**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON, D.C. 20549**

 

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**FORM 10-Q**

**(MarkOne)**

**x**                              QUARTERLYREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

** **

**For the quarterly periodended September 30, 2006**

** **

**or**

** **

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

** **

**For the transition period from                to                **

**Commission File Number333-124924**

** **

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**155 East Tropicana, LLC**

**155 East TropicanaFinance Corp.**

(Exact Name of Registrant 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’s Telephone Number, Including Area Code)         |

 

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Indicate by check mark whether the registrant (1) hasfiled all reports required by Section 13 or 15(d) of the Securities ExchangeAct of 1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports) and (2) has been subject to suchfiling requirements for the past 90 days.     Yes  x    No  o

Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer,or a non-accelerated filer. See definition of “accelerated filer and largeaccelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

| Large accelerated filer o |   | Accelerated  filer o |   | Non-accelerated  filer x |
|-------------------------------------------|--------|----------------------|--------|--------------------------|

 

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

 

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**PART I — FINANCIALINFORMATION**

**Item 1.  Financial Statements.**

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

**CONDENSEDCONSOLIDATED BALANCE SHEETS**
| ** **                                                                                                           | ** ** | **September 30,** | ** **  | **December 31,** | ** ** |
|----------------------------------------------------------------------------------------------------------------------|------------|------------------------|-------------|-----------------------|------------|
| ** **                                                                                                           | ** ** | **2006**               | ** **  | **2005**              | ** ** |
| ** **                                                                                                           | ** ** | **(unaudited)**        | ** **  | ** **            | ** ** |
| **Assets**                                                                                                           |       |                   |        |                  |       |
| Current assets:                                                                                                      |       |                   |        |                  |       |
| Cash and cash  equivalents                                                                                           |       | $                      | 10,182,268  |                  | $          | 14,191,385 |   |
| Accounts  receivable, net of allowance for doubtful accounts of $72,893 and $110,017 in  2006 and 2005, respectively |       | 1,161,620              |        | 647,776               |       |
| Due from Hotel  San Remo                                                                                             |       | —                 |        | 30,508                |       |
| Inventories                                                                                                          |       | 829,660                |        | 146,339               |       |
| Prepaid expenses                                                                                                     |       | 1,938,528              |        | 775,836               |       |
| Total current  assets                                                                                                |       | 14,112,076             |        | 15,791,844            |       |
| Property and equipment,  net                                                                                         |       | 122,905,234            |        | 103,264,703           |       |
| Other long-term assets:                                                                                              |       |                   |        |                  |       |
| Restricted cash                                                                                                      |       | —                 |        | 29,345,513            |       |
| Deferred  financing costs                                                                                            |       | 6,554,774              |        | 7,286,738             |       |
| Intangible  assets                                                                                                   |       | 6,570,096              |        | 6,609,028             |       |
| Other assets                                                                                                         |       | 296,819                |        | 861,565               |       |
| Total other  long-term assets                                                                                        |       | 13,421,689             |        | 44,102,844            |       |
| Total assets                                                                                                         |       | $                      | 150,438,999 |                  | $          | 163,159,391 |   |
|                                                                                                                 |       |                   |        |                  |       |
| **Liabilities and Members’ Equity**                                                                             |       |                   |        |                  |       |
| Current liabilities:                                                                                                 |       |                   |        |                  |       |
| Accounts payable                                                                                                     |       | $                      | 3,153,421   |                  | $          | 3,323,099 |   |
| Related party  royalties payable                                                                                     |       | 1,086,838              |        | —                |       |
| Construction  payable                                                                                                |       | —                 |        | 6,034,450             |       |
| Accrued interest  payable                                                                                            |       | 5,694,135              |        | 2,864,396             |       |
| Accrued  liabilities                                                                                                 |       | 1,663,143              |        | 1,384,649             |       |
| Current portion  of long-term debt                                                                                   |       | 2,055,147              |        | —                |       |
| Total current  liabilities                                                                                           |       | 13,652,684             |        | 13,606,594            |       |
| Long-term debt                                                                                                       |       | 133,301,633            |        | 130,000,000           |       |
| Total  liabilities                                                                                                   |       | 146,954,317            |        | 143,606,594           |       |
|                                                                                                                 |       |                   |        |                  |       |
| Commitments and  contingencies                                                                                       |       |                   |        |                  |       |
|                                                                                                                 |       |                   |        |                  |       |
| Members’ equity:                                                                                                |       |                   |        |                  |       |
| Membership  interests                                                                                                |       | 34,333,375             |        | 34,333,375            |       |
| Accumulated  deficit                                                                                                 |       | (30,848,693            | )           | (14,780,578           | )          |
|                                                                                                                 |       | 3,484,682              |        | 19,552,797            |       |
| Total  liabilities and members’ equity                                                                          |       | $                      | 150,438,999 |                  | $          | 163,159,391 |   |

 

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

3

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

**CONDENSEDCONSOLIDATED STATEMENTS OF OPERATIONS**
| ** **                                                                                                                                                                                                               | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **                                                                                                                                                                                                               | ** ** | **September 30,**           | ** ** | **September 30,**          | ** ** | **September 30,** | ** ** | **September 30,** | ** ** |
| ** **                                                                                                                                                                                                               | ** ** | **2006**                         | ** ** | **2005**                        | ** ** | **2006** | ** ** | **2005** | ** ** |
| ** **                                                                                                                                                                                                               | ** ** | **(unaudited)**                  | ** ** | **(unaudited)**                 | ** ** | **(unaudited)** | ** ** | **(unaudited)** | ** ** |
| Operating  revenues:                                                                                                                                                                                                     |       |                             |       |                            |       |   |   |   |   |
| Casino                                                                                                                                                                                                                   |       | $                                | 6,742,398  |                            | $          | — |   | $ | 20,464,700 |   | $ | — |   |
| Food and  beverage                                                                                                                                                                                                       |       | 6,325,313                        |       | —                          |       | 17,906,291 |   | — |   |
| Hotel and other                                                                                                                                                                                                          |       | 5,716,407                        |       | —                          |       | 16,591,885 |   | — |   |
| Related party  lease income                                                                                                                                                                                              |       | —                           |       | 1,125,000                       |       | — |   | 5,064,324 |   |
|                                                                                                                                                                                                                     |       | 18,784,118                       |       | 1,125,000                       |       | 54,962,876 |   | 5,064,324 |   |
| Less promotional  allowances                                                                                                                                                                                             |       | (1,441,165                       | )          | —                          |       | (4,172,527 | ) | — |   |
| Net operating  revenues                                                                                                                                                                                                  |       | 17,342,953                       |       | 1,125,000                       |       | 50,790,349 |   | 5,064,324 |   |
|                                                                                                                                                                                                                     |       |                             |       |                            |       |   |   |   |   |
| Operating  expenses:                                                                                                                                                                                                     |       |                             |       |                            |       |   |   |   |   |
| Casino                                                                                                                                                                                                                   |       | 3,610,824                        |       | —                          |       | 10,573,976 |   | — |   |
| Food and beverage                                                                                                                                                                                                        |       | 4,814,995                        |       | —                          |       | 14,420,906 |   | — |   |
| Hotel and other                                                                                                                                                                                                          |       | 2,326,674                        |       | —                          |       | 6,523,292 |   | — |   |
| General and administrative                                                                                                                                                                                               |       | 4,935,211                        |       | —                          |       | 14,051,953 |   | — |   |
| Depreciation and amortization                                                                                                                                                                                            |       | 1,840,144                        |       | 410,071                         |       | 4,661,695 |   | 1,222,633 |   |
| Pre-opening expenses                                                                                                                                                                                                     |       | —                           |       | 1,169,808                       |       | 5,292,834 |   | 1,769,844 |   |
| Related party royalties expenses                                                                                                                                                                                         |       | 343,642                          |       | —                          |       | 1,084,118 |   | — |   |
| Loss on disposal of assets                                                                                                                                                                                               |       | —                           |       | —                          |       | 1,199,470 |   | — |   |
| Total operating  expenses                                                                                                                                                                                                |       | 17,871,490                       |       | 1,579,879                       |       | 57,808,244 |   | 2,992,477 |   |
| Operating (loss)  income                                                                                                                                                                                                 |       | (528,537                         | )          | (454,879                        | )          | (7,017,895 | ) | 2,071,847 |   |
|                                                                                                                                                                                                                     |       |                             |       |                            |       |   |   |   |   |
| Other income  (expense):                                                                                                                                                                                                 |       |                             |       |                            |       |   |   |   |   |
| Interest income                                                                                                                                                                                                          |       | 38,251                           |       | 532,499                         |       | 440,099 |   | 1,109,772 |   |
| Interest expense, net of capitalized interest of $0,  $172,525, $202,873, and $261,424 for the three months ended September 30,  2006 and 2005, and for the nine months ended September 30, 2006 and 2005,  respectively |       | (3,246,518                       | )          | (2,984,255                      | )          | (9,490,319 | ) | (7,430,413 | ) |
| Loss on extinguishment of debt                                                                                                                                                                                           |       | —                           |       | —                          |       | — |   | (2,246,526 | ) |
| Other income  (expense), net                                                                                                                                                                                             |       | (3,208,267                       | )          | (2,451,756                      | )          | (9,050,220 | ) | (8,567,167 | ) |
| Net loss                                                                                                                                                                                                                 |       | $                                | (3,736,804 | )                               | $          | (2,906,635 | ) | $ | (16,068,115 | ) | $ | (6,495,320 | ) |

 

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

4

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

**CONDENSEDCONSOLIDATED STATEMENTS OF CASH FLOWS**
| ** **                                                                                  | ** ** | **Nine Months Ended  September 30,  2006** | ** **  | **Nine Months Ended  September 30,  2005** | ** ** |
|---------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------|-------------|-----------------------------------------------------------|------------|
| ** **                                                                                  | ** ** | **(unaudited)**                                           | ** **  | **(unaudited)**                                           | ** ** |
| **Cash  Flow From Operating Activities**                                                    |       |                                                      |        |                                                      |       |
| Net loss                                                                                    |       | $                                                         | (16,068,115 | )                                                         | $          | (6,495,320 | ) |
| Adjustments to reconcile net loss to net cash  provided by operating activities:            |       |                                                      |        |                                                      |       |
| Depreciation and amortization                                                               |       | 4,661,695                                                 |        | 1,222,633                                                 |       |
| Amortization of debt issuance costs                                                         |       | 972,523                                                   |        | 846,184                                                   |       |
| Amortization of intangible asset                                                            |       | 38,932                                                    |        | —                                                    |       |
| Loss on extinguishment of debt                                                              |       | —                                                    |        | 2,246,526                                                 |       |
| Loss on disposal of assets                                                                  |       | 1,199,470                                                 |        | —                                                    |       |
| Changes in operating assets and liabilities:                                                |       |                                                      |        |                                                      |       |
| Accounts receivable                                                                         |       | (513,844                                                  | )           | (61,483                                                   | )          |
| Inventories                                                                                 |       | (683,321                                                  | )           | —                                                    |       |
| Prepaid expenses                                                                            |       | (1,162,692                                                | )           | (900,695                                                  | )          |
| Accounts payable                                                                            |       | (169,678                                                  | )           | 1,168,217                                                 |       |
| Related party royalties payable                                                             |       | 1,086,838                                                 |        | —                                                    |       |
| Accrued interest payable                                                                    |       | 2,829,739                                                 |        | 5,780,100                                                 |       |
| Accrued liabilities                                                                         |       | 278,494                                                   |        | —                                                    |       |
| Net cash (used  in) provided by operating activities                                        |       | (7,529,959                                                | )           | 3,806,162                                                 |       |
|                                                                                        |       |                                                      |        |                                                      |       |
| **Cash  Flow From Investing Activities**                                                    |       |                                                      |        |                                                      |       |
| Capital  expenditures                                                                       |       | (19,283,351                                               | )           | (11,801,945                                               | )          |
| Decrease in  construction payable                                                           |       | (6,034,450                                                | )           | —                                                    |       |
| Change in  restricted cash                                                                  |       | 29,345,513                                                |        | (48,230,146                                               | )          |
| Change in other  assets                                                                     |       | 564,746                                                   |        | (86,057                                                   | )          |
| Net cash provided  by (used in) investing activities                                        |       | 4,592,458                                                 |        | (60,118,148                                               | )          |
|                                                                                        |       |                                                      |        |                                                      |       |
| **Cash  Flow From Financing Activities**                                                    |       |                                                      |        |                                                      |       |
| Due from (to)  Hotel San Remo                                                               |       | 30,508                                                    |        | (1,251,434                                                | )          |
| Payment of debt  financing costs                                                            |       | (240,557                                                  | )           | (7,803,301                                                | )          |
| Extinguishment  of debt                                                                     |       | —                                                    |        | (48,500,000                                               | )          |
| Loan penalties  from extinguishment of debt                                                 |       | —                                                    |        | (1,361,750                                                | )          |
| Proceeds from  issuance of Notes                                                            |       | —                                                    |        | 130,000,000                                               |       |
| Draw-down on  revolving line of credit                                                      |       | 681,572                                                   |        | —                                                    |       |
| Principal  payments on debt                                                                 |       | (1,543,139                                                | )           | —                                                    |       |
| Net cash (used  in) provided by financing activities                                        |       | (1,071,616                                                | )           | 71,083,515                                                |       |
|                                                                                        |       |                                                      |        |                                                      |       |
| (Decrease)  increase in cash and cash equivalents                                           |       | (4,009,117                                                | )           | 14,771,529                                                |       |
| Cash and cash  equivalents, beginning of period                                             |       | 14,191,385                                                |        | 1,220,851                                                 |       |
| Cash and cash  equivalents, end of period                                                   |       | $                                                         | 10,182,268  |                                                      | $          | 15,992,380 |   |
|                                                                                        |       |                                                      |        |                                                      |       |
| **Supplemental  disclosure of cash flow information**                                       |       |                                                      |        |                                                      |       |
| Cash paid for  interest, net of capitalized interest                                        |       | $                                                         | 6,660,580   |                                                      | $          | 1,126,418 |   |
|                                                                                        |       |                                                      |        |                                                      |       |
| Noncash  investing and financing activities:                                                |       |                                                      |        |                                                      |       |
| Assets acquired through equipment loans                                                     |       | $                                                         | 6,218,347   |                                                      | $          | — |   |
|                                                                                        |       |                                                      |        |                                                      |       |
| Contribution by  Florida Hooters LLC of intangible assets pursuant to assignment agreements |       | $                                                         | —      |                                                      | $          | 3,100,000 |   |

 

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

 

5

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** **

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

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

**September 30,2006**

**1.  Organization and Basis of Presentation**

155 East Tropicana, LLC, a Nevada limited-liabilitycompany (the “Company”) was incorporated on June 17, 2004 to acquire thereal and personal property of the Hôtel San Rémo Casino and Resort (the “HôtelSan Rémo”) in Las Vegas, Nevada with the intention of renovating the existingcasino and hotel facility with a “Hooters” entertainment concept and theme.  The renovations were completed and the HôtelSan Rémo property was reopened as the new Hooters Casino Hotel on February 3,2006.  The Company’s business isconcentrated at the one 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 in March 2005.  The Company’s membership interests are heldtwo-thirds through Florida Hooters LLC and one-third through EW Common LLC.  The initial capitalization of the Company wasprovided by Florida Hooters LLC in the form of a $5.0 million cashcontribution and the assignment of rights with respect to the Hooters trademarkand logo and other intellectual property and by EW Common LLC in the form of a$25.0 million deemed capital contribution. The deemed capital contribution from EW Common LLC carries with it apriority return of 4% of the contribution annually.  The payment of this priority return issubject to meeting certain financial covenants associated with the Company’sdebt.

Florida Hooters LLC is a joint venture between HootersGaming LLC and Lags Ventures, LLC.  Theowners of Hooters Gaming LLC, which include most of the original founders ofthe Hooters brand, hold licenses to sell wholesale foods and calendars and tooperate hotel casinos  Pursuant to theselicense rights, the owners of Florida Hooters LLC operate 42 Hootersrestaurants, publish Hooters calendars and operate a Hooters food business.  Lags Ventures, LLC is owned by a holder ofthe license rights to Hooters restaurants in South Florida and the State ofNevada.  The owner of Lags Ventures, LLCis also the founder of the Dan Marino concept restaurants and owns and operates2 Dan Marino concept restaurants.

EW Common LLC is owned 90% by Eastern &Western Hotel Corporation (“Eastern & Western”) and 10% by Michael J.Hessling.  Eastern & Western isbeneficially owned by Sukeaki and Toyoroku Izumi.  Eastern & Western and its affiliatesowned the real property and non-gaming assets of the Hôtel San Rémo fromNovember 1988 until the Company’s acquisition of the Hôtel San Rémo inAugust 2004.  Mr. Hesslingserved as the executive vice president and the chief executive officer of theHôtel San Rémo from January 1989 until the acquisition, at which time hebecame the Chief Operating Officer of the Company.  Effective June 30, 2006, Mr. Hessling wasappointed President of the Company.  EffectiveOctober 30, 2006, Gary A. Gregg was appointed Chief Operating Officer of theCompany.

6

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** **

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

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

**1.  Organization and Basis of Presentation(continued)**

Florida Hooters LLC and EW Common LLC entered into ajoint venture agreement for the purpose of forming the Company and documentingthe terms of their investments and business venture.  Under the terms of the joint ventureagreement, the venture progressed in three stages.  The first stage involved the formation of theCompany and the conveyance of all the real and non-gaming personal propertyowned by and associated with the Hôtel San Rémo, the leaseback under operatinglease arrangements of these assets to Eastern & Western pursuant tothe casino and hotel lease agreements described in Note 3, and thecontribution through assignment agreements of certain intellectual propertyrights to the Company by the respective members of Florida Hooters LLC.  The second stage related to the raising offinancing to fund the redesign and renovation of the Hôtel San Rémo into theHooters Casino Hotel, the refinancing of the Company’s current debt structureand the funding of other working capital requirements, which was completed inMarch 2005.  The final stage involvedsecuring all licenses necessary to conduct gaming at the hotel casino and thesubsequent termination of the hotel and casino leases.  In October 2005, the Company secured theirgaming and liquor licenses and on November 1, 2005, assumed the operations ofthe existing Hôtel San Rémo.  The hoteland casino leases with Eastern & Western were terminated on October 31,2005.

Pursuant to the joint venture agreement, FloridaHooters LLC and EW Common LLC entered into an operating agreement.  Under the terms of the operating agreement,Florida Hooters LLC has the right to appoint six managers and EW Common LLC hasthe right to appoint three managers to a management board.  In addition, certain transactions, includingkey operational matters, the sale of all or substantially all of the Company’sassets, a merger or consolidation and various governance matters require theunanimous approval of the management board.

Prior to November 1, 2005, the Company had conductedno business other than in connection with the acquisition and subsequentleasing of the Hôtel San Rémo, and was considered a development stage company.  The Hôtel San Rémo was a division of S.I.Enterprises, Inc., a Nevada corporation. Through October 31, 2005, Eastern & Western held the gaminglicense in Nevada and owned all gaming assets used by the Hôtel San Rémo.  Commencing November 1, 2005, all operations,assets and liabilities of the former Hôtel San Rémo were included in theCompany’s financial statements, and effective that date the Company was nolonger in the development stage.

On February 3, 2006, the new Hooters Casino Hotel wasopened for business.  The Hooters CasinoHotel features a casino floor with 660 slot and video poker machines, 33 table games,696 newly renovated hotel rooms including 17 suites, a tropical pool area,retail outlets, a day spa, and dining and entertainment options which include aHooters restaurant, Dan Marino’s Fine Food, a coffee shop restaurant, a sportsbar, and several bars.

7

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** **

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

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

**1.  Organization and Basis of Presentation(continued)**

The accompanying condensed consolidated financial statementshave been prepared by the Company, without audit, pursuant to the rules andregulations of the Securities and Exchange Commission.  Accordingly, the condensed consolidatedfinancial statements contain all adjustments (consisting of normal recurringadjustments) that, in the opinion of management, are necessary to presentfairly the Company’s financial position, results of operations and cash flowsfor the interim periods included herein. The 2006 interim results reflected in these financial statements are notnecessarily indicative of results to be expected for the full 2006 fiscal year.

Certain of the Company’s accounting policies requirethat the Company apply significant judgment in defining the appropriateassumptions for calculating financial estimates.  By their nature, these judgments are subjectto an inherent degree of uncertainty.  TheCompany’s judgments are based in part on its historical experience, terms ofexisting contracts, observance of trends in the gaming industry and informationobtained from independent valuation experts or other outside sources. There isno assurance, however, that actual results will conform to estimates.

The accompanying condensed consolidated financialstatements should be read in conjunction with the financial statements andnotes thereto for the year ended December 31, 2005, included in the AnnualReport Form 10-K for the year ended December 31, 2005 filed with the Securitiesand Exchange Commission on March 31, 2006. Significant intercompany transactions between the Company and its whollyowned subsidiary have been eliminated in consolidation.

**2.  Recently Issued Accounting Pronouncements**

In September 2006, the Securities and ExchangeCommission (SEC) released Staff Accounting Bulletin No. 108, or SAB 108, *Considering the Effects of Prior Year Misstatements when QuantifyingMisstatements in Current Year Financial Statements.*  SAB 108 provides interpretive guidance on theSEC’s views on how the effects of the carryover or reversal of prior yearmisstatements should be considered in quantifying a current year misstatement.  The provision of SAB 108 will be effectivefor the Company for the fiscal year end December 31, 2006.  The Company is currently evaluating the impactof applying SAB 108, but does not believe that the application of SAB 108 willhave a material effect on its financial position, cash flows, and results ofoperations.

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** **

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

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

**3.  Long-term Debt**

**Notes Offering**

On March 29, 2005, the Company issued $130.0 millionaggregate principal amount of 83⁄4% Senior Secured Notes due 2012, in a privateplacement (the “old notes”).  On August5, 2005, the Company successfully exchanged all of the old notes for new notes(the “Notes”).  The Notes havesubstantially identical terms as the old notes, except that the Notes have beenregistered under the Securities Act of 1933 and are freely tradable.  Interest payments on the Notes are due semiannually, on April 1 and October 1.  TheNotes are secured by 1) all of the Company’s and, to the extent in existence,any subsidiary guarantors’ existing and future assets (other than certainexcluded existing and future assets), and 2) the Company’s equity interest inany guarantors.

The Notes are redeemable at the option of the Companyon or after April 1, 2009.  The indenturegoverning the Notes required the Company to establish a renovation disbursementaccount and an interest reserve account, and all restricted cash accounts havebeen used or released at September 30, 2006.  The indenture also contains certainprovisions which restrict or limit the Company’s ability to, among otherthings, incur more debt, pay dividends, redeem stock or make otherdistributions, enter into transactions with affiliates or transfer or sellassets.  The Company used the proceedsfrom the old notes offering to retire existing indebtedness, (and together withcash from operations and proceeds from equipment financing) renovate andconstruct the Hooters Casino Hotel and provide for general working capitalneeds.  Related to this retirement ofexisting indebtedness, the Company recognized a loss on extinguishment of debtin the amount of $2,246,526 during 2005.

**Senior SecuredCredit Facility**

The Company entered into a $15.0 million seniorsecured credit facility (the “Credit Facility”) concurrently with the offeringof the old notes.  The Credit Facility isa four-year revolving Credit Facility of $15.0 million, maturing on March30, 2009.  Originally, the CreditFacility called for restrictions on the availability of the full $15.0 millionamount of the Credit Facility, based on a multiple of the trailing twelve-monthEBITDA (“Borrowing Base”).  EBITDA isdefined for any fiscal period as the Company’s consolidated net income (orloss), minus extraordinary gains and interest income, plus interest expense,income taxes and depreciation and amortization for such period, and subject toother adjustments as defined in the Credit Facility agreement.  On January 30, 2006, the Credit Facility wasamended to allow the Company, during the period of February 1 through September 30,2006, to obtain advances in the aggregate principal amount of up to $15.0 million,without regard to the multiple of EBITDA requirement.  The Company drew $681,572 against the CreditFacility during the nine months ended September 30, 2006 (all of which wasoutstanding at September 30, 2006).

9

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** **

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

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

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

**Senior SecuredCredit Facility (continued)**

The Credit Facility was further amended on June 6,2006.  The following amendments were madeto the Credit Facility: (1) the Borrowing Base concept, which limited theamount that could be borrowed under the Credit Facility, was removed, (2) thedefinition of EBITDA, allowing for the add back of all pre-opening costs andremoving the previous $6.0 million cap, was modified, and (3) thefinancial covenant requirements were amended to alter the applicable periodswhen the Company must meet certain minimum EBITDA and maximum senior debtratios.  At September 30, 2006, theCompany was in compliance with the amended covenants.

At the Company’s option, the interest rate will beeither the agent for the lender’s prime rate plus 2.00% per annum or LIBOR plus3.50% per annum.  As of September 30,2006, the Credit Facility carried the interest rate of 9.0% per annum.  All the obligations under the Credit Facilityare secured by first priority liens on and security interest in all of theCompany’s and any guarantor’s existing and future properties and assets.  The lien on the collateral that secures theNotes are contractually subordinated to the liens securing the principal amountof borrowings under the Credit Facility of up to $15.0 million (plusrelated interest, fees, indemnities, costs and expenses).  The Credit Facility required the Company topay unused commitment fees of 0.50% per annum on any unused portion of theCredit Facility, and, if terminated prior to the third anniversary date, aprepayment premium of 1.00% of the maximum credit amount for each year orpartial year remaining from the termination date to the third anniversary date.  The Credit Facility also contains customaryfinancial covenants and other events of default.

**IntercreditorAgreement**

Concurrently with the closing of the old notesoffering and Credit Facility, the Company entered into an intercreditoragreement, which defines the rights of the lenders under the Credit Facility inrelation to the rights of the trustee and the holders of the Notes with respectto****the collateral securing the Notes.  The intercreditor agreement, among otherthings, provides that the liens securing the Notes and any guarantees thereofare contractually subordinated (other than the security interests in therenovation disbursement account, which are senior, and interest reserveaccount, which does not secure the Credit Facility) to the liens securing theprincipal amount of indebtedness of up to $15.0 million (plus relatedinterest, fees, indemnities, costs and expenses) under the Credit Facility.  The trustee’s ability to exercise rights andremedies in respect of the collateral are also subject to the terms of theintercreditor agreement.

10

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** **

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

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

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

**Equipment PurchaseAgreements**

During the nine months ended September 30, 2006,the Company entered into loan agreements to purchase approximately $6.2 millionin slots and hotel equipment.  The loans,which are collateralized by the equipment purchased, have terms ranging from 12months to 5 years.  Interest ratesimputed on slot equipment purchases of $6.0 million and hotel equipmentpurchase of $0.2 million were 3.3% and 10.8%, respectively.  At September 30, 2006, $4.7 millionwas outstanding under these agreements.

**4.  Lease Agreements**

In July 2004, the Company, as lessor, entered into acasino lease and hotel lease with Eastern & Western covering the realproperty and non-gaming assets of the Hôtel San Rémo acquired by the Company.  The leases were subsequently terminated onOctober 31, 2005 as a result of the operations of the hotel and casino beingassumed by the Company on November 1, 2005.

**Casino Lease**

Prior to its termination on October 31, 2005, thecasino lease covered those portions of the Hôtel San Rémo containing theshowroom, gaming and liquor servicing areas, the casino floor where gamingactivities occur, surveillance areas, count rooms, the cashier’s cage and otherareas ancillary to the casino footprint.

Minimum monthly base-rent payments of $125,000 weredue from August 3, 2004 until the termination of the lease on October 31, 2005,which totaled $0.4 million and $1.1 million for the three months andnine months ended September 30, 2005, respectively.

**Hotel Lease**

The hotel lease between Eastern & Western andthe Company covered those portions of the Hôtel San Rémo containing allnon-casino areas, including the hotel.  Priorto its termination on October 31, 2005, minimum lease payments due under thehotel lease consisted of a minimum rent and a percentage rent. The minimum rentwas $250,000 per month.  The percentagerent was equal to 100% of all revenues received from the operations of thehotel, less actual operational expenses (including minimum rent).  Percentage rental income earned for the threemonths and nine months ended September 30, 2005 was $0 and $1.7 million,respectively.  Total rental income earnedunder the hotel lease was $0.8 million and $3.9 million for the threemonths and nine months ended September 30, 2005, respectively.

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** **

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

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

**5.  Related Party Transactions**

**Royalties Expense**

Pursuant to agreements related to the use of certaintrademarks, the Company must pay fees and royalties 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 and 13Martini Bar is payable to Lags Ventures, Inc. and a consent fee of 4% of cashsales from Hooters branded restaurant, and 3% of the gross sales with anymerchandise with a Hooters logo, is payable to Las Vegas Wings, Inc.  The total fees accrued at September 30, 2006for these related parties royalties was $1.1 million.

The payment of the related party royalties isrestricted under the Notes’ indenture.  Thefees can only be paid after the close of the fiscal year and only if theCompany’s debt coverage ratio is 1.5 to 1 for that 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.

**HawkeyeConstruction and Millwork, Inc.**

Hawkeye Construction and Millwork, Inc. is co-owned byDavid Lageschulte, a member of the Company’s management board and an indirectbeneficial owner of 33.27% of the Company’s membership interests.  Hawkeye Construction and Millwork, Inc.managed the construction and renovation of the Hooters Casino Hotel andreceived as compensation for such services 2% of the construction andfurniture, fixtures and equipment costs, not to exceed a total of $600,000.  The Company’s payments to HawkeyeConstruction and Millwork, Inc. in relation to the construction and renovationmanagement agreement totaled $0.1 million and $0.4 million for thenine months ended September 30, 2006 and 2005, respectively.

**ProvidentAdvertising & Marketing, Inc.**

The majority shareholder of ProvidentAdvertising & Marketing, Inc. (“Provident”) is Edward C. Droste,a member of the Company’s management board and an indirect beneficial owner of3.96% of the Company’s membership interests. Provident was engaged by the Company to provide services related to theplanning and development of an initial advertising and marketing plan and forthe continued development and implementation of a strategic marketing plan forthe Hooters Casino Hotel.  They continueto be involved as the Company’s advertising firm.  In addition, the Company purchases Hooterslogo items from Provident for uniforms and for resale in the Company’s giftshops.  The fees paid to Provident duringthe nine months ended September 30, 2006 and 2005 totaled $2.5 million and$0.2 million, respectively.

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** **

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

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

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

**ProvidentAdvertising & Marketing, Inc. (continued)**

The Notes issued by the Company require the Company toengage an independent valuation firm to determine that the related partytransactions are valued at arm’s-length prices if the total expenditures toProvident aggregate $2.5 million.  Anationally-recognized valuation firm issued a favorable opinion that therelated party transactions with Provident had been conducted in a mannerconsistent with the arm’s-length standard.

**6.  Commitments and Contingencies**

**Litigation**

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

**ContractualCommitments**

On February 25, 2005, the Company entered into a$36.5 million guaranteed maximum price contract with The PENTA BuildingGroup, Inc. for the renovation, construction and upgrade of the Hôtel SanRémo.  Upon receiving the necessarybuilding permits, the renovation and construction of the Hôtel San Rémocommenced in April 2005.  TheCompany has paid approximately $36.3 million to The PENTA Building Group,Inc. and the contract is complete.  Thefinal payment was made prior to September 30, 2006.

The Company has entered into operational contractstotaling $4.3 million at September 30, 2006.

**Hooters of AmericaRoyalty Payments**

Beginning on February 3, 2006, the Company is requiredto pay the owner of the Hooters trademark, Hooters of America, a royalty feeequal to 2% of all net revenues of the hotel and casino (excluding the DanMarino’s Restaurant and 13 Martini Bar) and 1% of revenues from the Pete andShorty’s Tavern less miscellaneous expenses. The total fees paid to Hooters of America were approximately $0.3 millionand $0.9 million for the three months and nine months ended September 30,2006, respectively.  These fees areincluded in general and administrative expenses on the accompanying condensedconsolidated statements of operations.

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** **

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

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

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

**Preferred Return**

The Company’s membership interests include an EWCommon preferred account which accumulates a preferred return rate of 4% perannum on the $25.0 million account balance.  Such preferred return began accumulating onMarch 1, 2006, and accumulates whether or not there are profits or fundsavailable for the payment of the preferred return.  Under the Notes indenture, the preferredreturn to EW Common is payable only if the Company’s coverage ratio of EBITDAto fixed charges (as defined in the indenture) is 1.5 to 1 for the fiscal yearas measured after the close of the fiscal year. As of September 30, 2006, $0.6 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 accompanyingconsolidated financial statements at September 30, 2006.

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** **

**HÔTEL SAN RÉMO CASINO ANDRESORT**

**(A DIVISION OFS.I. ENTERPRISES, INC.)**

**CONDENSED COMBINEDSTATEMENTS OF OPERATIONS**
| ** **                   | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended** | ** ** |
|------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **                   | ** ** | **September 30,**           | ** ** | **September 30,**          | ** ** |
| ** **                   | ** ** | **2005**                         | ** ** | **2005**                        | ** ** |
| ** **                   | ** ** | **(unaudited)**                  | ** ** | **(unaudited)**                 | ** ** |
|                         |       |                             | ** ** | ** **                      | ** ** |
| Operating revenues:          |       |                             |       |                            |       |
| Casino                       |       | $                                | 2,461,045  |                            | $          | 8,675,069 |   |
| Food and  beverage           |       | 1,476,440                        |       | 5,112,109                       |       |
| Hotel and other              |       | 2,826,326                        |       | 11,277,080                      |       |
|                         |       | 6,763,811                        |       | 25,064,258                      |       |
| Less promotional  allowances |       | (477,089                         | )          | (1,588,815                      | )          |
| Net operating revenues       |       | 6,286,722                        |       | 23,475,443                      |       |
| Operating expenses:          |       |                             |       |                            |       |
| Casino                       |       | 1,620,781                        |       | 5,044,035                       |       |
| Food and  beverage           |       | 1,462,516                        |       | 4,604,495                       |       |
| Hotel and other              |       | 1,034,798                        |       | 3,232,981                       |       |
| General and  administrative  |       | 1,770,277                        |       | 5,803,855                       |       |
| Depreciation  expense        |       | 93,749                           |       | 281,677                         |       |
| Related party  lease expense |       | 1,125,000                        |       | 5,064,324                       |       |
| Total operating  expenses    |       | 7,107,121                        |       | 24,031,367                      |       |
| Operating loss               |       | (820,399                         | )          | (555,924                        | )          |
| Other income (expense):      |       |                             |       |                            |       |
| Interest income              |       | 106,466                          |       | 312,831                         |       |
| Interest expense             |       | (1,555                           | )          | (6,489                          | )          |
| Other income (expense),  net |       | 104,911                          |       | 306,342                         |       |
| Loss before income  taxes    |       | (715,488                         | )          | (249,582                        | )          |
| Benefit from income  taxes   |       | (348,371                         | )          | (108,968                        | )          |
| Net loss                     |       | $                                | (367,117   | )                               | $          | (140,614 | ) |

 

*Theaccompanying notes are an integral part of these condensed combined financialstatements.*

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** **

**HÔTEL SAN RÉMOCASINO AND RESORT(A DIVISION OF S.I. ENTERPRISES, INC.)**

**CONDENSED COMBINEDSTATEMENT OF CASH FLOWS**
| ** **                                                                         | ** ** | **Nine Months Ended** | ** ** |
|------------------------------------------------------------------------------------|------------|---------------------------------|------------|
| ** **                                                                         | ** ** | **September 30,**          | ** ** |
| ** **                                                                         | ** ** | **2005**                        | ** ** |
| ** **                                                                         | ** ** | **(unaudited)**                 | ** ** |
| **Cash  Flow From Operating Activities**                                           |       |                            |       |
| Net loss                                                                           |       | $                               | (140,614   | ) |
| Adjustments to reconcile net income to net cash  provided by operating activities: |       |                            |       |
| Depreciation                                                                       |       | 281,677                         |       |
| Deferred income taxes                                                              |       | 106,968                         |       |
| Change in operating assets and liabilities:                                        |       |                            |       |
| Accounts receivable                                                                |       | (100,067                        | )          |
| Provision for doubtful accounts                                                    |       | (12,345                         | )          |
| Inventories                                                                        |       | 81,659                          |       |
| Prepaid expenses                                                                   |       | 203,127                         |       |
| Accounts payable                                                                   |       | (245,126                        | )          |
| Accrued expenses                                                                   |       | (236,535                        | )          |
| Net cash used in  operating activities                                             |       | (61,256                         | )          |
|                                                                               |       |                            |       |
| **Cash  Flow From Investing Activities**                                           |       |                            |       |
| Capital  expenditures                                                              |       | 15,699                          |       |
| Net increase in  other assets                                                      |       | (220,541                        | )          |
| Net cash used in  investing activities                                             |       | (204,842                        | )          |
|                                                                               |       |                            |       |
| **Cash  Flow From Financing Activities**                                           |       |                            |       |
| Net decrease in  due from 155 East Tropicana, LLC                                  |       | 1,251,434                       |       |
| Principal  payments on long-term debt                                              |       | (201,724                        | )          |
| Advances to  affiliates, net                                                       |       | (1,907,677                      | )          |
| Net cash used in  financing activities                                             |       | (857,967                        | )          |
|                                                                               |       |                            |       |
| Decrease in cash  and cash equivalents                                             |       | (1,124,065                      | )          |
| Cash and cash  equivalents, beginning of period                                    |       | 4,470,919                       |       |
| Cash and cash  equivalents, end of period                                          |       | $                               | 3,346,854  |   |
|                                                                               | ** ** | ** **                      | ** ** |
| **Supplemental  disclosure of cash flow information:**                             |       |                            |       |
| Cash paid during period  for interest                                              |       | $                               | 6,489      |   |

 

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

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**HÔTEL SAN RÉMO CASINO AND RESORT**

**(A DIVISION OF S.I. ENTERPRISES, INC.)**

### **Notes to Condensed Combined Financial Statements (unaudited)**

**September30, 2005**

**1.  Organization and Basis of Presentation**

The accompanying condensed combined financial statements present theoperations of Hôtel San Rémo Casino and Resort (“Hôtel San Rémo”), a divisionof S.I. Enterprises, Inc. (the “Parent Company”), a Nevada Corporation,which is located in Las Vegas, Nevada. Hôtel San Rémo commenced gaming operations on February 16,1990.  The accompanying condensedcombined financial statements represent the operations of the hotel and gamingfacilities and include certain accounts of Eastern & Western HotelCorporation (“Eastern & Western”) and I&P Corporation, Colorado (“I&P”),both Nevada corporations.  ThroughOctober 31, 2005, Eastern & Western held the gaming license in Nevadaand owned all gaming assets used by Hôtel San Rémo.  I&P owned the real property andnon-gaming assets of Hôtel San Rémo until August 3, 2004, at which timethey were acquired by 155 East Tropicana, LLC (see Note 2) and then leased backto Hôtel San Rémo pursuant to the casino lease and hotel lease arrangements(see Note 3).  Members of the Izumifamily are 100% owners of S.I. Enterprises, Inc., which owns 100% of Eastern& Western and owns 100% of I&P. The principal business of Eastern & Western prior to the merger ofI&P into Eastern & Western, was the owner and operator of the hotel.

Related to the events described above and in Note 2, effective November1, 2005, Hôtel San Rémo ceased operations as the remainder of its assets weretransferred to 155 East Tropicana, LLC and to its former owner.  Accordingly, the accompanying condensedcombined financial statements present only the statements of operations for thethree and nine months ended September 30, 2005 and the statement of cash flowsfor the nine months ended September 30, 2005.

The accompanying condensed combined financial statements have beenprepared by Hôtel San Rémo, without audit, pursuant to the rules andregulations of the Securities and Exchange Commission.  Accordingly, the condensed combined financialstatements contain all adjustments (consisting of normal recurring adjustments)that, in the opinion of management, are necessary to present fairly Hôtel SanRémo’s results of operations and cash flows for the interim periods includedherein.

The accompanying condensed combined financial statements should be readin conjunction with the financial statements and notes thereto for the yearended December 31, 2005, included in the Annual Report Form 10-K for the yearended December 31, 2005 filed with the Securities and Exchange Commission onMarch 31, 2006.  All significantintercompany accounts and transactions have been eliminated in the condensedcombined financial statements.

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**HÔTEL SANRÉMO CASINO AND RESORT**

**(A DIVISION OF S.I. ENTERPRISES, INC.)**

### **Notes to Condensed Combined Financial Statements (unaudited)(continued)**

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

In August 2004, 155 East Tropicana, LLC (“155”) agreed to theacquisition of the real property and other assets of Hôtel San Rémo forapproximately $72.5 million including transaction costs and expenses.  155 is a joint venture between FloridaHooters LLC and EW Common LLC.  EW CommonLLC was formed to hold Eastern & Western’s membership interests in155.  EW Common LLC is owned 90% byEastern & Western and 10% by Michael J. Hessling, formerly the executivevice president and chief executive officer of Hôtel San Rémo, and currently thePresident of 155.  Initially, 155acquired $67.5 million of the real property and non-gaming assets and agreedthat the remaining $5.0 million in gaming assets would be transferred to 155upon obtaining the gaming and liquor licenses necessary to take over operationsof the hotel and casino.  In October2005, 155 secured its gaming and liquor licenses and on November 1, 2005,assumed the operations of the hotel and casino. On November 1, 2005, the remaining Hôtel San Rémo gaming assets werealso transferred to 155 in exchange for an additional $5.0 million interest in155 with a priority return.  The casinoand hotel leases were terminated on October 31, 2005.  Immediately prior to the acquisition in 2004,the real property and non-gaming assets of Hôtel San Rémo with a net bookvalue of $25,956,004 and long-term debt of $43,745,708 were transferredto EW Common LLC.  Because EWCommon LLC and Hôtel San Rémo are entities under common control, thesetransfers were reflected as division equity transactions.

The acquisition was funded by 155 through a term loan totaling$48.5 million which was used to extinguish Hôtel San Rémo’s existingindebtedness of $43.7 million, a commitment to pay the former owner ofHôtel San Rémo $1.3 million and the issuance to EW Common LLC of a 331¤3% membership interest with priority return valued at$20.0 million.

OnMarch 29, 2005, 155 successfully completed the issuance of $130 million inprincipal amount 83⁄4% Senior Secured Notes due 2012 (the “old notes”).  On August 5, 2005, 155 successfully exchangedall of the old notes for new notes (the “Notes”).  Proceeds from the old notes offering wereused principally to renovate the Hôtel San Rémo into the Hooters Casino Hotel.

**3.  Lease Agreements**

In connection with the acquisition of Hôtel San Rémo’s real propertyand non-gaming assets by 155, Eastern & Western, as lessee, and 155 enteredinto lease agreements to lease back the casino and hotel property previouslyowned by Hôtel San Rémo.  Upon thereceipt of gaming and liquor licensing by 155, these leases were terminated onOctober 31, 2005 and the operations of the hotel and casino were assumed by155.   Total lease expense related tothese lease agreements was $1.1 million and $5.1 million for the three monthsand nine months ended September 30, 2005, respectively.

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**HÔTEL SANRÉMO CASINO AND RESORT**

**(A DIVISION OF S.I. ENTERPRISES, INC.)**

### **Notes to Condensed Combined Financial Statements (unaudited)(continued)**

**4.  Commitments and Contingencies**

*Non-Compete.*  Under the terms of the casino lease and thehotel lease, Eastern & Western has agreed that Hôtel San Rémo will notoperate a similar casino or hotel business at any other location in ClarkCounty, Nevada, including any location within a hotel and/or casino property.

## *Litigation.*  Hôtel San Rémo is party to various litigationarising in the normal course of business. Management is of the opinion that the ultimate resolution of thesematters will not have a material adverse effect on the financial position, cashflows, or the results of operations of Hôtel San Rémo.

 

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## **Item 2.  Management’s Discussion and Analysis ofFinancial Condition and Results of Operations.**

Thefollowing discussion and analysis should be read together with our unauditedconsolidated financial statements and the accompanying notes.  This discussion contains forward-lookingstatements, within the meaning of Section 27A of Securities Act of 1933, asamended, Section 21E of the Securities Exchange Act of 1934, as amended, andthe Private Securities Litigation Reform Act of 1995, including statements regardingour expected financial position, business and financing plans.  Some of the forward-looking statements can beidentified by the use of forward-looking term such as “believes,” “expects,” “may,”“will,” “should,” “could,” “seek,” “intends,” “plans,” “estimates,” “anticipates,”or other comparable terms. Forward-looking statements involve inherent risks and uncertaintieswhich could cause actual results to differ materially from those in theforward-looking statement, including those discussed herein and elsewhere inour Annual Report on Form 10-K filed with the Securities and ExchangeCommission, or the Commission, on March 31, 2006, particularly under theheading “Risk Factors.”  We cautionreaders not to place undue reliance upon any such forward-looking statements,which speak only as of the date made.

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

155 East Tropicana, LLC, or we, us, our, or 155, wasformed on June 17, 2004 to acquire the Hôtel San Rémo Casino and Resort, or theHôtel San Rémo, from Eastern & Western Hotel Corporation, or Eastern &Western.  Our common membership interestsare held two-thirds through Florida Hooters LLC and one-third through EW CommonLLC.

Florida Hooters LLC is a joint venture betweenHooters Gaming LLC and Lags Ventures, LLC. The owners of Hooters Gaming LLC, which include most of the originalfounders of the Hooters brand, hold licenses to sell wholesale foods andcalendars and to operate hotel casinos in Nevada and Hooters restaurants inTampa Bay, Florida, Chicago, Illinois and downtown Manhattan in New York.  Lags Ventures, LLC is owned by a holder ofthe license rights to Hooters restaurants in South Florida and the State ofNevada.  Pursuant to these licenserights, the owners of Florida Hooters LLC operate 42 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 2 DanMarino concept restaurants.

Eastern & Western owns 90% of EW Common LLC,while our President, Michael Hessling, owns the balance.  Eastern & Western is beneficially ownedby Sukeaki and Toyoroku Izumi.  Eastern& Western owned the Hôtel San Rémo from November 1988 until our acquisitionof the Hôtel San Rémo in 2004.  Mr.Hessling served as the Hôtel San Rémo’s executive vice president and chiefexecutive officer from January 1989 until the acquisition, at which time hebecame our Chief Operating Officer. Effective June 30, 2006, Mr. Hessling was appointed President of155.  Effective October 30, 2006, Gary A.Gregg was appointed Chief Operating Officer. Mr. Hessling will continue to serve on the management board asPresident.

Our affiliates have granted us assignments ofcertain license agreements pertaining to the use of the Hooters brand as wellas the Dan Marino, 13 Martini Bar and Pete & Shorty’s concept restaurants,which will 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 

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2001.  As a result, Hooters ofAmerica is the trademark owner of the Hooters brand and the operator andfranchisor of Hooters restaurants. Pursuant to the Hooters license assignment, we are required to payHooters of America a royalty fee, which totaled approximately $0.9 million fromFebruary 3, 2006 (grand opening) through September 30, 2006.  Aside from the abovementioned royalty fee, weare not otherwise affiliated with Hooters of America.

In August 2004, we agreed to the acquisition of thereal property and other assets of the Hôtel San Rémo for approximately $74.6million including transaction costs and expenses, and as adjusted for finalpurchase price adjustments.  Initially,we acquired $67.5 million of the real property and non-gaming assets and agreedthat additional cash payments associated with the transfer of working capitaland the remaining $5.0 million in gaming assets would be transferred to us uponobtaining the gaming and liquor licenses necessary to take over operations ofthe hotel casino.  In connection with theacquisition, we refinanced $43.7 million of Eastern & Western’s existingindebtedness, incurred additional expenses and obligations of $5.9 million, andissued to Eastern & Western $25.0 million of preferred membership interestrepresenting one-third of our common membership interests.  EW Common LLC was formed to hold Eastern& Western’s membership interests in us. Concurrently, we issued to Florida Hooters LLC two-thirds of ourcommon membership interests in exchange for $5.1 million cash and theassignment of certain rights with respect to trademarks and licenses valued at$4.2 million, based on a valuation from a third-party appraiser.

On March 29, 2005, we issued $130.0 millionaggregate principal amount of 83⁄4% Senior Secured Notes due 2012, or the oldnotes, in a private placement.  The oldnotes were subsequently exchanged with new notes, or the Notes, registered withthe Commission.  Interest payments on theNotes are due semi-annually, on each April 1 and October 1.  We used the proceeds from the old notesoffering to refinance existing indebtedness, and have used, and are using, theremaining proceeds (together with cash from operations and proceeds fromequipment financing) to renovate the hotel casino and to provide workingcapital.

In connection with the offering of the old notes, weformed a wholly owned subsidiary, 155 East Tropicana Finance Corp., solely forthe purpose of facilitating the old notes offering as a co-issuer of theold notes.

We also entered into a $15.0 million seniorsecured credit facility, or the “Credit Facility,” concurrently with theoffering of the old notes.  As discussedin more detail under Liquidity and Capital Resources (155 East Tropicana, LLC),the Credit Facility was amended on January 1, 2006, and again on June 6,2006.  During the nine months endedSeptember 30, 2006, we drew $681,572 against the Credit Facility (all of whichwas outstanding at September 30, 2006).

Priorto November 1, 2005, we conducted no business or operations other than inconnection with the acquisition and subsequent leasing of the Hôtel SanRémo.  Through October 31, 2005, Eastern& Western held the gaming license in Nevada and owned all gaming assetsused by the Hôtel San Rémo.  Under acasino lease and hotel lease, Eastern & Western operated the Hôtel SanRémo.  After obtaining the necessarygaming and liquor licenses to operate the hotel casino in October 2005, weassumed operations of the hotel casino on November 1, 2005 and the leases withEastern & Western were terminated.

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The renovations included a redesign of the mainentrance, a renovation and expansion of the casino and restaurant areas, aremodel of the hotel rooms and a renovation and expansion of the poolarea.  On February 3, 2006, the newHooters Casino Hotel was opened for business.  The Hooters Casino Hotelfeatures a casino floor with 660 slot and video poker machines, 33 table games,696 newly renovated hotel rooms including 17 suites, a tropical pool area,retail outlets, a day spa, and dining and entertainment options which include aHooters restaurant, Dan Marino’s Fine Food, a coffee shop restaurant, a sportsbar, and several bars.

In August 2004, we acquired the real property andother assets of the Hôtel San Rémo. Since November 1, 2005, we have also operated the hotel casino, andaccordingly, have a limited operating history. Therefore, the discussion of operations herein focuses on the revenuesand expenses for the quarter and nine months ended September 30, 2006 and 2005as if there were no change in ownership or operation of the hotel casino.

***Results of Operations***

Wegenerate hotel, casino, food and beverage, entertainment and retail revenues atthe hotel casino property.  During thenine months ending September 30, 2006, approximately 37.2% of the gross revenuewas derived from the casino, 32.6% from food and beverage, and 30.2% from hoteland other.

Casino revenue is derived primarily from patronswagering on slot machines, table games and other gaming activities.  Table games include blackjack, craps,roulette, and specialty games.  Casinorevenue is defined as the win from gaming activities, computed as thedifference between gaming wins and losses, not the total amount wagered.  “Table game drop” and “slot handle” arecasino industry specific terms used to identify the amount wagered by patronsfor 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.

Casinorevenues vary from time to time due to general economic conditions, table gamehold, slot hold, and occupancy percentages at the Hooters Casino Hotel andother hotels in Las Vegas.  Casinorevenues also vary depending upon the amount of gaming activity as well asvariations in the odds for different games of chance.  Casino revenues, room revenues, food andbeverage revenues, and other revenues vary due to general economic conditionsand competition.  During the first ninemonths of 2006, Las Vegas has continued to experience an upward trend in totalvisitation, as well as gaming win, hotel occupancy and hotel daily average roomrates.

Food and beverage revenues are derived from food andbeverage sales in the food outlets of the hotel casino, including restaurants,bars, room service and banquets.  Foodand beverage revenue is recognized at the time food and/or beverage is providedto the guest.  “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.

Room revenue is derived from rooms and suites rentedto guests.  “Average daily rate” is anindustry specific term used to define the average amount of revenue per rentedroom per day.  “Occupancy percentage”defines the total percentage of rooms occupied, and is computed by dividing the

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number of rooms occupied by the total number of rooms available.  Room revenue is recognized at the time theroom is provided to the guest.

The following table summarizes the results ofoperations of 155, doing business as the Hooters Casino Hotel (which opened onFebruary 3, 2006), for the quarter and nine months ended September 30, 2006 andthe combined results of operations of the Hôtel San Rémo and 155 for thequarter and nine months ended September 30, 2005 (in thousands, except forpercentages):
| ** **                           | ** ** | **155**                                      | ** ** | **COMBINED**                                 | ** ** | ** **               | ** ** | **155**                                               | ** ** | **COMBINED**                                          | ** ** | ** **               | ** ** |
|--------------------------------------|------------|----------------------------------------------|------------|----------------------------------------------|------------|--------------------------|------------|-------------------------------------------------------|------------|-------------------------------------------------------|------------|--------------------------|------------|
| ** **                           | ** ** | **Quarter  Ended  September 30,  2006** | ** ** | **Quarter  Ended  September 30,  2005** | ** ** | **%  Change  2006-2005** | ** ** | **Nine Months  Ended  September 30,  2006** | ** ** | **Nine Months  Ended  September 30,  2005** | ** ** | **%  Change  2006-2005** | ** ** |
| ** **                           | ** ** | **(in thousands)**                      | ** ** | **(in thousands)**                      | ** ** |
| Casino revenues                      |       | $                                            | 6,742      |                                         | $          | 2,461                    |       | 174.0                                                 | %          | $                                                     | 20,465     |                     | $          | 8,675 |   | 135.9 | % |
| Casino expenses                      |       | 3,611                                        |       | 1,621                                        |       | 122.8                    | %          | 10,574                                                |       | 5,044                                                 |       | 109.6                    | %          |
| Profit margin                        |       | 46.4                                         | %          | 34.1                                         | %          |                     |       | 48.3                                                  | %          | 41.9                                                  | %          |                     |       |
|                                 |       |                                         |       |                                         |       |                     |       |                                                  |       |                                                  |       |                     |       |
| Food and  beverage revenues          |       | $                                            | 6,325      |                                         | $          | 1,476                    |       | 328.4                                                 | %          | $                                                     | 17,906     |                     | $          | 5,112 |   | 250.3 | % |
| Food and  beverage expenses          |       | 4,815                                        |       | 1,463                                        |       | 229.2                    | %          | 14,421                                                |       | 4,604                                                 |       | 213.2                    | %          |
| Profit margin                        |       | 23.9                                         | %          | 0.9                                          | %          |                     |       | 19.5                                                  | %          | 9.9                                                   | %          |                     |       |
|                                 |       |                                         |       |                                         |       |                     |       |                                                  |       |                                                  |       |                     |       |
| Hotel and other  revenues            |       | $                                            | 5,716      |                                         | $          | 2,826                    |       | 102.3                                                 | %          | $                                                     | 16,592     |                     | $          | 11,277 |   | 47.1 | % |
| Hotel and other  expenses            |       | 2,327                                        |       | 1,035                                        |       | 124.8                    | %          | 6,523                                                 |       | 3,233                                                 |       | 101.8                    | %          |
| Profit margin                        |       | 59.3                                         | %          | 63.4                                         | %          |                     |       | 60.7                                                  | %          | 71.3                                                  | %          |                     |       |
|                                 |       |                                         |       |                                         |       |                     |       |                                                  |       |                                                  |       |                     |       |
| Promotional  allowances              |       | $                                            | 1,441      |                                         | $          | 477                      |       | 202.1                                                 | %          | $                                                     | 4,173      |                     | $          | 1,589 |   | 162.6 | % |
| Percent of gross  revenues           |       | 7.7                                          | %          | 7.1                                          | %          |                     |       | 7.6                                                   | %          | 6.3                                                   | %          |                     |       |
|                                 |       |                                         |       |                                         |       |                     |       |                                                  |       |                                                  |       |                     |       |
| General and  administrative expenses |       | $                                            | 4,935      |                                         | $          | 1,770                    |       | 178.8                                                 | %          | $                                                     | 14,052     |                     | $          | 5,804 |   | 142.1 | % |
| Percent of net  revenues             |       | 28.5                                         | %          | 28.2                                         | %          |                     |       | 27.7                                                  | %          | 24.7                                                  | %          |                     |       |
|                                 |       |                                         |       |                                         |       |                     |       |                                                  |       |                                                  |       |                     |       |
| Preopening  expenses                 |       | $                                            | —     |                                         | $          | 1,170                    |       | -100.0                                                | %          | $                                                     | 5,293      |                     | $          | 1,770 |   | 199.1 | % |
| Percent of net revenues              |       | —                                       |       | 18.6                                         | %          |                     |       | 10.4                                                  | %          | 7.5                                                   | %          |                     |       |

 

***2006 Quarterly Trends through September 30, 2006***

After generating second quarter results that werebelow expectations, with net revenues of $18.3 million and expenses (beforedepreciation, related party royalties, and loss on disposal of assets) of $17.7million, management announced that we would concentrate our efforts onincreasing slot revenue, increase business volume to the property throughoccupied rooms, and we would also cut costs. Second quarter room occupancy of 73.9% and slot win per unit per day of$67 were below industry norms of 94.7% reported by the Las Vegas Conventions andVisitors Authority and $113 reported in the Gaming Revenue Reports published bythe Nevada State Gaming Control Board, respectively.  Management made the decision to lower roomrates and aggressively sell rooms through third party distributors such asExpedia and Travelocity.  Additionally,we began to target the marketing of our slot club and to provide a morecomfortable and entertaining slot floor to attract play.  Management examined all operating andmarketing costs and began trimming excess costs at all levels.

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In comparing trends for 2006, we earned $1.7 millionbefore depreciation expense, related party royalties expense, and loss ondisposal of assets in the third quarter ended September 30, 2006, as comparedto $0.7 million for the second quarter.

Net revenues declined from $18.3 million in thesecond quarter to $17.3 million in the third quarter, a decline of $1.0 millionor 5.3%.  Room occupancy increased from73.9% in the second quarter of 2006 to 80.7% in the third quarter of 2006, butthe decrease in average daily room rates from $96 to $78 resulted in a decreasein room revenue of $0.4 million.  Othermiscellaneous revenue also decreased by $0.2 million.  Table games revenue declined by $0.3 millionin the third quarter of 2006 largely due to a hold percentage on the table gamesof 16.2%, which was lower than the hold percentage of 17.6% in the secondquarter.  The hold percentage experiencedin the third quarter was still within industry norms.  During the third quarter, slot revenuesincreased $0.2 million or 6.0% from the second quarter 2006 as a result ofincreased emphasis on slot marketing, additional room occupancy and the newslot floor layout.  We believe thathistorical trends in the seasonality of revenue volumes between the second andthird quarters of the year contributed to the decline in revenues from thesecond quarter to the third quarter of 2006. Based on the Gaming Revenue Reports published by the Nevada State GamingControl Board for Las Vegas Strip casinos with annual gaming revenue of $36.0to $72.0 million, the gaming volume coin-in for 2005 and 2004 declined by 1.5%and 3.8%, respectively, between the second and third quarters, and table gamedrop for 2005 and 2004 declined by 5.4% and 5.2%, respectively, between thesecond and third quarters.

Expenses before depreciation, related partyroyalties, and loss on disposal of assets were cut from $17.7 million in thesecond quarter 2006 to $15.7 million in the third quarter of 2006, a decline of$2.0 million.  The decline in thirdquarter expenses resulted largely from cutting marketing costs by $1.0 million,payroll costs by $0.2 million and other operational expenses by $0.9 million.

The following discussion presents an analysis of thehotel casino’s results of operations for the quarter and nine months ended September30, 2006 and 2005, respectively.

***Comparison of Quarter Ended September 30, 2006 with the Quarter EndedSeptember 30, 2005***

Netoperating revenues for the quarter ended September 30, 2006 were $17.3 million,an increase of $11.0 million or 175.9%, from $6.3 million of net operatingrevenues generated by the Hôtel San Rémo during the same period in the previousyear.  The significant increase in netoperating revenues was due to increased activity in the casino and food andbeverage outlets related to the new Hooters Casino Hotel, as discussed below.

*Casino.* Casino revenues increased by $4.2 million to $6.7 million for thequarter ended September 30, 2006, compared to $2.5 million for the quarterended September 30, 2005.  Table gamesrevenue was $2.6 million in the third quarter of 2006, an increase of $1.8million, or 236.9%, compared to the table games revenue of $0.8 million fromthe prior year’s quarter.  Table gamedrop increased to $16.2 million, or 316.2%, for the quarter ended September 30,2006 compared to the quarter ended September 30, 2005, but table game holdpercentage decreased from 20.0% in 2005 to 16.2% in 2006.  The table games generated an average win pertable of $866 per day for the quarter ended September 30, 2006 as compared to $530per day for the quarter ended September 30, 2005.  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 $36.0 to$72.0 million was $1,026 for the two 

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months ended August 31, 2006. Slot revenue of $4.0 million for the quarter ended September 30, 2006was an increase of 139.8% compared to $1.7 million in the same period in2005.  The average win per machine perday was $68 for the quarter ended September 30, 2006 as compared to $37 for thequarter ended September 30, 2005. 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 $36.0 to $72.0 million was $109 for thetwo months ended August 31, 2006.  Webelieve that we will need to build our slot customer base through targetedmarketing efforts before we can match or exceed the industry norms in slot winper unit.

Casinoexpenses increased by 122.8% to $3.6 million for the quarter ended September30, 2006 compared to $1.6 million for the quarter ended September 30, 2005 dueto increases in payroll and other operational expenses.  The profit margin for casino operations alsoincreased from 34.1% during the quarter ended September 30, 2005 to 46.4%during the quarter ended September 30, 2006 due to the significant increases inrevenue during 2006.

*Food and beverage.*  Foodand beverage revenue was $6.3 million for the quarter ended September 30, 2006as compared to $1.5 million for 2005, an increase of $4.8 million or328.4%.  The increase was a result ofadded food covers after the grand opening of Hooters Casino Hotel.  Covers increased in all restaurantsdramatically after the grand opening. Beverage revenue (which includes complimentary beverages) increased by$1.8 million, or 356.9%, from $0.5 million during the quarter ended September30, 2005.

Food and beverage expenses increased from $1.5 millionduring the quarter ended September 30, 2005 to $4.8 million during the quarterended September 30, 2006, an increase of $3.3 million.  The increase was due to increases in payroll,cost of food, and other operational expenses associated with the increase inbusiness volume and the increase in number of food and beverage outlets fromfive to nine after the grand opening. The profit margin for food and beverage operations increased to 23.9%for the quarter ended September 30, 2006 due to operational efficiencies inpayroll and cost of sales.

*Hotel and other.*  Hoteland other revenue (which includes hotel room revenue, retail, spa and othermiscellaneous revenue) increased by $2.9 million, or 102.3%, to $5.7 millionfor the quarter ended September 30, 2006, from $2.8 million for the quarterended September 30, 2005.  Room revenuewas $4.0 million for the quarter ended September 30, 2006 compared to $2.6million in 2005.  Average daily roomrates increased by 47.2% from $53 for the quarter ended September 30, 2005 to$78 for the quarter ended September 30, 2006, and occupancy rates increasedslightly from 79.7% for the quarter ended September 30, 2005 to 80.7% for thequarter ended September 30, 2006.  Afterthe remodeling of the rooms and rebranding of the hotel casino, we have animproved product and we are able to increase room rates.

Sales from our retail outlets selling Hooters logomerchandise increased the amount of other revenue significantly.  Retail revenue was $1.5 million or 26.5% ofhotel and other revenue in the quarter ended September 30, 2006 and increaseddramatically from $0.2 million during the quarter ended September 30, 2005 dueto the strength of the Hooters brand merchandise.

Hoteland other expenses increased by $1.3 million, or 124.8%, from $1.0 millionduring the quarter ended September 30, 2005 to $2.3 million during the quarterended September 30, 2006 due to increases in cost of sales, payroll, and otherexpenses in hotel and retail operations. The profit margin for 

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room revenue was 61.8% inthe third quarter of 2006 compared to 63.0% for that same period in the prioryear due to increased payroll expense and upgraded room amenities.  Retail sales generated a profit margin of42.4% in 2006.

*General and administrative.* General and administrative expense includes costs associated withcorporate marketing, information technology, finance, accounting, and propertyoperations.  General and administrativeexpense increased $3.1 million to $4.9 million for the quarter ended September30, 2006 compared to $1.8 million for the quarter ended September 30,2005.  This increase was principally dueto significant increases in advertising and marketing expenses for therebranding of the hotel casino and payroll expenses for increased staffing underthe Hooters Casino Hotel operations for the quarter ended September 30, 2006.

*Depreciation and amortizationexpense.*  Depreciation and amortization expense of $1.8million for the quarter ended September 30, 2006 increased by $1.3 million, or265.2%, from $0.5 million for the quarter ended September 30, 2005.  The increase in depreciation expense was dueto additional depreciation of fixed asset additions placed in service beginningFebruary 3, 2006.

*Related party royalties expenses.* Beginning on February 3, 2006, we incurred related party royalty feespursuant to agreements with Hooters Gaming Corporation, Lags Ventures, Inc.,and Las Vegas Wings, Inc.  These relatedparty royalties expenses totaled $0.3 million during the quarter endedSeptember 30, 2006.  The payment of therelated party 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.  The payments of the royalty feesare further limited to the sum of 2% of revenue and 3% of EBITDA, as defined inthe indenture.

*Interest income.* Interest income was approximately $38,000 for the quarter endedSeptember 30, 2006, compared to $0.6 million for the quarter ended September 30,2005.  The decrease resulted from greaterinterest income earned during 2005 on the investment of $130.0 million in Notesproceeds.

*Interest expense.* Interest expense was $3.2 million for the quarter ended September 30,2006, compared to $3.0 million for the quarter ended September 30, 2005, anincrease of $0.2 million.  Interestexpense for the quarter ended September 30, 2005 was net of capitalizedinterest of $172,525.  The remainder ofthe increase in interest expense was attributable to interest expense on theequipment purchase agreements we entered into during 2006.

*Related party lease income.* During the period from August 3, 2004 through October 31, 2005, weleased the hotel casino to Eastern & Western under two separate leaseagreements.  Pursuant to the casino leaseagreement, the casino, showroom, liquor servicing areas and other casinorelated areas were leased for $125,000 per month.  Pursuant to the hotel lease agreement for thehotel, restaurants, and other areas of the hotel casino property, rental incomewas $250,000 per month, plus a percentage rent equal to 100% of all revenuesreceived by Eastern & Western from the operation of the hotel andrestaurants, less operating expenses and working capital reserves, as definedin the hotel lease agreement.  For thequarter ended September 30, 2005, a total of $1.1 million was earned in rentalincome under the casino and hotel leases.

 

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

***Comparison of Nine Months ended September 30, 2006 with the Nine Monthsended September 30, 2005***

Theresults of operations for the nine months ended September 30, 2006 includes themonth of January 2006 when the property was essentially closed for remodelingand the first eight months of operations of the Hooters Casino Hotel fromFebruary 3, 2006 through September 30, 2006. Net operating revenues for the nine months ended September 30, 2006 were$50.8 million, an increase of $27.3 million or 116.4%, from $23.5 million ofnet operating revenues generated by the Hôtel San Rémo during the same periodin the previous year.  Included in thenet revenues for the first nine months of 2006 were $50.5 million generated bythe Hooters Casino Hotel operations beginning on February 3, 2006.  The increase in net operating revenues wasdue to increased activity in the casino and food and beverage outlets relatedto the new Hooters Casino Hotel.

*Casino.*  Casinorevenues increased by $11.8 million to $20.5 million for the nine months endedSeptember 30, 2006, compared to $8.7 million for the nine months endedSeptember 30, 2005.  Casino revenue of$20.3 million was generated after the grand opening on February 3, 2006.  Table games revenue was $8.5 million in 2006,an increase of $5.8 million, or 217.4%, compared to the table games revenue of$2.7 million from the prior year’s first nine months.  With the exception of $34,000, all tablegames revenue was generated after the grand opening.  Table game drop increased to $50.2 million,or by 257.2%, for the nine months ended September 30, 2006 compared to the ninemonths ended September 30, 2005, but table game hold percentage decreased from19.1% in 2005 to 17.0% in 2006.  Thetable games generated an average win per table of $1,096 per day after February3, 2006 as compared to $650 for the same period in 2005.  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 $36.0 to$72.0 million was $1,079 for the eight months ended August 31, 2006.  Slot revenue of $11.6 million for the ninemonths ended September 30, 2006 was an increase of 95.1% compared to $5.9million in the same period in 2005.  Withthe exception of $0.1 million, the entire slot revenue was generated after thegrand opening.  The average win per machineper day was $75 from February 3, 2006 to September 30, 2006 compared to $43 forthe same period in 2005.  According tothe Gaming Revenue Reports published by the Nevada State Gaming Control Board,the average win per machine per day for Las Vegas Strip casinos with annualgaming revenue of $36.0 to $72.0 million was $111 for the eight months endedAugust 31, 2006.

Casinoexpenses increased by 109.6% to $10.6 million for the nine months endedSeptember 30, 2006 compared to $5.0 million for the nine months ended September30, 2005 due to increases in payroll and other operational expenses.  However, the profit margin for casinooperations increased from 41.9% during the nine months ended September 30, 2005to 48.3% during the nine months ended September 30, 2006 due to payrollexpenses being proportionally lower during 2006 in comparison to revenue.  The percentage of payroll expenses incomparison to revenue for the nine months ended September 30, 2006 and 2005were 26.0% and 31.0%, respectively.

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*Food and beverage.*  Foodand beverage revenue was $17.9 million for the nine months ended September 30,2006 as compared to $5.1 million for 2005, an increase of 250.3%.  The increase in food revenues was a result ofincreased customer volume after the grand opening.  Beverage revenue (which includescomplimentary beverages) increased by $6.0 million, or 390.2%, from $1.5million during the nine months ended September 30, 2005.

Food and beverage expenses increased from $4.6million during the nine months ended September 30, 2005 to $14.4 million duringthe nine months ended September 30, 2006, an increase of $9.8 million.  The increase was due to increases in payroll,cost of food, and other operational expenses associated with the increase inbusiness volume and the increase in number of food and beverage outlets fromfive to nine after the grand opening. The profit margin for food and beverage operations increased from 9.9%during the nine months ended September 30, 2005 to 19.5% during the nine monthsended September 30, 2006 due to operational efficiencies in payroll and cost ofsales.

*Hotel and other.*  Hoteland other revenue (which includes hotel room revenue, retail, spa and othermiscellaneous revenue) increased by $5.3 million, or 47.1%, to $16.6 millionfor the nine months ended September 30, 2006 from $11.3 million for the ninemonths ended September 30, 2005.  Roomrevenue slightly increased to $11.8 million for the nine months ended September30, 2006 compared to $10.4 million in 2005. This increase was due to improvements in occupancy rates during thethird quarter, resulting from increased sales and marketing efforts.  For the months of February through September2006, room revenue was $11.4 million with an occupancy rate of 78.2% andaverage daily room rate of $92.  Thiscompares to room revenue of $9.3 million for the same eight months in 2005,with an occupancy rate of 84.5% and an average daily rate of $67.  Subsequent to the remodeling of the rooms, wehave been able to increase room rates due to the improved product; however, occupancyrates have not been as strong due to a lag in marketing to hotel distributors,particularly in the first five months of operations.

Sales from our retail outlets selling Hooters logomerchandise largely offset the decline in room revenue.  Retail revenue was $4.2 million or 25.0% ofhotel and other revenue in the nine months ended September 30, 2006 and hasincreased from $0.7 million during the nine months ended September 30, 2005 dueto the strength of the Hooters brand merchandise.

Hoteland other expenses increased by 101.8% from $3.2 million during the nine monthsended September 30, 2005 to $6.5 million during the nine months ended September30, 2006 due to increases in payroll and other expenses in hotel and retailoperations.  The profit margin for roomswas 65.0% in the third quarter of 2006 compared to 72.2% for the same period inthe prior year due to increased payroll expense and upgraded roomamenities.  Retail sales generated aprofit margin of 34.5% in 2006.

*General and administrative.* General and administrative expense includes costs associated withcorporate marketing, information technology, finance, accounting, and propertyoperations.  General and administrativeexpense increased $8.3 million to $14.1 million for the nine months endedSeptember 30, 2006 compared to $5.8 million for the nine months ended September30, 2005.  This increase was principallydue to increases in advertising and marketing expenses for the rebranding ofthe hotel casino and payroll expenses for increased staffing under the HootersCasino Hotel operations for the nine months ended September 30, 2006.

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*Depreciation and amortizationexpense.*  Depreciation and amortization expense of $4.7million for the nine months ended September 30, 2006 increased by $3.2 million,or 209.9%, from $1.5 million for the nine months ended September 30, 2005.  The increase in depreciation expense was dueto additional depreciation of fixed asset additions placed in service beginningFebruary 3, 2006.

*Pre-opening expenses.* Pre-opening expenses are costs associated with the start-up activitiesfor the new Hooters Casino Hotel and consist of salaries and wages, legal,professional, advertising, marketing, and other general administrativeexpenses.  Pre-opening expenses increasedby $3.5 million to $5.3 million for the nine months ended September 30, 2006compared to $1.8 million during the nine months ended September 30, 2005,largely due to increased training expenses during the month of January 2006 andthe costs of the grand opening celebration for the Hooters Casino Hotel inFebruary 2006.

*Related party royalties expenses.* Beginning on February 3, 2006, we incurred related party royalty feespursuant to agreements with Hooters Gaming Corporation, Lags Ventures, Inc.,and Las Vegas Wings, Inc.  These relatedparty royalties expenses totaled $1.1 million during the nine months endedSeptember 30, 2006.  The payment of therelated party 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.  The payments of the royalty feesare further limited to the sum of 2% of revenue and 3% of EBITDA as defined inthe indenture.

*Loss on disposal of assets.*  Theloss on disposal of assets in 2006 of $1.2 million is the result of retiringand replacing certain old slot machines and other equipment and the carpetingon the casino floor in connection with the Hooters Casino Hotel remodel.

*Interest income.* Interest income was $0.4 million for the nine months ended September 30,2006, compared to $1.4 million for the nine months ended September 30,2005.  The decrease resulted from greaterinterest income earned during 2005 on the investment of $130.0 million in oldnotes proceeds.

*Interest expense.* Interest expense was $9.5 million for the nine months ended September30, 2006, compared to $7.4 million for the nine months ended September 30,2005, an increase of $2.1 million.  Theincrease in interest expense was largely attributable to $8.5 million ininterest expense on the $130.0 million in old notes, issued in March 2005,which were exchanged for the Notes.

*Loss on extinguishment of debt.*  Theloss on extinguishment of debt in 2005 was related to the payoff of our bankloan with the proceeds of the old notes on March 29, 2005.

*Related party lease income.* During the period from August 3, 2004 through October 31, 2005, weleased the hotel casino to Eastern & Western under two separate leaseagreements.  Pursuant to the casino leaseagreement, the casino, showroom, liquor servicing areas and other casinorelated areas were leased for $125,000 per month.  Pursuant to the hotel lease agreement for thehotel, restaurants, and other areas of the hotel casino property, rental incomewas $250,000 per month, plus a percentage rent equal to 100% of all revenuesreceived by Eastern & Western from the operation of the hotel andrestaurants, less operating expenses and working capital reserves, as definedin the hotel lease agreement.  For thenine months ended September 30, 2005, a total of $5.1 million was received inrental income under the casino and hotel leases.

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

***Contractual Obligations***

The following table summarizes the contractualcommitments of 155 as of September 30, 2006:
| ** **                        | ** ** | **Payments Due By Year** | ** ** |
|-----------------------------------|------------|-----------------------------------------|------------|
| ** **                        | ** ** | **Total**                               | ** ** | **Less than  1 year** | ** ** | **1-3 years** | ** ** | **3-5 years** | ** ** | **Thereafter** | ** ** |
| ** **                        | ** ** | **(dollars in thousands)**    | ** ** |
| Equipment  purchase agreements(1) |       | $                                       | 4,675      |   | $ | 2,055 |   | $ | 2,574 |   | 46 |   | $ | — |   |
| Long-term debt(2)                 |       | 130,682                                 |       | — |   | 682 |   | — |   | 130,000 |   |
| Operating  contracts(3)           |       | 4,309                                   |       | 2,029 |   | 1,560 |   | 720 |   | — |   |
| Total                             |       | $                                       | 139,666    |   | $ | 4,084 |   | $ | 4,816 |   | $ | 766 |   | $ | 130,000 |   |
|                                   |            |                                         |            |  |  |  |  |  |  |  |  |  |  |  |  |  |

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(1)          155 entered into various equipment purchaseagreements for the new Hooters Casino Hotel.

(2)          The long-term debt represents the $130.0million in Notes due in 2012, and amounts drawn against the Credit Facilityduring the nine months ended September 30, 2006.

(3)          Operating contracts represent variouscontracts for services in connection with hotel operations.

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

Forthe nine months ended September 30, 2006, we used $7.5 million of cash inoperating activities, largely due to our net loss of $16.1 million, which wasoffset by $8.0 million of non-cash charges and payment-restricted related partyroyalty fees.

Forthe nine months ended September 30, 2006, $4.6 million of cash was provided byinvesting activities, largely due to the release of restricted cash to payinterest, offset by capital expenditures and the payment of constructionpayables.  At September 30, 2006, we nolonger have funds held as restricted cash.

For the nine months ended September 30, 2006, weused $1.1 million of cash in financing activities, largely as a result ofprincipal payments on equipment debt, offset by $0.7 million in proceeds fromissuance of debt.

The Notes’ indenture contains certain provisionswhich restrict or limit our ability to, among other things, incur more debt,pay dividends, redeem stock or make other distributions, enter intotransactions with affiliates or transfer or sell assets.

We entered into our $15.0 million Credit Facility concurrently with theoffering of the old notes.  The CreditFacility is a four-year revolving Credit Facility of $15.0 million, maturing onMarch 30, 2009, and currently has outstanding draws of $0.7 million atSeptember 30, 2006.   All outstandingprincipal and interest under the Credit Facility is due and payable on March30, 2009.

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The Credit Facility currently requires that we meet certainfinancial covenants on a quarterly basis. Among other covenants, we must maintain a rolling twelve month adjustedEBITDA that increases periodically and a senior debt to EBITDA ratio which isalso adjusted periodically.  At September30, 2006, we were required to maintain a rolling twelve month adjusted EBITDAof $2.0 million and a senior debt to EBITDA ratio of 11 to 1, and we were incompliance with both covenants.

We have reached an agreement in principle withrepresentatives of the Credit Facility to amend the Credit Facility to eliminatethe minimum EBITDA and senior leverage ratio financial covenants.  As of September 30, 2006, the amendments arecurrently being drafted and we are awaiting completion of an appraisal of theproperty.  While we expect to have asigned agreement before the end of the year, no assurances can be made that theproposed amendments will actually be signed or become effective.

As anticipated in our $130.0 million Note offeringdocument, we entered into equipment financing of $6.2 million during the ninemonths ending September 30, 2006, of which $4.7 million was outstanding atSeptember 30, 2006.

In addition to the capital expenditures associatedwith the remodeling and paid for from the restricted renovation funds, we spent$1.1 million in capital expenditures through September 30, 2006.  Capital expenditures of approximately $0.5million are anticipated in the fourth quarter of 2006.

We believe that we have the flexibility to coveroperational contingencies, working capital needs, capital expenditures, anddebt service obligations during 2006 and into 2007 through the use of cash(which totaled $10.2 million at September 30, 2006, including $3.8 millionrequired in daily operations), our cash flow from operations, and our abilityto draw against our $15.0 million Credit Facility, along with other availableequipment financing.

***Liquidity and Capital Resources (Hôtel San Rémo)***

For the nine months ended September 30, 2005, theHôtel San Rémo used approximately $61,000 in cash flow from operations.

For the nine months ended September 30, 2005, netcash of $0.2 million was used in investing activities as a result of purchasingother assets.

For the nine months ended September 30, 2005, netcash of $0.9 million was used in financing activities largely as a result ofadvances to affiliates.

As the result of the above factors, the Hôtel SanRémo’s net cash decreased $1.1 million, from $4.5 million at December 31, 2004to $3.4 million at September 30, 2005.

As of November 1, 2005, Hôtel San Rémo ceasedoperations as a hotel and casino business, as all remaining assets weretransferred to either 155 or the former owner of the hotel.

***Critical Accounting Policies and Estimates***

A description of critical accounting policies and estimates is includedin the management discussion and analysis included in our Annual Report on Form10-K for the year ended December 31, 2005 filed with the Commission on March31, 2006.

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## **Item3.  Quantitative and QualitativeDisclosures About Market Risk.**

The following discusses our exposure to market riskrelated to changes in interest rates, equity prices and foreign currencyexchange rates.  We do not believe thatour respective exposure to market risk is material.

Market risk is risk of loss arising from changes inmarket rates and prices, such as interest rates, foreign currency exchangerates and commodity prices.  At September30, 2006, we had $130,000,000 aggregate principal amount Senior Secured Notesdue April 2, 2012, slot equipment purchase agreements of $6.0 million carryingan imputed interest rate of 3.327%, and hotel equipment purchase agreements of$0.2 million carrying an imputed interest rate of 10.75%.  The Notes carry a fixed interest rate of 83⁄4%,provided no events of default remain unresolved.  Since the Notes and equipment purchase loanshave fixed interest rates, there is no market risk associated with theseloans.  We have market risk associatedwith funds that may be borrowed on the $15.0 million Credit Facility, dueto an interest rate that floats with the LIBOR or prime rate.  The term of the Credit Facility will matureon March 30, 2009.  At September 30,2006, $681,572 was outstanding under the variable rate Credit Facility,carrying interest at 8.985%.

**We do not have any significant foreigncurrency exchange rate risk or commodity price risk and do not currently tradeany market sensitive instruments.**

## **Item4.  Controls and Procedures.**

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

We evaluated theeffectiveness of our disclosure controls and procedures as of three monthsended September 30, 2006.  Thisevaluation was done with the participation of our management, including ourChief Executive Officer and Chief Financial Officer.

Disclosure controls andprocedures are controls and other procedures that are designed to ensure thatinformation required to be disclosed by us in the reports that we file orsubmit under the Securities Exchange Act of 1934 are recorded, processed,summarized and reported within the time periods specified in the Commission’srules and forms.  Disclosure controls andprocedures include, without limitation, controls and procedures designed toensure that information required to be disclosed by us in the reports that wefile under the Securities Exchange Act of 1934 is accumulated and communicatedto our manager, as appropriate to allow timely decisions regarding requireddisclosure.

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

Our management does notexpect that our disclosure controls and procedures or our internal controlsover financial reporting will prevent all error and all fraud.  A control system, no matter how wellconceived 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 isbased 

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upon certainassumptions about the likelihood of future events, there can be no assurancethat any design will succeed in achieving its stated goals under all potentialfuture conditions.  Over time, controlsmay become inadequate because of changes in conditions, or the degree ofcompliance with the policies or procedures may deteriorate. Because of theinherent limitations in a cost-effective control system, misstatements due toerror or fraud may occur and may not be detected.

## ***Conclusions***

Based on this evaluation,our Chief Executive Officer and Chief Financial Officer have evaluated ourdisclosure controls and procedures (as defined in the Securities Exchange Actof 1934 Rules 13a-15(e) and 15d-15(e)) as of September 30, 2006, and haveconcluded that they are effective to timely alert them to material informationrelating to us required to be included in the reports that we file or submitunder the Securities Exchange Act of 1934.

## ***Changes in InternalControls***

There were no changes in our internal controls overfinancial reporting that occurred during our last fiscal quarter, *i.e.*, the quarter ended September 30,2006, that have materially affected, or are reasonably likely to materiallyaffect, our internal controls over financial reporting.

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# **PART II —OTHER INFORMATION**

## **Item1.  Legal Proceedings.**

None.

## **Item1A.  Risk Factors.**

None.

## **Item2.  Unregistered Sales of EquitySecurities and Use of Proceeds.**

None.

## **Item3.  Defaults Upon Senior Securities.**

None.

## **Item4.  Submission of Matters to a Vote ofSecurity Holders.**

None.

## **Item5.  Other Information.**

None.

## I**tem 6. Exhibits.**

Exhibits:

10.1                        Employment Agreement entered into October 30,2006 by and between Gary A. Gregg and 155 East Tropicana, LLC

10.2                        Employment Agreement entered into October 31,2006 by and between Michael J. Hessling and 155 East Tropicana, LLC

31.1         Certificationpursuant to §302 of the Sarbanes-Oxley Act of 2002, Deborah J. Pierce

31.2         Certificationpursuant to §302 of the Sarbanes-Oxley Act of 2002, Neil G. Kiefer

32.1         Certificationpursuant to §906 of the Sarbanes-Oxley Act of 2002, Deborah J. Pierce

32.1         Certificationpursuant to §906 of the Sarbanes-Oxley Act of 2002, Neil G. Kiefer

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#  

# **SIGNATURES**

Pursuant to the requirements of the Securities Exchange Act of 1934,the registrant has duly caused this report to be signed on its behalf by theundersigned thereunto duly authorized.
| **155 EAST TROPICANA, LLC** | ** ** | ** **                                                                     |
|-----------------------------|------------|--------------------------------------------------------------------------------|
|                        |       |                                                                           |   |   |
|                        |       |                                                                           |   |   |
|                        |       |                                                                           |   |   |
| By:                         |       | /s/ Deborah J. Pierce                                                          |   | November 10, 2006 |
|                        |       | Deborah J. Pierce                                                              |   |   |
|                        | * *   | *Chief Financial Officer  (Principal Financial and  Chief Accounting Officer)* | * * | * * |
|                             |            |                                                                                |  |  |  |  |

 
| **155 EAST TROPICANA FINANCE CORP.** | ** ** | ** **                                                                     |
|--------------------------------------|------------|--------------------------------------------------------------------------------|
|                                 |       |                                                                           |   |   |
|                                 |       |                                                                           |   |   |
|                                 |       |                                                                           |   |   |
| By:                                  |       | /s/ Deborah J. Pierce                                                          |   | November 10, 2006 |
|                                 |       | Deborah J. Pierce                                                              |   |   |
|                                 | * *   | *Chief Financial Officer  (Principal Financial and  Chief Accounting Officer)* | * * | * * |
|                                      |            |                                                                                |  |  |  |  |

 

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