary fromtime to time due to general economic conditions, table game hold, slot hold,and occupancy percentages at the Hooters Casino Hotel and other hotels in LasVegas.  Casino revenues also varydepending upon the amount of gaming activity as well as variations in the oddsfor different games of chance.  Casinorevenues, room revenues, food and beverage revenues, and other revenues varydue to general economic conditions and competition.

 

Room revenue isderived from rooms and suites rented to guests. “Average daily rate” is an industry specific term used to define theaverage amount of revenue per rented room per day.  “Occupancy percentage” defines the totalpercentage of rooms occupied, and is computed by dividing the number of roomsoccupied by the total number of rooms available.  Room revenue is recognized at the timethe room is provided to the guest.

 

Food, beverage andentertainment revenues are derived from food and beverage sales in the food,bar and entertainment outlets of the hotel casino, including restaurants, roomservice, bars, entertainment showroom and banquets.  Food, beverage and entertainment revenue isrecognized at the time food, entertainment and/or beverage is provided to theguest.  “Covers” are the number ofpatrons served in a food outlet.  “Averagecheck” is the average amount of food and beverage revenue charged to patrons ontheir restaurant checks.

 

The following tablesummarizes the results of operations of 155 East Tropicana LLC , doing businessas the Hooters Casino Hotel for the quarter and nine months endedSeptember 30, 2009 and 2008 (in thousands, except for percentages):

 

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| ** **                                 | ** ** | **Quarter********Ended********September 30,********2009** | ** ** | **Quarter********Ended********September 30,********2008** | ** ** | **%********Change********2009-  2008** | ** ** | **Nine Months********Ended********September 30,********2009** | ** ** | **Nine  Months********Ended********September 30,********2008** | ** ** | **%********Change********2009-2008** | ** ** |
|--------------------------------------------|------------|----------------------------------------------------------------|------------|----------------------------------------------------------------|------------|----------------------------------------|------------|--------------------------------------------------------------------|------------|---------------------------------------------------------------------|------------|--------------------------------------|------------|
| ** **                                 | ** ** | **(in  thousands)**                                            | ** ** | ** **                                                     | ** ** | **(in  thousands)**                    | ** ** | ** **                                                         | ** ** |
| Casino revenues                            |       | $                                                              | 3,979      |                                                           | $          | 5,944                                  |       | -33.1                                                              | %          | $                                                                   | 13,888     |                                 | $          | 19,289 |   | -28.0 | % |
| Casino expenses                            |       | 2,595                                                          |       | 3,784                                                          |       | -31.4                                  | %          | 8,460                                                              |       | 11,313                                                              |       | -25.2                                | %          |
| Profit margin                              |       | 34.8                                                           | %          | 36.3                                                           | %          |                                   |       | 39.1                                                               | %          | 41.3                                                                | %          |                                 |       |
|                                       |       |                                                           |       |                                                           |       |                                   |       |                                                               |       |                                                                |       |                                 |       |
| Food, beverage and  entertainment revenues |       | $                                                              | 4,478      |                                                           | $          | 5,608                                  |       | -20.1                                                              | %          | $                                                                   | 14,571     |                                 | $          | 17,131 |   | -14.9 | % |
| Food, beverage and  entertainment expenses |       | 2,692                                                          |       | 3,724                                                          |       | -27.7                                  | %          | 8,911                                                              |       | 11,125                                                              |       | -19.9                                | %          |
| Profit margin                              |       | 39.9                                                           | %          | 33.6                                                           | %          |                                   |       | 38.8                                                               | %          | 35.1                                                                | %          |                                 |       |
|                                       |       |                                                           |       |                                                           |       |                                   |       |                                                               |       |                                                                |       |                                 |       |
| Hotel and other  revenues                  |       | $                                                              | 3,510      |                                                           | $          | 4,757                                  |       | -26.2                                                              | %          | $                                                                   | 11,332     |                                 | $          | 16,358 |   | -30.7 | % |
| Hotel and other  expenses                  |       | 1,666                                                          |       | 2,123                                                          |       | -21.5                                  | %          | 5,159                                                              |       | 6,109                                                               |       | -15.6                                | %          |
| Profit margin                              |       | 52.5                                                           | %          | 55.4                                                           | %          |                                   |       | 54.5                                                               | %          | 62.7                                                                | %          |                                 |       |
|                                       |       |                                                           |       |                                                           |       |                                   |       |                                                               |       |                                                                |       |                                 |       |
| Promotional allowances                     |       | $                                                              | 1,237      |                                                           | $          | 2,097                                  |       | -41.0                                                              | %          | $                                                                   | 4,046      |                                 | $          | 6,006 |   | -32.6 | % |
| Percent of gross  revenues                 |       | 10.3                                                           | %          | 12.9                                                           | %          |                                   |       | 10.2                                                               | %          | 11.4                                                                | %          |                                 |       |
|                                       |       |                                                           |       |                                                           |       |                                   |       |                                                               |       |                                                                |       |                                 |       |
| General and  administrative expenses       |       | $                                                              | 3,244      |                                                           | $          | 4,475                                  |       | -27.5                                                              | %          | $                                                                   | 10,180     |                                 | $          | 12,867 |   | -20.9 | % |
| Percent of net revenues                    |       | 30.2                                                           | %          | 31.5                                                           | %          |                                   |       | 28.5                                                               | %          | 27.5                                                                | %          |                                 |       |
|                                       |       |                                                           |       |                                                           |       |                                   |       |                                                               |       |                                                                |       |                                 |       |
| Restructuring expense                      |       | $                                                              | 513        |                                                           | $          | 68                                     |       | 654.4                                                              | %          | $                                                                   | 1,445      |                                 | $          | 111 |   | 1201.8 | % |
| Percent of net revenues                    |       | 4.8                                                            | %          | 0.5                                                            | %          |                                   |       | 4.0                                                                | %          | 0.2                                                                 | %          |                                 |       |

 

***Comparisonof Quarter Ended September 30, 2009 with the Quarter EndedSeptember 30, 2008***

 

The current state of theeconomy has negatively impacted our results of operations in the third quarterof 2009 and we expect that impact to continue in 2009 and into 2010.  Because we are in the hospitality andrecreation business, which is largely dependant on discretionary spending, webelieve that the weak housing market, increases in unemployment, decreases inair flights to Las Vegas, decreases in the value of stock and other investmentsand the general tightening of spending on business travel have all affectedvisitations to Las Vegas and the spending budget of our customers.

 

During the third quarter of2009, there were decreases in visitor volumes to Las Vegas and in customerspending, including convention participants. In addition, we have been challenged with conditions that affect ourproperty in particular.  We closed 235rooms or approximately a third of our rooms on May 28, 2009 in order toretrofit the plumbing risers.  Theserooms were re-opened  August 14,2009.  In addition, the county has beenworking on laying utilities down our frontage street, East Tropicana Avenue, inorder to provide utilities to the new airport terminal currently underconstruction.  This has disrupted theauto traffic flow into our property and has disrupted the walk-in traffic toour property via the walkway between the MGM Grand Hotel and us.  This disruption occurred in the later half ofthe second quarter, but has since been completed by the end of the thirdquarter.  We believe that the disruptionsfurther reduced the number of patrons to our casino.  To counter these business disruptions andeconomic conditions, we have continued to focus on managing costs.  Overall, operating expenses declined $3.5million from the same quarter prior year. Operating costs are expected to continue to decline from 2008 levels inthe fourth  quarter of 2009 as wecontinue to target cost reductions.

 

A net loss of $5.4 millionwas generated for the quarter ended September 30, 2009 compared to a netloss of $5.3 million for the same quarter in 2008.

 

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An operating loss of $1.9million for the quarter ended September 30, 2009 compared to the same lossin the third quarter last year.  Thestable operating loss was achieved in spite of a decrease in net revenue of$3.5 million.  In general, the economy onthe Las Vegas Strip has suffered during the third quarter of 2009 from declinesin visitor counts, gaming revenue, and room rates as a result of the downturnin the general economy.

 

Net operating revenuesfor the quarter ended September 30, 2009 were $10.7 million, a decrease of$3.5 million or 24.5%, from $14.2 million generated during the same period inthe previous year.  The decline in netrevenue was largely a result of declines in all revenue categories dueprincipally to the continued weakness in the national, state and localeconomies.  For our property, the drop innet revenue of 24.5% in the third quarter represented a deepening trend ofdecreased revenues.

 

Promotional allowances(which are subtracted from revenues) decreased from $2.1 million to $1.2million, largely due to a decrease in the promotional give away of show ticketsand rooms.

 

Operating expenses were$12.7 million for the quarter ended September 30, 2009, a decrease of $3.5million or 21.7%, from $16.2 million during the same period in the previousyear.  This decrease in operatingexpenses was the result of an intense program of cost reductions.  Property-wide payroll was analyzed and payroll,payroll taxes and benefits were reduced by $1.8 million.  Additionally, other operating expenses wereevaluated and trimmed where appropriate. This trend of reduced expense is expected to continue into futurequarters and help us offset the decline in net revenues.

 

*Casino.* Casino revenues decreased by $2.0 million, or 33.1%, to $4.0 million forthe quarter ended September 30, 2009, compared to $6.0 million for thequarter ended September 30, 2008, principally due to reduced customercounts to the casino and reduced spending by our customers.    Our decline in Casino revenue exceeds the7.9% decline in gaming revenue for the three months ended September 30,2009 for all casinos on the Las Vegas Strip as reported by the Nevada StateGaming Control Board and a 20% decline for casinos on the Las Vegas Strip withannual gaming revenue of $12 to $36 million. Traffic in our casino was affected negatively by a reduction in occupiedrooms, decreased walk-in traffic due to a downturn in the general Las Vegas economyand the disrupted vehicle traffic flow on our frontage road.

 

Table games and pokerrevenue was $1.6 million for the quarter ended September 30, 2009, adecrease of $0.7 million, or 30.4%, compared to the table games revenue of $2.3million from the prior year’s quarter. Table game drop decreased by $3.7 million or by 30.3%, to $8.5 millionfor the quarter ended September 30, 2009 compared to $12.2 million for thequarter ended September 30, 2008. The table games generated an average winper table of $695 per day for the quarter ended September 30, 2009 ascompared to $763 per day for the quarter ended September 30, 2008.  According to the Gaming Revenue Reportspublished by the Nevada State Gaming Control Board, the average win per tableper day for Las Vegas Strip casinos with annual gaming revenue of $12 to $36million was $895 for the quarter ended September 30, 2009.

 

Slot revenue of $2.4million for the quarter ended September 30, 2009 was a decrease of 35.1%compared to $3.7 million in the same period in 2008.  The average win per machine per day was $42for the quarter ended September 30, 2009 as compared to $63 for thequarter ended September 30, 2008.     According to the Gaming Revenue Reports published by the Nevada StateGaming Control Board, the average win per machine per day for Las Vegas Stripcasinos with annual gaming revenue of $12 to $36 million was $72 for thequarter ended September 30, 2009 and slot revenue declined 21.2% for the 

 

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quarter as compared tothe same quarter in the prior year.  Wecontinued our marketing efforts to increase slot play through targeted slotmarketing programs aimed at attracting a flow of customers to the casino floor,but we were unable to offset the effects of the slowing Las Vegas and globaleconomy.  Casino expenses, which includedcasino operational expenses and casino marketing decreased by 31.4% or $1.2million for the quarter ended September 30, 2009 compared to $3.8 millionfor the quarter ended September 30, 2008. The profit margin for casino operations decreased slightly to 34.8%during the quarter ended September 30, 2009 from 36.3% during the quarterended September 30, 2008.

 

*Food,beverage, and entertainment.* Food, beverage and entertainment revenue was $4.5million for the quarter ended September 30, 2009 as compared to $5.6million for 2008, a decrease of $1.1 million, or 20.1%. Food and beveragerevenue declined due to a general decline in spending by our guests.  Entertainment revenue declined by $0.3million, (which included a decline of $0.2 million of complimentary revenue)because of the revenue split with the entertainers, which began in 2009.

 

Food, beverage andentertainment expenses decreased to $2.7 million during the quarter endedSeptember 30, 2009 from $3.8 million during the quarter endedSeptember 30, 2009, a decrease of $1.1 million or 27.8%.  We saved $0.2 million in showroom expense.  The remaining savings in expenses werefacilitated by increased efficiencies in payroll, a decrease in cost of salesrelated to the decreased volume.

 

The profit margin forfood, beverage, and entertainment operations increased to 39.9% for the quarterended September 30, 2009 from 33.6% in the same quarter in 2008 due tooperational efficiencies.

 

*Hoteland other.*  Hotel and other revenue (which includes hotelroom revenue, retail, and other miscellaneous revenue) decreased by $1.3million or 26.2% to $3.5 million for the quarter ended September 30, 2009from $4.8 million for the quarter September 30, 2008.  The room revenue decline of $1.2 million or34.3% was the source of most of the revenue decline.  Room revenue was $2.3 million for thequarter ended September 30, 2009 compared to $3.5 million in 2008 and wasnegatively affected by the increased competition for customers among hotelcasinos in Las Vegas due to the drop in visitors to Las Vegas.   The decrease was also due to disruptionscaused by the closure of rooms for retrofitting and road construction along ourfrontage street.  Average daily roomrates decreased by 18.9% from $58 for the quarter ended September 30, 2008to $47 for the quarter ended September 30, 2009, and rooms available foroccupancy in the quarter ended September 30, 2009 decreased by 11,334rooms, largely due to the closure of 235 rooms from May 28, 2009 toAugust 14, 2009 for retrofitting plumbing risers.

 

Sales from our retailoutlets decreased by $0.1 million, or 17.3% to $0.9 million for the quarterended September 2009.

 

Hotel and other expensesdecreased by 21.5% or $0.4 million to $1.7 million during the quarter endedSeptember 30, 2009 from $2.1 million during the quarter endedSeptember 30, 2008, due to savings in payroll and other room departmentoperating expenses. The profit margin for hotel and other revenue was 52.5% inthe third quarter of 2009 compared to 55.4% for that same period in the prioryear.

 

*Generaland administrative.*  General and administrative expense includescosts associated with marketing, information technology, finance, accounting,and property operations. General and administrative expense decreased $1.3million or 27.5% to $3.2 million for the quarter ended September 30, 2009compared to $4.5 million for the quarter ended September 30, 

 

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2008.  The decrease in expenses is due to decreasesin payroll, advertising, legal fees and various other administrative costs.

 

*Restructuringexpenses.*  Restructuring expenses related to expensesassociated with financial advisory services and related legal expenses for thequarter ended September 30, 2009 were $0.5 million compared to $0.1million in the same quarter in 2008. These costs are expected to continue in future months until ourrecapitalization, refinancing, restructuring or reorganization of ourobligations or a sale of some or all of our business assets is completed.  No assurance can be given that we will beable to complete a restructuring of our obligations.

 

*Depreciationand amortization expense.*  Depreciation and amortizationexpense of $1.7 million for the quarter ended September 30, 2009 increasedby $0.1 million from $1.6 million for the quarter ended September 30,2008.

 

*Relatedparty royalties expense.*  Beginning on February 3,2006, we incurred related party royalty fees pursuant to agreements withHooters Gaming Corporation, Lags Ventures, Inc., and Las VegasWings, Inc.  These related partyroyalties expense totaled $0.2 million during the quarters endedSeptember 30, 2009 and $0.3 million in 2008. The payment of the relatedparty royalties is restricted under the Notes indenture.  The fees can only be paid after the close ofthe fiscal year and only if our debt coverage ratio is 1.5 to 1 for that fiscalyear.  We do not expect to meet this debtcoverage ratio test in the 2009 fiscal year. The payments of the royalty fees are further limited to the sum of 2% ofrevenue and 3% of EBITDA, as defined in the indenture.

 

*Interestexpense.*  Interest expense remained the same at $3.5million for the quarter ended September 30, 2009, and $3.3 million for thequarter ended September 30, 2008.

 

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

 

***Comparison of Nine Months Ended September 30, 2009 withthe Nine Months Ended September 30, 2008***

 

Net operating revenuesfor the nine months ended September 30, 2009 were $35.7 million, adecrease of $11.1 million or 23.6%, from $46.8 million of net operatingrevenues for the nine month ended September 30, 2008.

 

We were successful inoffsetting part of the $11.1 million decline in net operating revenues throughtargeted cost reductions of $7.4 million. Operating income for the nine months ended September 30, 2009declined by $3.7 million from the same period in the prior year.

 

As discussed earlier,during 2009, there have been decreases in visitor volumes to Las Vegas and incustomer spending, including convention participants, principally due to thestatus of the national, state and local economies.  In addition, we have been challenged withconditions that affect our property in particular.  We closed 235 rooms or approximately a thirdof our rooms on May 28, 2009 in order to 

 

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retrofit the plumbingrisers.  These rooms re-opened  August of 2009.  In addition, the county had been working onlaying utilities down our frontage street, Tropicana Avenue, in order toprovide utilities to the new airport terminal currently underconstruction.  This has disrupted theauto traffic flow into our property and has disrupted the walk-in traffic toour property via the walkway between the MGM Grand Hotel and us.  This disruption occurred for most of thethird quarter and was completed in September. To offset these business disruptions and economic conditions, we have continuedto focus on managing costs.

 

*Casino.* Casino revenues decreased by $5.4 million to $13.9 million for the ninemonths ended September 30, 2009, compared to $19.3 million for the ninemonths ended September 30, 2008 because of decreased traffic in the casinoand a decrease in spending per player.

 

 Table games revenue was $5.1 million for thenine months ended September 30, 2009, a decrease of $1.7 million, or25.0%, compared to the table games revenue of $6.8 million from the prioryear’s first nine months.  Table gamedrop decreased to $29.6 million, or by 27.1%, for the nine months endedSeptember 30, 2009 compared to $40.6 million for the nine months endedSeptember 30, 2008, while table game hold percentage increased from 16.7%in 2008 to 17.1% in 2009.  The tablegames generated an average win per table of $758 per day for the first ninemonths of 2009 compared to $821 for the nine months of 2008.

 

Slot revenue of $8.5million for the nine months ended September 30, 2009 was a decrease of$3.5 million or 29.1% compared to $12.0 million in the same period in2008.  The average win per machine perday was $51 for the nine months ended September 30, 2009 compared to $70for the same period in 2008.

 

Casino expenses decreasedby $2.8 million or 25.2% to $8.5 million for the nine months endedSeptember 30, 2009 compared to $11.3 million for the nine months endedSeptember 30, 2008. The profit margin for casino operations decreased from41.3% during the nine months ended September 30, 2008 to 39.1% during thenine months ended September 30, 2009.

 

*Food,beverage and entertainment.*  Food, beverageand entertainment revenue was $14.6 million for the nine months endedSeptember 30, 2009 as compared to $17.1 million for September 30,2008, a decrease of $2.5 million or 14.9%. The food revenues decreased $1.1 million or 11.7% to $8.3 million forthe nine months ending September 30, 2009 compared to $9.4 million for thenine months ending September 30, 2008. Beverage revenue (which includescomplimentary beverages) decreased by $0.9 million or 13.6% to $5.7 million forthe nine months ended September 30, 2009 from $6.6 million during the ninemonths ended September 30, 2008. Showroom revenue decreased $0.6 million in 2009 to $.5 million ascompared to showroom revenue of $1.1 million in 2008.

 

Food, beverage andentertainment expenses decreased from $11.1 million during the nine monthsended September 30, 2008 to $8.9 million during the nine months endedSeptember 30, 2009, a decrease of $2.2 million or 19.9%.  The profit margin for food, beverage andentertainment operations increased from 35.1% during the nine months endedSeptember 30, 2008 to 38.8% during the nine months endedSeptember 30, 2009 due to operational efficiencies in payroll and cost ofsales in the food and beverage departments. We saved $0.5 million in showroom expenses.

 

*Hoteland other.*  Hotel and other revenue (which includes hotelroom revenue, retail, and other 

 

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miscellaneous revenue)decreased by $5.1 million, or 30.7%, to $11.3 million for the nine months endedSeptember 30, 2009 from $16.4 million for the nine months endedSeptember 30, 2008.  Room revenue decreased $4.8 million or39.1% to $7.4 million for the nine months ended September 30, 2009compared to $12.2 million in 2008 due to the drop in visitors to Las Vegas,disruptions caused by the closure of rooms for retrofitting and road constructionalong our frontage street.  The averagedaily room rate decreased to $51 for the nine months ended September 30,2009 compared to $69 for the prior year. The number of rooms occupied declined for the period, partially due tothe 235 rooms taken out of service from May 28, 2009 to August 14,2009 for plumbing retrofit.

 

Sales from the retailoutlets was $2.8 million in the nine months ended September 30, 2009, adecrease of $0.6 million from the nine months ended September 30, 2008.

 

Hotel and other expensesdecreased by $0.9 million or 15.6% from $6.1 million during the nine monthsended September 30, 2008 to $5.2 million during the nine months endedSeptember 30, 2009 due to operational efficiencies in payroll anddepartmental expenses. The profit margin for hotel and other was 54.5% for thenine months ended September 30, 2009 compared to 62.7% for the same periodin the prior year..

 

*Generaland administrative.*  General and administrative expense includescosts associated with corporate marketing, information technology, and finance,accounting, and property operations. General and administrative expense decreased $2.7 million or 20.9% to$11.2 million for the nine months ended September 30, 2009 compared to$12.9 million for the nine months ended September 30, 2008. This decreasewas principally due to significant decreases in advertising and marketingexpenses, legal fees and various other administrative costs.

 

*Restructuringexpense*.  Restructuring expense associated withfinancial advisory services and related legal expenses for the nine monthsended September 30, 2009 were $1.4 million.  These expenses began in September 2008and are expected to continue in future months until our recapitalization,refinancing, restructuring or reorganization of our obligations, or sale ofsome or all of the business assets is completed.  No assurances can be given that we will beable to complete a restructuring of our obligations.

 

*Depreciationand amortization expense.*  Depreciation and amortizationexpense of $5.0 million for the nine months ended September 30, 2009increased by $0.2 million, or 2.7%, from $4.8 million for the nine months endedSeptember 30, 2008.

 

*Relatedparty royalties expense.*  Beginning on February 3,2006, we incurred related party royalty fees pursuant to agreements withHooters Gaming Corporation, Lags Ventures, Inc., and Las VegasWings, Inc.  These related partyroyalties expense totaled $1.1 million for the nine months ended September 30,2008 as compared to $.8 million for nine months ended September 30, 2009.The payment of the related party royalties is restricted under the Notesindenture.  The fees can only be paid afterthe close of the fiscal year and only if our debt coverage ratio is 1.5 to 1for that fiscal year.  We do not expectto meet this debt coverage ratio test in the 2009 fiscal year.  The payments of the royalty fees are furtherlimited to the sum of 2% of revenue and 3% of EBITDA as defined in theindenture.

 

*Incomeon forfeited deposits and extension fees*.  In June of2008, we recorded income on 

 

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forfeited deposits andextension fees of $5.5 million in connection with the termination of thepurchase agreement with Hedwigs Las Vegas Top Tier, LLC.

 

*Interestexpense.*  Interest expense was $10.2 million for thenine months ended September 30, 2009, compared to $10.0 million for thenine months ended September 30, 200, an increase of $0.2 million due to anincrease in the debt outstanding on the line of credit.

 

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

 

***Contractual Obligations***

 

The following tablesummarizes the contractual commitments of the Company as of September 30,2009:

 
| ** **                                   | ** ** | **Payments Due By Year**   | ** ** |
|----------------------------------------------|------------|----------------------------|------------|
| ** **                                   | ** ** | **Total**                  | ** ** | **Less than********1 year** | ** ** | **1-3 years** | ** ** | **3-5 years** | ** ** | **Thereafter** | ** ** |
| ** **                                   | ** ** | **(dollars in thousands)** | ** ** |
| Equipment  purchase financing agreements (1) |       | $                          | 2,195      |   | $ | 852 |   | $ | 1,343 |   | $ | — |   | $ | — |   |
| Long-term  debt (2)                          |       | 155,851                    |       | 15,851 |   | — |   | — |   | — |   |
| Operating  contracts (3)                     |       | 5,779                      |       | 1,864 |   | 3,860 |   | 55 |   | — |   |
| Total                                        |       | $                          | 163,825    |   | $ | 158,567 |   | $ | 5,203 |   | $ | 55 |   | $ | — |   |

 

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(1)         We entered into various equipmentpurchase agreements in connection with the renovation and re-branding of theHooters Casino Hotel.  During the firstquarter of 2009, we entered into an equipment purchase agreement for $2.5million in slot system equipment.

 

(2)         The long-term debt represents the $14.5million in outstanding draws against the Credit Facility as ofSeptember 30, 2009 with original due date on September 30, 2011 andthe $130.0 million Notes issued on March 29, 2005 and due on 2012.  The Company is in default on both of thesefacilities and interest of $11.4 due in increments of $5.7 million at April 1and Oct 1, 2009 on the Notes was not paid. The repayment dates have not been adjusted for potential accelerationunder the default provisions of the contracts. The long-term debt balance alsoincludes $11.4 million in accrued, unpaid interest on the Notes.

 

(3)         Operating contracts represent variouscontracts for services in connection with the operations of the Hooters CasinoHotel.

 

***Liquidity and Capital Resources***

 

For additional discussionof our liquidity and capital resources, please see “Liquidity and FinancialPosition” discussion presented in the Executive Overview at the beginning ofItem 2, “Management Discussion and Analysis of Financial Condition and Resultsof Operations” and Note 2 to the accompanying consolidated financialstatements.

 

For the nine months endedSeptember 30, 2009, $0.4 million of cash was provided by operatingactivities.

 

For the nine months endedSeptember 30, 2009, we used $2.4 million of cash in investing 

 

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activities for capitalexpenditures ($2.1 million for the retrofit of the rooms and $0.3 million forgeneral equipment replacements).  We willincur an additional $0.3 million for the retrofit by the end of the year.  We also spent $0.2 million during the ninemonths ended September 30, 2009  inother assets.

 

For the nine months endedSeptember 30, 2009, we borrowed $3.4 million on our Credit Facility,offset by $0.6 million in principal payments on debt.

 

The Notes indenturecontains certain provisions, which restrict or limit our ability to, amongother things, incur more debt, pay dividends, redeem stock or make otherdistributions, enter into transactions with affiliates or transfer or sellassets.

 

 Our Credit Facility is a revolving creditfacility of $15.0 million.   As ofSeptember 30, 2009, we had outstanding draws of $14.5 million. Anadditional $0.5 million of the Credit Facility is not available due to anoutstanding letter of credit previously issued. Currently, the Credit Facility is fully extended and we have noadditional availability to borrow against the Credit Facility.  All outstanding principal and interest underthe Credit Facility is due and payable on September 30, 2011, unless acceleratedunder the default provisions.  Due to thedefault under the Notes indenture and the Credit Facility, we have classifiedthe amount due under the Credit Facility and Notes and some equipment purchasedebt, totaling $145.3 million, as a current liability at September 30,2009.  As discussed earlier in theExecutive Overview at the beginning of Item 2, “Management Discussion andAnalysis of Financial Condition and Results of Operations” and Note 2 to the accompanyingconsolidated financial statements, we are in default under both the indentureand the Credit Facility and we have entered into discussions with the noteholders and the Credit Facility lender to attempt to negotiate forbearanceagreements pursuant to which they would agree not to exercise, for a specifiedperiod of time, their remedies under the indenture or the Credit Facility.  We cannot assure you that we will besuccessful in negotiating a forbearance with the note holders or CreditFacility lender or in undertaking any financial or strategic alternativetransaction in the near term.

 

At September 30,2009, we had cash and cash equivalents of approximately $5.6 million.

 

***Critical Accounting Policies and Estimates***

 

A description of criticalaccounting policies and estimates is included in the management discussion andanalysis included in our Annual Report on Form 10-K for the year endedDecember 31, 2008, filed with the Commission on March 31, 2009.

 

## ***Item 3.  Quantitative and Qualitative DisclosuresAbout Market Risk.***

 

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

 

Marketrisk is risk of loss arising from changes in market rates and prices, such asinterest rates, foreign currency exchange rates and commodity prices.  At September 30, 2009, we had $130.0million aggregate principal amount of the Notes, slot equipment purchaseagreements of $2.2 million carrying an imputed interest rate of 7.0%, and hotelequipment purchase agreements of $0.1 million carrying interest 

 

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ratesaveraging 11.72%.   The Notes carry afixed interest rate of 8.75 %.  Since theNotes and equipment purchase agreements have fixed interest rates, there is nomarket risk associated with these loans other than fair value market risk,which we believe to be insignificant.  Wehave market risk associated with funds that may be borrowed on the$15.0 million Credit Facility, due to an interest rate that floats withthe prime rate.  The term of the CreditFacility will mature on September 30, 2011 unless there is accelerationunder the default provisions.  AtSeptember 30, 2009, $14.5 million was outstanding under the variable rateCredit Facility, carrying interest at 7.25%. Assuming a 100 basis-point change in prime at September 30, 2009and assuming no change in the funds borrowed on the $15.0 million CreditFacility, our annual interest cost would change by approximately $145,000.  We received a Notice of Default andReservation of Rights letter (the “Default Letter”) from the lenders under theCredit Facility that states that events of default exist and that as a resultof such defaults the applicable interest rate was increased to the defaultrate, which equals the Wells Fargo prime rate plus four percentage points.  At September 30, 2009, the defaultinterest rate based on prime rate was 7.25%.

 

Wedo not have any significant foreign currency exchange rate risk or commodityprice risk and do not currently trade any market sensitive instruments.

 

## ***Item 4T.  Controls and Procedures.***

## *** ***

## ***Evaluation ofDisclosure Controls***

## *** ***

Weevaluated the effectiveness of our disclosure controls and procedures as of thethree months ended September 30, 2009. This evaluation was done with the participation of our management,including our Chief Executive Officer and Chief Financial Officer.

 

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

 

## ***Limitations on theEffectiveness of Controls***

## *** ***

Ourmanagement does not expect that our disclosure controls and procedures or ourinternal controls over financial reporting will prevent all error and allfraud.  A control system, no matter howwell conceived and operated, can provide only reasonable, but not absolute,assurance that the objectives of a control system are met.  Further, any control system reflectslimitations on resources, and the benefits of a control system must beconsidered relative to its costs. Because of the inherent limitations in all control systems, noevaluation of controls can provide absolute assurance that all control issuesand instances of fraud, if any, within us have been detected.  These inherent limitations include therealities that judgments in decision-making can be faulty and that breakdownscan occur because of simple error or mistake. Additionally, controls can becircumvented by the individual acts of some persons, by collusion of two ormore people, or by management override of a control.  Because the design of a control system is basedupon certain assumptions about the likelihood of future events, there can be noassurance that any design will succeed in achieving its stated goals under allpotential future conditions.  Over time,controls may 

 

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becomeinadequate because of changes in conditions, or the degree of compliance withthe policies or procedures may deteriorate. Because of the inherent limitationsin a cost-effective control system, misstatements due to error or fraud mayoccur and may not be detected.

 

## ***Conclusions***

 

Basedon this evaluation, our Chief Executive Officer and Chief Financial Officerhave evaluated our disclosure controls and procedures (as defined in theSecurities Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e)) as ofSeptember 30, 2009, and have concluded that they are effective to timelyalert them to material information relating to us required to be included in thereports that we file or submit under the Securities Exchange Act of 1934.

 

## ***Changes in InternalControls***

## *** ***

Therewere no changes in our internal controls over financial reporting that occurredduring our last fiscal quarter, *i.e.*,the quarter ended September 30, 2009, that have materially affected, orare reasonably likely to materially affect, our internal controls overfinancial reporting.

 

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**PART II — OTHER INFORMATION**

 

**Item3.  Defaults Upon Senior Securities.**

## *** ***

Asof the date of this Form 10-Q, we were in default under our Notesindenture and our Credit Facility.  Wedid not pay the interest due to our noteholders under our Notes indenturewithin 30 days of the interest payment date on April 1, 2009 orOctober 1, 2009.  Also, aspreviously disclosed, we did not enter into control agreements for one or moredeposit accounts established and maintained by us for the benefit of thelenders under the Credit Facility.  For amore detailed discussion of our evaluation of financing and strategicalternatives, refer to our discussion under Part 1, Financial Information,Item 2 — Management’s Discussion and Analysis of Financial Conditions andResults of Operations, “Liquidity and Financial Position” or “Liquidity andCapital Resources”.

 

## ***Item 6.  Exhibits.***

## *** ***

Exhibits:

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

 

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|   |   |   | *filed herewith |
|--------|--------|--------|-----------------|

 

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**SIGNATURES**

# ** **

Pursuantto the requirements of the Securities Exchange Act of 1934, the registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.

 

**155 EAST TROPICANA, LLC**

 

 
| By:                                  | /s/ Deborah J. Pierce                                                            |       | November 13, 2009 |
|--------------------------------------|----------------------------------------------------------------------------------|------------|------------------------|
|                                 |                                                                             |       |                   |
|                                 | Deborah J. Pierce                                                                |       |                   |
| * *                             | *Chief Financial Officer*

*(Principal Financial and Chief  Accounting Officer)* | * *   | * *               |
| ** **                           | ** **                                                                       | ** ** | ** **             |
| ** **                           | ** **                                                                       | ** ** | ** **             |
| **155 EAST TROPICANA FINANCE CORP.** | ** **                                                                       |
|                                 |                                                                             |       |                   |
|                                 |                                                                             |       |                   |
| By:                                  | /s/ Deborah J. Pierce                                                            |       | November 13, 2009 |
|                                 |                                                                             |       |                   |
|                                 | Deborah J. Pierce                                                                |       |                   |
| * *                             | *Chief Financial Officer*

*(Principal Financial and Chief  Accounting Officer)* | * *   | * *               |

 

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