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** **

 

** **

**UNITEDSTATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

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**FORM 10-Q**

 

**(MarkOne)**

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

 

**For the quarterly period ended June 30, 2008**

 

**or**

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

 

**For the transition period from                  to                  **

 

**CommissionFile Number 333-124924**

 

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**155 East Tropicana, LLC**

**155 East Tropicana Finance 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 bycheck mark whether the registrant (1) has filed all reports required by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding 12months (or for such shorter period that the registrant was required to filesuch reports) and (2) has been subject to such filing requirements for thepast 90 days.    Yes  **x**    No  o

 

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

 
| Large  accelerated filer o                     | Accelerated  filer o         |
|------------------------------------------------|-----------------------------------|
|                                           |                              |
| Non-accelerated  filer x                       | Smaller  reporting company o |
| (Do not check if a smaller  reporting company) |                              |

 

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

 

 

 

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Table of Contents

 
| **PART I –  FINANCIAL INFORMATION**                     | ** **                                                                                  |
|-------------------------------------------------------------------|---------------------------------------------------------------------------------------------|
|                                                              |                                                                                        | ** ** |
| Item 1.                                                           | Financial Statements                                                                        | 3 |
|                                                              |                                                                                        | ** ** |
| **155  EAST TROPICANA, LLC (A Nevada Limited-Liability Company)** | ** **                                                                                  |
|                                                              |                                                                                        | ** ** |
| * *                                                          | Condensed Consolidated Balance Sheets (unaudited)                                           | 3 |
| * *                                                          | Condensed Consolidated Statements of Operations (unaudited)                                 | 4 |
| * *                                                          | Condensed Consolidated Statements of Cash Flows (unaudited)                                 | 5 |
| * *                                                          | Notes to Condensed Consolidated Financial  Statements (unaudited)                           | 6 |
|                                                              |                                                                                        |   |
| Item 2.                                                           | Management’s Discussion and Analysis of  Financial Condition and Results of Operations | 12 |
|                                                              |                                                                                        |   |
| Item 3.                                                           | Quantitative and Qualitative Disclosures  About Market Risk                                 | 21 |
|                                                              |                                                                                        |   |
| Item 4.                                                           | Controls and Procedures                                                                     | 21 |
|                                                              |                                                                                        |   |
| **PART II – OTHER INFORMATION**                         |                                                                                        |
|                                                              |                                                                                        |   |
| Item 1.                                                           | Legal Proceedings                                                                           | 23 |
|                                                              |                                                                                        |   |
| Item 1A.                                                          | Risk Factors                                                                                | 23 |
|                                                              |                                                                                        |   |
| Item 2.                                                           | Unregistered Sales of Equity Securities and  Use of Proceeds                                | 23 |
|                                                              |                                                                                        |   |
| Item 3.                                                           | Defaults Upon Senior Securities                                                             | 23 |
|                                                              |                                                                                        |   |
| Item 4.                                                           | Submission of Matters to a Vote of Security  Holders                                        | 23 |
|                                                              |                                                                                        |   |
| Item 5.                                                           | Other Information                                                                           | 23 |
|                                                              |                                                                                        |   |
| Item 6.                                                           | Exhibits                                                                                    | 23 |
|                                                              |                                                                                        | ** ** |
| **SIGNATURES**                                                    | **24**                                                                                      |
|                                                                   |                                                                                             |  |  |

 

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Table of Contents

** **

**PART I – FINANCIAL INFORMATION**

** **

**Item1.  Financial Statements.**

** **

**155 EAST TROPICANA, LLC**

**(A NEVADA LIMITED-LIABILITY COMPANY)**

** **

**CONDENSED CONSOLIDATED BALANCE SHEETS**

 
| ** **                                                                                                          | ** ** | **June 30,** | ** **  | **December 31,** | ** ** |
|---------------------------------------------------------------------------------------------------------------------|------------|-------------------|-------------|-----------------------|------------|
| ** **                                                                                                          | ** ** | **2008**          | ** **  | **2007**              | ** ** |
| ** **                                                                                                          | ** ** | **(unaudited)**   | ** **  | ** **            | ** ** |
| **Assets**                                                                                                          | ** ** | ** **        | ** **  | ** **            | ** ** |
| Current assets:                                                                                                     |       |              |        |                  |       |
| Cash and cash equivalents                                                                                           |       | $                 | 7,568,628   |                  | $          | 5,861,991 |   |
| Accounts receivable, net of allowance for  doubtful accounts of $119,861 and $90,831 in 2008 and 2007, respectively |       | 1,192,521         |        | 1,880,454             |       |
| Inventories                                                                                                         |       | 837,869           |        | 931,029               |       |
| Prepaid expenses                                                                                                    |       | 1,593,266         |        | 1,576,356             |       |
| Total current assets                                                                                                |       | 11,192,284        |        | 10,249,830            |       |
| Property and equipment, net                                                                                         |       | 114,371,267       |        | 117,084,512           |       |
| Other long-term assets:                                                                                             |       |              |        |                  |       |
| Deferred financing costs                                                                                            |       | 4,273,430         |        | 4,971,161             |       |
| Intangible assets                                                                                                   |       | 6,479,254         |        | 6,505,209             |       |
| Other assets                                                                                                        |       | 360,522           |        | 336,022               |       |
| Total other long-term assets                                                                                        |       | 11,113,206        |        | 11,812,392            |       |
| Total assets                                                                                                        |       | $                 | 136,676,757 |                  | $          | 139,146,734 |   |
|                                                                                                                |       |              |        |                  |       |
| **Liabilities and Members’ (Deficit) Equity**                                                                  | ** ** | ** **        | ** **  | ** **            | ** ** |
| Current liabilities:                                                                                                |       |              |        |                  |       |
| Accounts payable                                                                                                    |       | $                 | 3,154,660   |                  | $          | 2,974,233 |   |
| Accrued interest payable                                                                                            |       | 2,843,750         |        | 2,843,750             |       |
| Accrued liabilities                                                                                                 |       | 2,068,679         |        | 1,399,930             |       |
| Purchase deposit and extension payments                                                                             |       | —            |        | 3,500,000             |       |
| Current portion of long-term debt                                                                                   |       | 1,233,022         |        | 2,035,273             |       |
| Total current liabilities                                                                                           |       | 9,300,111         |        | 12,753,186            |       |
| Related party royalties payable                                                                                     |       | 3,570,589         |        | 2,848,796             |       |
| Long-term debt                                                                                                      |       | 136,565,656       |        | 136,552,084           |       |
| Total liabilities                                                                                                   |       | 149,436,356       |        | 152,154,066           |       |
|                                                                                                                |       |              |        |                  |       |
| Commitments and contingencies                                                                                       |       |              |        |                  |       |
|                                                                                                                |       |              |        |                  |       |
| Members’ (deficit) equity:                                                                                     |       |              |        |                  |       |
| Membership interests                                                                                                |       | 34,333,375        |        | 34,333,375            |       |
| Accumulated deficit                                                                                                 |       | (47,092,974       | )           | (47,340,707           | )          |
|                                                                                                                |       | (12,759,599       | )           | (13,007,332           | )          |
| Total liabilities and members’ (deficit)  equity                                                               |       | $                 | 136,676,757 |                  | $          | 139,146,734 |   |

 

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

 

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

 

**CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)**

 
| ** **                                                         | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|--------------------------------------------------------------------|------------|------------------------|------------|----------------------|------------|
| ** **                                                         | ** ** | **June 30,**      | ** ** | **June 30,**    | ** ** | **June 30,** | ** ** | **June 30,** | ** ** |
| ** **                                                         | ** ** | **2008**               | ** ** | **2007**             | ** ** | **2008** | ** ** | **2007** | ** ** |
|                                                               |       |                   |       |                 |       |   |   |   |   |
| Operating revenues:                                                |       |                   |       |                 |       |   |   |   |   |
| Casino                                                             |       | $                      | 6,918,611  |                 | $          | 6,521,624 |   | $ | 13,345,409 |   | $ | 13,045,725 |   |
| Food, beverage and entertainment                                   |       | 5,853,877              |       | 6,373,307            |       | 11,523,524 |   | 12,280,213 |   |
| Hotel and other                                                    |       | 5,676,677              |       | 6,398,391            |       | 11,600,907 |   | 13,033,304 |   |
|                                                               |       | 18,449,165             |       | 19,293,322           |       | 36,469,840 |   | 38,359,242 |   |
| Less promotional allowances                                        |       | (2,013,407             | )          | (1,753,794           | )          | (3,908,916 | ) | (3,277,342 | ) |
| Net operating revenues                                             |       | 16,435,758             |       | 17,539,528           |       | 32,560,924 |   | 35,081,900 |   |
|                                                               |       |                   |       |                 |       |   |   |   |   |
| Operating expenses:                                                |       |                   |       |                 |       |   |   |   |   |
| Casino                                                             |       | 4,492,855              |       | 3,997,231            |       | 7,528,910 |   | 7,724,015 |   |
| Food, beverage and entertainment                                   |       | 3,345,668              |       | 4,815,888            |       | 7,400,611 |   | 9,317,998 |   |
| Hotel and other                                                    |       | 2,055,952              |       | 2,247,399            |       | 3,985,313 |   | 4,398,835 |   |
| General and administrative                                         |       | 4,289,069              |       | 5,137,901            |       | 8,435,406 |   | 9,851,831 |   |
| Depreciation and amortization                                      |       | 1,629,734              |       | 1,840,966            |       | 3,159,260 |   | 3,537,570 |   |
| Related party royalties expenses                                   |       | 363,884                |       | 371,179              |       | 721,793 |   | 717,969 |   |
| Total operating expenses                                           |       | 16,177,162             |       | 18,410,564           |       | 31,231,293 |   | 35,548,218 |   |
| Operating income (loss)                                            |       | 258,596                |       | (871,036             | )          | 1,329,631 |   | (466,318 | ) |
|                                                               |       |                   |       |                 |       |   |   |   |   |
| Other income (expense):                                            |       |                   |       |                 |       |   |   |   |   |
| Income on forfeited deposits and extension  fees                   |       | 5,500,000              |       | —               |       | 5,500,000 |   | — |   |
| Interest income                                                    |       | 10,910                 |       | 15,013               |       | 91,123 |   | 52,441 |   |
| Interest expense                                                   |       | (3,326,452             | )          | (3,309,430           | )          | (6,673,021 | ) | (6,581,015 | ) |
| Other income (expense), net                                        |       | 2,184,458              |       | (3,294,417           | )          | (1,081,898 | ) | (6,528,574 | ) |
| Net income (loss)                                                  |       | $                      | 2,443,054  |                 | $          | (4,165,453 | ) | $ | 247,733 |   | $ | (6,994,892 | ) |
|                                                               |       |                   |       |                 |       |   |   |   |   |
|                                                               |       |                   |       |                 |       |   |   |   |   |   |   |   |   |
| Income (loss) allocable to preferred and  common member interests: |       |                   |       |                 |       |   |   |   |   |
|                                                               |       |                   |       |                 |       |   |   |   |   |
| Income allocable to preferred interest - EW  Common, LLC           |       | $                      | 250,000    |                 | $          | 250,000 |   | $ | 500,000 |   | $ | 500,000 |   |
|                                                               |       |                   |       |                 |       |   |   |   |   |
| Income (loss) allocable to common member  interests                |       |                   | 2,193,054  |                 |       | (4,415,453 | ) |   | (252,267 | ) |   | (7,494,892 | ) |
|                                                               |       |                   |       |                 |       |   |   |   |   |   |   |   |   |
| Net Income (loss)                                                  |       | $                      | 2,443,054  |                 | $          | (4,165,453 | ) | $ | 247,733 |   | $ | (6,994,892 | ) |

 

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

 

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

 

**CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)**

 
| ** **                                                                                | ** ** | **Six Months Ended  June 30,  2008** | ** ** | **Six Months Ended  June 30,  2007** | ** ** |
|-------------------------------------------------------------------------------------------|------------|-------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                                                                | ** ** | ** **                                | ** ** | ** **                                | ** ** |
| **Cash Flow From Operating Activities**                                                   | ** ** | ** **                                | ** ** | ** **                                | ** ** |
| Net income (loss)                                                                         |       | $                                         | 247,733    |                                      | $          | (6,994,892 | ) |
| Adjustments to reconcile net income (loss)  to net cash provided by operating activities: |       |                                      |       |                                      |       |
| Depreciation and amortization                                                             |       | 3,159,260                                 |       | 3,537,570                                 |       |
| Amortization of deferred financing costs                                                  |       | 697,731                                   |       | 697,731                                   |       |
| Amortization of intangible asset                                                          |       | 25,955                                    |       | 25,955                                    |       |
| Changes in operating assets and  liabilities:                                             |       |                                      |       |                                      |       |
| Accounts receivable                                                                       |       | 687,933                                   |       | (285,438                                  | )          |
| Inventories                                                                               |       | 93,160                                    |       | (83,381                                   | )          |
| Prepaid expenses                                                                          |       | (16,910                                   | )          | (195,390                                  | )          |
| Accounts payable                                                                          |       | 180,428                                   |       | 353,922                                   |       |
| Related party royalties payable                                                           |       | 721,793                                   |       | 717,969                                   |       |
| Accrued interest payable                                                                  |       | —                                    |       | —                                    |       |
| Accrued liabilities                                                                       |       | 668,749                                   |       | (219,082                                  | )          |
| Net cash provided by (used in) operating  activities                                      |       | 6,465,832                                 |       | (2,445,036                                | )          |
|                                                                                      |       |                                      |       |                                      |       |
| **Cash Flow From Investing Activities**                                                   | ** ** | ** **                                | ** ** | ** **                                | ** ** |
| Capital expenditures                                                                      |       | (446,016                                  | )          | (730,211                                  | )          |
| Change in other assets                                                                    |       | (24,500                                   | )          | —                                    |       |
| Net cash (used in) investing activities                                                   |       | (470,516                                  | )          | (730,211                                  | )          |
|                                                                                      |       |                                      |       |                                      |       |
| **Cash Flow From Financing Activities**                                                   | ** ** | ** **                                | ** ** | ** **                                | ** ** |
| Proceeds from issuance of long-term debt                                                  |       | 246,073                                   |       | 1,924,607                                 |       |
| Principal payments on equipment purchase  agreements                                      |       | (1,034,752                                | )          | (996,107                                  | )          |
| Proceeds from purchase deposit and  extension fee payments                                |       | 2,000,000                                 |       | 1,000,000                                 |       |
| Redemption of purchase deposit and  extension fee payments                                |       | (5,500,000                                | )          | —                                    |       |
| Net cash (used in) provided by financing  activities                                      |       | (4,288,679                                | )          | 1,928,500                                 |       |
|                                                                                      |       |                                      |       |                                      |       |
| Increase (decrease) in cash and cash  equivalents                                         |       | 1,706,637                                 |       | (1,246,747                                | )          |
| Cash and cash equivalents, beginning of  period                                           |       | 5,861,991                                 |       | 6,164,192                                 |       |
| Cash and cash equivalents, end of period                                                  |       | $                                         | 7,568,628  |                                      | $          | 4,917,445 |   |
|                                                                                      |       |                                      |       |                                      |       |
| **Supplemental disclosure of cash flow  information**                                     | ** ** | ** **                                | ** ** | ** **                                | ** ** |
| Cash paid for interest                                                                    |       | $                                         | 6,673,021  |                                      | $          | 5,883,284 |   |
|                                                                                      |       |                                      |       |                                      |       |
| Assets acquired through equipment loans                                                   |       | $                                         | —     |                                      | $          | 312,619 |   |

 

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

 

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

 

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

** **

**June 30, 2008**

 

**1.  Organization and Basis of Presentation**

 

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

 

FloridaHooters LLC is a joint venture between Hooters Gaming LLC and Lags Ventures,LLC.  Hooters Gaming LLC is owned by theholders of licenses to operate Hooters restaurants in Tampa Bay, Florida,Chicago, Illinois and downtown Manhattan in New York as well as for the sale ofwholesale foods and calendars and Nevada hotel/gaming and includes most of theoriginal founders of the Hooters brand. Pursuant to these license rights, the owners of Florida Hooters LLCoperate 39 Hooters restaurants, publish Hooters calendars and operate a Hootersfood business.  Lags Ventures, LLC isowned by a holder of the license rights to certain Hooters restaurants inNevada and South Florida. The owner of Lags Ventures, LLC is also the founderof the Dan Marino concept restaurants and owns and operates two Dan Marinoconcept restaurants.

 

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

 

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

 

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

 

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

** **

**1.  Organizationand Basis of Presentation (continued)**

 

OnFebruary 3, 2006, the newly renovated and re-branded Hooters Casino Hotelwas opened for business.  The Hooters Casino Hotel currently features acasino floor with 633 slot and video poker machines, 31 table games, 696 newlyrenovated hotel rooms including 17 suites, a tropical pool area, retailoutlets, a day spa, and dining and entertainment options which include aHooters restaurant, Dan Marino’s restaurant (which began offering 24 hourservices as of October 24, 2007), a sports bar, several bars and Night OwlShowroom. The renovations included a redesign of the main entrance, arenovation and expansion of the casino and restaurant areas, a remodel of thehotel rooms and a renovation and expansion of the pool area.

 

Significantinter-company transactions between the Company and its wholly owned subsidiaryhave been eliminated in consolidation.

 

Aspermitted by the rules and regulations of the Securities and ExchangeCommission, certain information and footnote disclosures normally included infinancial statements prepared in accordance with generally accepted accountingprinciples have been condensed or omitted. These condensed consolidated financial statements should be read inconjunction with the Company’s 2007 annual consolidated financial statementsand notes thereto included in the Company’s Annual Report on Form 10-K forthe year ended December 31, 2007.

 

Inthe opinion of management, the accompanying unaudited condensed consolidatedfinancial statements contain all adjustments – which include normal recurringadjustments –necessary to present fairly the Company’s financial position as ofJune 30, 2008 and the results of its operations for the three month andsix month periods ended June 30, 2008 and 2007.  The results of operations for such periodsare not necessarily indicative of the results to be expected for the full year.

 

**2.  Summaryof Significant Accounting Principles**

 

*Reclassifications.* Certain reclassifications of participationfees and player club points, having no effect on net income (loss), have beenmade to the previously issued condensed consolidated financial statements toconform to the current period’s presentation of the Company’s condensedconsolidated financial statements.

 

*Income (loss) allocable to preferredand common member Interests*. A schedule is presented on thecondensed consolidated statements of operations which allocates net income(loss) between the preferred interest held by EW Common, LLC and the commonmember interests. As described in footnote 5, Preferred Return, a preferredreturn began accumulating on March 1, 2006 and accumulates whether or not thereare profits or funds available for the payment of the preferred return. Underthe Notes indenture, the preferred return is payable only if the Company’scoverage ratio meets certain criteria. No payments have ever been made throughJune 30, 2008.

 

*RecentlyIssued Accounting Pronouncements*.  In December 2007, FASBissued SFAS 141R, “Business Combinations”. Under SFAS 141R, an acquiring entity will be required to recognize allthe assets acquired and liabilities assumed in a transaction at theacquisition-date fair value, with limited exceptions, replacing SFAS 141’scost-allocation process.  SFAS 141R alsoincludes a substantial number of new disclosure requirements.  SFAS 141R is to be applied prospectively tobusiness combinations for which the acquisition date is on or after thebeginning of the first annual reporting period beginning on or after December 15,2008.  Early adoption is prohibited.  We will adopt SFAS 141R in the first quarterof 2009.  The impact on our accountingfor future business combinations once adopted will be dependent upon acquisitionsthat are made in the future.  In April2008, the Financial Accounting Standards Board (“FASB”) issued Staff Position(“FSP”) No. FAS 142-3, “Determination of the Useful Life of Intangible Assets,”which amends the factors that should be considered in developing renewal orextension assumptions used to determine the useful life of a recognizedintangible asset under FASB Statement of Financial Accounting Standards(“SFAS”) No. 142, “Goodwill and Other Intangible Assets.” This FSP is effectivefor fiscal years beginning after December 15, 2008 and only appliesprospectively to intangible assets acquired after the effective date. Earlyadoption is not permitted. The Company believes this FSP, when adopted, willnot have a material impact on its financial position, results of operations orcash flows.

 

*RecentlyIssued Adopted Pronouncements. *In September 2006, the FASB issuedSFAS  No. 157, *Fair Value Measurements*, which definesfair value, establishes a framework for measuring fair value in GAAP, andexpands disclosures about fair value measurements.  SFAS 157 does not require any new fair valuemeasurements, but provides guidance on how to measure fair value by providing afair value hierarchy used to classify the source of the information.  SFAS 157 is effective for financial

 

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

 

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

** **

**2.  Summaryof Significant Accounting Principles (continued)**

 

statementsissued for fiscal years beginning after November 15, 2007 and interimperiods within these fiscal years.  In February 2008,FASB issued FASB Staff Position (“FSP”) FAS 157-2, which defers the effectivedate of SFAS 157 to fiscal years beginning after November 15, 2008, andinterim periods within those fiscal years, for nonfinancial assets andnonfinancial liabilities that are recognized or disclosed at fair value in anentity’s financial statements on a recurring basis.  As such, the Company partially adopted theprovisions of SFAS No. 157 effective January 1, 2008, without any materialimpact to the Company’s financial position, results of operations or cashflows. The Company expects to adopt the remaining provisions of SFAS No. 157beginning in 2009; however, the Company does not expect this adoption to have amaterial impact on its financial position, results of operations or cash flows.

 

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

 

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

 

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

** **

**3.  Long-term Debt**

** **

Long-termdebt consists of the following:

 
| ** **                         | ** ** | **June 30,** | ** **  | **December 31,** | ** ** |
|------------------------------------|------------|-------------------|-------------|-----------------------|------------|
| ** **                         | ** ** | **2008**          | ** **  | **2007**              | ** ** |
| 8.75% Senior secured notes (1)     |       | $                 | 130,000,000 |                  | $          | 130,000,000 |   |
| Senior secured credit facility (2) |       | 6,501,637         |        | 6,255,565             |       |
| Equipment purchase agreements (3)  |       | 1,297,041         |        | 2,331,792             |       |
| Total debt                         |       | 137,798,678       |        | 138,587,357           |       |
| Less: Current portion of debt      |       | (1,233,022        | )           | (2,035,273            | )          |
| Total long-term debt               |       | $                 | 136,565,656 |                  | $          | 136,552,084 |   |

 

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| (1)    |   | $130.0 million aggregate  principal amount of 8.75% Senior Secured Notes issued on March 29, 2005  and due on 2012.                                                                                                                                                                                                                                                                                                                 |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| (2)    |   | Outstanding draws  against the $15.0 million Senior Secured Credit Facility as of June 30,  2008 and December 31, 2007, respectively. At the Company’s option, the  interest rate will be either the agent for the lender’s prime rate plus 2.00%  per annum or LIBOR plus 3.50% per annum. As of June 30, 2008, the Credit  Facility due September 30, 2011 carried an interest rate of 6.12% per  annum. |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| (3)    |   | During the six months  ended June 30, 2007, the Company entered into a $0.3 million loan  agreement to purchase approximately $0.4 million in hotel equipment. The  loan, which is collateralized by the equipment purchased, has a term of 18  months with an imputed interest rate of 12.7%.                                                                                                                                      |

 

**4.  Related Party Transactions**

** **

**RoyaltiesExpense**

 

Pursuantto agreements related to the use of certain trademarks, the Company must payfees and royalties to related parties.  A fee equal to 3% of all netprofits earned from gaming activities is payable to Hooters Gaming Corporation,a consent fee equal to 6% of net revenues generated by the Dan Marino’sRestaurant and “13” Martini Bar (which closed in 2007) is payable to LagsVentures, Inc. and a fee of 4% of cash sales from the Hooters brandedrestaurant, and 3% of the gross sales with any merchandise with a Hooters logo,is payable to Las Vegas Wings, Inc.  The total fees accrued at June 30,2008 for Hooters Gaming Corporation, Lags Venture, Inc. and Las Vegas Wings, Inc.were $1.9 million, $0.6 million, and $1.1 million, respectively.  The Company began accruing these fees whenthe Hooters Casino Hotel opened on February 3, 2006.  The payment of these royalty fees isrestricted under the indenture governing the Notes.

 

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

 

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

** **

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

** **

**ProvidentAdvertising & Marketing, Inc.**

 

Themajority shareholder of Provident Advertising & Marketing, Inc.(“Provident”) is Edward C. Droste, a member of the Company’s management boardand an indirect beneficial owner of 5.93% of the Company’s membershipinterests.  Provident was engaged by theCompany to provide services related to the planning and development of aninitial advertising and marketing plan and for the continued development andimplementation of a strategic marketing plan for the Hooters Casino Hotel.  Provident continues to be involved as theCompany’s advertising firm.  In addition,the Company purchases Hooters logo items from Provident for uniforms and forresale in the Company’s gift shops.  Theamounts paid to Provident during the six months ended June 30, 2008 and2007 totaled $0.7 million and $1.0 million, respectively.

 

**5.Commitments and Contingencies**

 

***Litigation***

*** ***

Fromtime to time, the Company is a party to various claims arising in the normalcourse of business.  Management believes,however, that there are no proceedings pending or threatened against theCompany, which, if determined adversely, would have a material adverse effecton the Company’s financial condition, results of operations or liquidity.

 

***ContractualCommitments***

*** ***

TheCompany has entered into operational contracts totaling $7.4 million at June 30,2008.

 

**Hooters of America Royalty Payments**

 

Beginningon February 3, 2006, the Company was required to pay the owner of theHooters trademark, Hooters of America, a royalty fee equal to 2% of all netrevenues of the hotel and casino (excluding the Dan Marino’s Restaurant and“13” Martini Bar) and 1% of revenues from the Pete and Shorty’s Tavern lessmiscellaneous expenses.  The total feespaid to Hooters of America were $0.6 million and $0.6 million for the sixmonths ended June 30, 2008 and 2007. These fees are included in generaland administrative expenses on the accompanying condensed consolidatedstatements of operations.

 

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

 

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

** **

***5.  Commitmentsand Contingencies (continued)***

*** ***

**Preferred Return**

 

The Company’s membership interests include an EWCommon LLC preferred account, which accumulates a preferred return rate of 4%per annum on the $25.0 million account balance. Such preferred return began accumulating on March 1, 2006, andaccumulates whether or not there are profits or funds available for the paymentof the preferred return.  Under the Notesindenture, the preferred return to EW Common LLC is payable only if theCompany’s coverage ratio of EBITDA to fixed charges (as defined in theindenture and after giving effect to the payment of the preferred return) is1.5 to 1 for the fiscal year as measured after the close of the fiscalyear.  As of June 30, 2008, $2.3million relating to the preferred account has accumulated, but has not beenpaid.  As the Company’s coverage ratio ofEBITDA to fixed charges did not meet this defined ratio, no liability has beenrecorded in the accompanying consolidated financial statements at June 30,2008 and December 31, 2007.

 

***6.  PurchaseAgreement Termination***

*** ***

The Company previously enteredinto a definitive Asset Purchase Agreement with Hedwigs Las Vegas Top Tier, LLC(the “Buyer”), an affiliate of the investment group led by NTH Advisory Group,LLC, and subsequently entered into a first, second and third amendment to theAsset Purchase Agreement (collectively, the “Agreement”). In connection withthe third amendment to the Agreement, the Buyer was required to make a $0.5million payment to the Company on or before June 6, 2008 or the Agreementautomatically terminated. The Buyer did not make the payment. Accordingly, theAgreement terminated on June 6, 2008.

 

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

 

Also as previously reported, the Company entered into a definitiveCasino Operations Lease (the “Lease”) with the Buyer. Under the terms of theLease, upon the closing provided for in the Agreement, the Company, as tenant,would have leased from the Buyer, as landlord, the portion of the hotel inwhich the gaming operations are presently located and would have conducted allgaming operations until the earlier of (i) the last day of the monthfollowing the month in which the Buyer obtains all applicable gaming approvalsnecessary to conduct the gaming operations or (ii) June 30, 2008,unless otherwise extended pursuant to the terms of the Lease. The commencementof the Lease term was contingent upon the closing provided for in theAgreement.

 

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**Item 2.  Management’s Discussionand Analysis of Financial Condition and Results of Operations.**

 

Thefollowing discussion and analysis should be read together with our unauditedcondensed consolidated financial statements and the accompanying notes.  This discussion contains forward-lookingstatements, within the meaning of Section 27A of Securities Act of 1933,as amended, Section 21E of the Securities Exchange Act of 1934, asamended, and the Private Securities Litigation Reform Act of 1995, includingstatements regarding our expected financial position, business and financingplans.  Some of the forward-lookingstatements can be identified by the use of forward-looking term such as“believes,” “expects,” “may,” “will,” “should,” “could,” “seek,” “intends,”“plans,” “estimates,” “anticipates,” or other comparable terms.  Forward-looking statements involve inherentrisks and uncertainties which could cause actual results to differ materiallyfrom those in the forward-looking statement, including those discussed hereinand elsewhere in our Annual Report on Form 10-K filed with the Securitiesand Exchange Commission (“Commission”) on March 31, 2008, particularlyunder the heading “Risk Factors.”  Wecaution readers not to place undue reliance upon any such forward-lookingstatements, which speak only as of the date made.

 

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

 

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

 

FloridaHooters LLC is a joint venture between Hooters Gaming LLC and Lags Ventures,LLC.  The owners of Hooters Gaming LLC,which include most of the original founders of the Hooters brand, hold licensesto sell wholesale foods and calendars and to operate hotel casinos in Nevada andHooters restaurants in Tampa Bay, Florida, Chicago, Illinois and downtownManhattan in New York.  Lags Ventures,LLC is owned by a holder of the license rights to certain Hooters restaurantsin Nevada and South Florida.  Pursuant tothese license rights, the owners of Florida Hooters LLC operate 39 Hootersrestaurants, publish Hooters calendars, and operate a Hooters foodsbusiness.  The owner of Lags Ventures,LLC is also the founder of the Dan Marino concept restaurants and owns andoperates two Dan Marino concept restaurants.

 

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

 

Ouraffiliates have granted us assignments of certain license agreements pertainingto the use of the Hooters brand as well as the Dan Marino, “13” Martini Bar(which closed in 2007) and Pete & Shorty’s concept restaurants, whichwill allow us to operate the Hooters Casino Hotel.  The original founders of the Hooters brand soldthe trademark rights (excluding certain rights they retained for themselves) toHooters of America in 2001.  As a result,Hooters of America is the trademark owner of the Hooters brand and the operatorand franchisor of Hooters restaurants. Pursuant to the Hooters license assignment, we are required to payHooters of America a royalty fee, which totaled approximately $0.6 million forthe six months ended June 30, 2008. Aside from the abovementioned royalty fee, we are not otherwiseaffiliated with Hooters of America.

 

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

 

OnMarch 29, 2005, we issued $130.0 million aggregate principal amountof 8.75% Senior Secured Notes due 2012, or the old notes, in a privateplacement.  The old notes weresubsequently exchanged with new notes (“Notes”) registered under the SecuritiesAct of 1933 on Form S-4.  Interestpayments on the Notes are due semi-annually, on each April 1 and October 1.  We used the proceeds from the offering torefinance existing indebtedness, and used the remaining proceeds (together withcash from operations and proceeds from equipment financing) to renovate thehotel casino and to provide working capital.

 

Inconnection with the offering, we formed a wholly owned subsidiary, 155 EastTropicana Finance Corp., solely for the purpose of facilitating the offering asa co-issuer of the Notes.

 

Wealso entered into a $15.0 million senior secured credit facility (“CreditFacility”) concurrently with the offering. The term of the Credit Facility was extended to September 30, 2011on August 13, 2008.  At June 30,2008, $6.5 million was outstanding on the Credit Facility.

 

***Results of Operations***

 

Wegenerate hotel, casino, food, beverage and entertainment and retail revenues atthe hotel casino property.  During thequarter ended June 30, 2008, approximately 37.5% of the gross revenue wasderived from the casino, 31.7% from food, beverage and entertainment and 30.8%from hotel and other.

 

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

 

Casinorevenues vary from time to time due to general economic conditions, table gamehold, slot hold, and occupancy percentages at the Hooters Casino Hotel andother hotels in Las Vegas.  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.

 

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

 

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

 

Thefollowing table summarizes the results of operations of 155, doing business asthe Hooters Casino Hotel for the quarter and six months ended June 30,2008 and 2007 (in thousands, except for percentages):

 
| ** **                                | ** ** | **Quarter  Ended  June 30,  2008** | ** ** | **Quarter  Ended  June 30,  2007** | ** ** | **%  Change  2008-  2007** | ** ** | **Six Months  Ended  June 30,  2008** | ** ** | **Six Months  Ended  June 30,  2007** | ** ** | **%  Change  2008-2007** | ** ** |
|-------------------------------------------|------------|-----------------------------------------|------------|-----------------------------------------|------------|----------------------------|------------|--------------------------------------------|------------|--------------------------------------------|------------|--------------------------|------------|
| ** **                                | ** ** | **(in thousands)**                      | ** ** | ** **                              | ** ** | **(in thousands)**         | ** ** | ** **                                 | ** ** |
| Casino revenues                           |       | $                                       | 6,919      |                                    | $          | 6,522                      |       | 6.1                                        | %          | $                                          | 13,345     |                     | $          | 13,046 |   | 2.3 | % |
| Casino expenses                           |       | 4,493                                   |       | 3,997                                   |       | 12.4                       | %          | 7,529                                      |       | 7,724                                      |       | -2.5                     | %          |
| Profit margin                             |       | 35.1                                    | %          | 38.7                                    | %          |                       |       | 43.6                                       | %          | 40.8                                       | %          |                     |       |
|                                      |       |                                    |       |                                    |       |                       |       |                                       |       |                                       |       |                     |       |
| Food, beverage and entertainment revenues |       | $                                       | 5,854      |                                    | $          | 6,373                      |       | -8.1                                       | %          | $                                          | 11,524     |                     | $          | 12,280 |   | -6.2 | % |
| Food, beverage and entertainment expenses |       | 3,346                                   |       | 4,816                                   |       | -30.5                      | %          | 7,401                                      |       | 9,318                                      |       | -20.6                    | %          |
| Profit margin                             |       | 42.8                                    | %          | 24.4                                    | %          |                       |       | 35.8                                       | %          | 24.1                                       | %          |                     |       |
|                                      |       |                                    |       |                                    |       |                       |       |                                       |       |                                       |       |                     |       |
| Hotel and other revenues                  |       | $                                       | 5,677      |                                    | $          | 6,398                      |       | -11.3                                      | %          | $                                          | 11,601     |                     | $          | 13,033 |   | -11.0 | % |
| Hotel and other expenses                  |       | 2,056                                   |       | 2,247                                   |       | -8.5                       | %          | 3,985                                      |       | 4,399                                      |       | -9.4                     | %          |
| Profit margin                             |       | 63.8                                    | %          | 64.9                                    | %          |                       |       | 65.6                                       | %          | 66.2                                       | %          |                     |       |
|                                      |       |                                    |       |                                    |       |                       |       |                                       |       |                                       |       |                     |       |
| Promotional allowances                    |       | $                                       | 2,013      |                                    | $          | 1,753                      |       | 14.8                                       | %          | $                                          | 3,909      |                     | $          | 3,277 |   | 19.3 | % |
| Percent of gross revenues                 |       | 10.9                                    | %          | 9.1                                     | %          |                       |       | 10.7                                       | %          | 8.5                                        | %          |                     |       |
|                                      |       |                                    |       |                                    |       |                       |       |                                       |       |                                       |       |                     |       |
| General and administrative expenses       |       | $                                       | 4,289      |                                    | $          | 5,138                      |       | -16.5                                      | %          | $                                          | 8,435      |                     | $          | 9,852 |   | -14.4 | % |
| Percent of net revenues                   |       | 26.1                                    | %          | 29.3                                    | %          |                       |       | 25.9                                       | %          | 28.1                                       | %          |                     |       |

 

***Comparison of Quarter Ended June 30, 2008 with the Quarter Ended June 30,2007***

 

Net income of $2.4 million was generated forthe quarter ended June 30, 2008 compared to a net loss of $4.2 million forthe same quarter in 2007.  The $6.6million improvement was due primarily to increased operating profits and incomefrom forfeited deposits and extension fees as described in more detail in theparagraphs below.

 

Operating income of $0.3 million for thequarter ended June 30, 2008 improved by $1.2 million from a loss of $0.9million in the same quarter last year. The increased operating profit was primarily attributable to costsavings.

 

Net operating revenues for the quarter ended June 30,2008 were $16.4 million, a decrease of $1.1

 

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million or 6.3%, from $17.5 million generated during the same period inthe previous year.  The decline in netrevenue was largely a result of the decline of $0.5 million in room revenuecaused by falling room rates.  Other LasVegas casino/hotel market leaders announced they discounted room rates duringthe second quarter of 2008 to attract visitation in the current soft economyand expect the trend to continue.

 

Promotional allowances (which are subtractedfrom revenues) increased from $1.8 million to $2.0 million, largely due to thepromotional give away of show tickets and rooms to casino customers.

 

Operating expenses were $16.2 million for thequarter ended June 30, 2008, a decrease of $2.2 million or 12.1%, from$18.4 million during the same period in the previous year.  This decrease in operating expenses was theresult of an intense program of cost reductions.  Property-wide payroll was analyzed in thelast quarter of 2007 and payroll was reduced in several areas where there wasexcess capacity in restaurants.  We alsoreduced payroll in other areas that did not impact our excellent customerservice.  Additionally, other operatingexpenses were evaluated and trimmed where appropriate. This trend of reducedexpenses, which began in the fourth quarter of 2007, is expected to continueinto future quarters and will positively impact profits.

 

*Casino.* Casino revenues increased by $0.4 million to $6.9 million for thequarter ended June 30, 2008, compared to $6.5 million for the quarterended June 30, 2007.  The increaseis due to our successful casino promotions that have brought in more customersto play on the casino floor.  We weresuccessful in increasing casino revenues in the second quarter in spite of adecline of 7.5% in gaming revenue for all casinos on the Las Vegas Strip asreported by the Nevada Gaming Control Board.

 

Table games revenue was $2.2 million for thequarter ended June 30, 2008, a decrease of $0.5 million, or 17.2%, comparedto the table games revenue of $2.7 million from the prior year’s quarter.  Table game drop decreased by $1.3 million orby 9.1%, to $13.7 million for the quarter ended June 30, 2008 compared to$15.0 million for the quarter ended June 30, 2007. The table gamesgenerated an average win per table of $788 per day for the quarter ended June 30,2008 as compared to $983 per day for the quarter ended June 30, 2007.

 

Slot revenue of $4.5 million for the quarterended June 30, 2008 was an increase of 25.1% compared to $3.6 million inthe same period in 2007.  The average winper machine per day was $72 for the quarter ended June 30, 2008 ascompared to $61 for the quarter ended June 30, 2007.    We continued targeting our marketingefforts to increase slot play through targeted slot marketing programs aimed atattracting a flow of customers to the casino floor.

 

Casino expenses, which included casinooperational expenses and casino marketing, increased by 12.4% to $4.5 millionfor the quarter ended June 30, 2008 compared to $4.0 million for thequarter ended June 30, 2007 largely due to slot marketing costs.  The profit margin for casino operationsdecreased to 35.1% during the quarter ended June 30, 2008 from 38.7%during the quarter ended June 30, 2007.

 

*Food, beverage, and entertainment.* Food, beverage and entertainment revenue was$5.9 million for the quarter ended June 30, 2008 as compared to $6.4million for 2007, a decrease of $0.5 million, or 8.2%. Food and beveragerevenue declined due to a decline of 18,000 food covers or 7.5%, caused by theclosure of the Dam Coffee Shop in October 2007, along with a 4.6 % declinein average check.  This was

 

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partiallyoffset by the opening of the Dixie Dam Country Bar on May 23, 2008, whichgenerated $0.1 million in beverage revenue in the quarter ended June 30,2008.

 

Food,beverage and entertainment expenses decreased to $3.3 million during thequarter ended June 30, 2008 from $4.8 million during the quarter ended June 30,2007, a decrease of $1.5 million or 30.5%. The savings in food, beverage and entertainment expenses werefacilitated by increased efficiencies in payroll and other operating expenseswith the closing of our excess restaurant capacity.

 

Theprofit margin for food, beverage, and entertainment operations increased to42.8% for the quarter ended June 30, 2008 from 24.4% in the same quarterin 2007 due to operational efficiencies.

 

*Hotel and other.*  Hotel and other revenue (which includes hotelroom revenue, retail, spa, and other miscellaneous revenue) decreased by $0.7million or 11.3% to $5.7 million for the quarter ended June 30, 2008 from$6.4 million for the quarter June 30, 2007.

 

Room revenuewas $4.3 million for the quarter ended June 30, 2008 compared to $4.8million in 2007.  Average daily roomrates decreased to $69 for the quarter ended June 30, 2008 from $78 forthe quarter ended June 30, 2007, while occupancy rates increased to 97.6%for the quarter ended June 30, 2008 from 94.7% for the quarter ended June 30,2007. Occupancy rates increased largely because of successful increased salesthrough the wholesalers, internet providers and our group sales.

 

Salesfrom our retail outlets selling Hooters logo merchandise decreased 7.7% to $1.2million for the quarter ended June 2008 from $1.3 million for the quarterended June 2007. Other miscellaneous revenue declined $0.1 million.

 

Hoteland other expenses decreased by 8.5% or $0.1 million to $2.1 million during thequarter ended June 30, 2008 from $2.2 million during the quarter ended June 30,2007, due to savings in payroll and other room department operating expenses.The profit margin for hotel and other revenue was 63.8% in the second quarterof 2008 compared to 64.9% for that same period in the prior year.

 

Retailsales generated a profit margin of 48.1% for the quarter ended June 30,2008 compared to 43.2% for the quarter ended June 30, 2007.

 

*General and administrative.*  General and administrativeexpense includes costs associated with marketing, information technology,finance, accounting, and property operations. General and administrativeexpense decreased $0.8 million or 16.5% to $4.3 million for the quarter ended June 30,2008 compared to $5.1 million for the quarter ended June 30, 2007.  This decrease was principally due tosignificant decreases in advertising and marketing expenses, legal fees andvarious other administrative costs.

 

*Depreciation and amortization expense.* Depreciation and amortization expense of $1.6 million for the quarterended June 30, 2008 decreased by $0.2 million, or 11.5%, from $1.8 millionfor the quarter ended June 30, 2007.

 

Related*party royalties expense.* Beginning on February 3, 2006, we incurred related party royaltyfees pursuant to agreements with Hooters Gaming Corporation, Lags Ventures, Inc.,and 

 

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LasVegas Wings, Inc.  These relatedparty royalties expense totaled $0.4 million during the quarters ended June 30,2008 and 2007. The payment of the related party royalties is restricted underthe Notes indenture.  The fees can onlybe paid after the close of the fiscal year and only if our debt coverage ratiois 1.5 to 1 for that fiscal year.  Thepayments of the royalty fees are further limited to the sum of 2% of revenueand 3% of EBITDA, as defined in the indenture.

 

*Income on forfeited deposits and extension fees*.  In June of2008 we recorded income on forfeited deposits and extension fees of $5.5million in connection with the termination of the purchase agreement withHedwigs Las Vegas Top Tier, LLC.

 

*Interest income.*  Interest income was $10,910 for the quarterended June 30, 2008, compared to $15,013 for the quarter ended June 30,2007.

 

*Interest expense.*  Interest expense remained thesame at $3.3 million for the quarter ended June 30, 2008, and for thequarter ended June 30, 2007.

 

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

 

***Comparison of Six Months Ended June 30, 2008 with the Six MonthsEnded June 30, 2007***

 

Netincome of $0.2 million was generated for the six months ended June 30,2008 compared to a net loss of $7.0 million for the same six months in2007.  The $7.2 million improvement wasdue primarily to increased operating profits and income from forfeited depositsand extension fees as described in more detail in the paragraphs below.

 

Operatingincome of $1.3 million for the six months ended June 30, 2008 improved by$1.8 million from a loss of $0.5 million in the same period last year.  The increased operating profit was primarilyattributable to cost savings.

 

Netoperating revenues for the six months ended June 30, 2008 were $32.6million, a decrease of $2.5 million or 7.2%, from $35.1 million of netoperating revenues for the six month ended June 30, 2007.

 

*Casino.*  Casino revenues increased by $0.3 million to$13.3 million for the six months ended June 30, 2008, compared to $13.0million for the six months ended June 30, 2007 because of our successfulslot promotions.

 

Tablegames revenue was $4.6 million in for the six months ended June 30, 2008,a decrease of $0.7 million, or 11.8%, compared to the table games revenue of$5.3 million from the prior year’s first six months.  Table game drop decreased to $28.3 million,or by 9.2%, for the six months ended June 30, 2008 compared to $31.2million for the six months ended June 30, 2007, while table game holdpercentage decreased from 16.8% in 2007 to 16.3% in 2008.  The table games generated an average win pertable of $821 per day for the first six months of 2008 compared to $922 for thesix months of 2007. Slot revenue of $8.4 million for the six months ended June 30,2008 was an increase of $1.0 million or 12.6%

 

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comparedto $7.4 million in the same period in 2007. The average win per machine per day was $73 for the six months ended June 30,2008 compared to $63 for the same period in 2007.

 

Casinoexpenses decreased by $0.2 million or 2.5% to $7.5 million for the six monthsended June 30, 2008 compared to $7.7 million for the six months ended June 30,2007. The profit margin for casino operations increased from 40.8% during thesix months ended June 30, 2007 to 43.6% during the six months ended June 30,2008.

 

*Food, beverage and entertainment.*  Food,beverage and entertainment revenue was $11.5 million for the six months ended June 30,2008 as compared to $12.3 million for June 2007, a decrease of $0.8million or 6.2%.  The food revenuesdecreased $0.8 million or 10.5% to $6.4 million for the six months ending June 30,2008 compared to $7.2 million for six months ending June 30, 2007.Beverage revenue (which includes complimentary beverages) decreased by $0.4million or 8.5.% to $4.4 million for the six months ended June 30, 2008from $4.8 million during the six months ended June 30, 2007.  Showroom revenue increased $$0.4 million dueto a full six months of showroom revenue in 2008 of $0.7 million as compared toshowroom revenue of $0.3 million in 2007 when the showroom opened in mid-April.

 

Food,beverage and entertainment expenses decreased from $9.3 million during the sixmonths ended June 30, 2007 to $7.4 million during the six months ended June 30,2008, a decrease of $1.9 million or 20.6%. The profit margin for food, beverage and entertainment operationsincreased from 24.1% during the six months ended June 30, 2007 to 35.8%during the six months ended June 30, 2008 due to operational efficienciesin payroll and cost of sales.

 

*Hotel and other.*  Hotel and other revenue (which includes hotelroom revenue, retail, spa and other miscellaneous revenue) decreased by $1.4million, or 11.0%, to $11.6 million for the six months ended June 30, 2008from $13.0 million for the six months ended June 30, 2007.  Room revenue decreased $1.1 million or11.7% to $8.8 million for the six months ended June 30, 2008 compared to$9.9 million in 2007. The average daily room rate decreased to $74 for the sixmonths ended June 30, 2008 compared to $84 for the prior year andoccupancy held steady at 93% for six months ended June 30, 2008 and 2007.

 

Salesfrom the retail outlets was $2.4 million in the six months ended June 30,2008, a decrease of $0.1 million from the six months ended June 30, 2007.

 

Hoteland other expenses decreased by $0.4 million or 9.4% from $4.4 million duringthe six months ended June 30, 2007 to $4.0 million during the six monthsended June 30, 2008 due to operational efficiencies in payroll anddepartmental expenses. The profit margin for hotel and other was 65.6% for thesix months ended June 30, 2008 compared to 66.2% for the same period inthe prior year. Retail sales generated a profit margin of 48.1% for the sixmonths ended June 30, 2008.

 

*General and administrative.*  General and administrativeexpense includes costs associated with corporate marketing, informationtechnology, and finance, accounting, and property operations.  General and administrative expense decreased$1.4 million or 14.4% to $8.4 million for the six months ended June 30,2008 compared to $9.8 million for the six months ended June 30, 2007. Thisdecrease was principally due to significant decreases in advertising andmarketing expenses, legal fees and various other administrative costs.

 

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*Depreciation and amortization expense.* Depreciation and amortization expense of $3.2 million for the six monthsended June 30, 2008 decreased by $0.4 million, or 10.7%, from $3.5 millionfor the six months ended June 30, 2007.

 

*Related party royalties expense.* Beginning on February 3, 2006, we incurred related party royaltyfees pursuant to agreements with Hooters Gaming Corporation, Lags Ventures, Inc.,and Las Vegas Wings, Inc.  Theserelated party royalties expense totaled $0.7 million during both the six monthsended June 30, 2008 and 2007. The payment of the related party royaltiesis restricted under the Notes indenture. The fees can only be paid after the close of the fiscal year and only ifour 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.

 

*Income on forfeited deposits and extension fees*.  In June of2008 we recorded income on forfeited deposits and extension fees of $5.5million in connection with the termination of the purchase agreement withHedwigs Las Vegas Top Tier, LLC.

 

*Interest income.*  Interest income was $91,000 for the sixmonths ended June 30, 2008, compared to $52,000 for the six months ended June 30,2007.

 

*Interest expense.*  Interest expense was $6.7million for the six months ended June 30, 2008, compared to $6.6 millionfor the six months ended June 30, 2007, an increase of $0.1 million.

 

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

 

***Contractual Obligations***

 

Thefollowing table summarizes the contractual commitments of 155 as of June 30,2008:

 
| ** **                                  | ** ** | **Payments Due By Year**   | ** ** |
|---------------------------------------------|------------|----------------------------|------------|
| ** **                                  | ** ** | **Total**                  | ** ** | **Less than  1 year** | ** ** | **1-3 years** | ** ** | **3-5 years** | ** ** | **Thereafter** | ** ** |
| ** **                                  | ** ** | **(dollars in thousands)** | ** ** |
| Equipment purchase financing agreements (1) |       | $                          | 1,297      |   | $ | 1,233 |   | $ | 64 |   | $ | — |   | $ | — |   |
| Long-term debt (2)                          |       | 136,502                    |       | — |   | — |   | 136,502 |   | — |   |
| Operating contracts (3)                     |       | 7,446                      |       | 3,802 |   | 3,589 |   | 55 |   | — |   |
| Total                                       |       | $                          | 145,245    |   | $ | 5,035 |   | $ | 3,653 |   | $ | 136,557 |   | $ | — |   |

 

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(1)          The long-term debt represents the $6.5 million in outstanding drawsagainst the Credit Facility as of June 30, 2008 due on September 30,2011 and the $130.0 million Notes issued on March 29, 2005 and due on2012.

 

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(2)    We entered into various equipment purchase agreements inconnection with the renovation and rebranding of the Hooters Casino Hotel.

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

 

***Liquidity and Capital Resources***

 

Forthe six months ended June 30, 2008, we generated $6.5 million of cash inoperating activities, which was augmented by income of $5.5 million inforfeited deposits and extension fees related to the termination of thepurchase agreement (the “Agreement”) with Hedwigs Las Vegas Top Tier, LLC (the“Buyer”), which we received from the Buyer in 2007 and 2008.

 

Wehave seen improvements in our operating cash flow and we are focused onoptimizing our profitability.

 

Forthe six months ended June 30, 2008, $0.5 million of cash was used forcapital expenditures.

 

Forthe six months ended June 30, 2008, we used $4.3 million of cash fromfinancing activities. We borrowed $0.2 million on our line of credit, offset by$1.0 million in principal payments on debt. Deposits of earnest money and extension fees of $3.5 million received in2007, along with extension fees of $2.0 million received in 2008 were taken tonet income with the termination of the Agreement.  The Agreement was terminated on June 6,2008 when the Buyer did not make an additional required payment of $0.5million.

 

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

 

OurCredit Facility is a revolving credit facility of $15.0 million, whichoriginally was scheduled to mature on March 30, 2009.  On August 13, 2008, the term of theCredit Facility was extended to September 30, 2011 with the payment of a$150,000 extension fee.  We currentlyhave outstanding draws of $6.5 million at June 30, 2008. All outstandingprincipal and interest under the Credit Facility is due and payable on September 30,2011.

 

Basedon maintaining our current level of cash flow from operations, we believe thatwe have the flexibility to cover operational contingencies, working capitalneeds, capital expenditures, and debt service obligations for the next twelve monthsthrough the use of cash (which totaled $7.6 million at June 30, 2008,including $3.8 million required in daily operations), our cash flow fromoperations, and our ability to draw against our $15.0 million Credit Facility,along with other available equipment financing.

 

We will be reliant in future periods on the continued improvement inour cash flow from operations or our ability to raise capital throughadditional borrowing or equity infusion. We are currently exploring our options which may include additionalchanges to our business model, capital improvements or a sale of some or all ofour assets.  In the past, operating cashflows have fallen short of covering debt service and capital expenditurerequirements resulting in downgrading of our Bond ratings and potentiallyaffecting our ability to raise capital in the future.  On the positive side, the underlying value ofthe Company’s real estate and other assets may provide collateral for raisingcapital if needed.

 

On April 1, 2008, interest payment of $5.7 million due on theNotes was paid from available cash.

 

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***Critical AccountingPolicies and Estimates***

 

Weprepare our consolidated financial statements in conformity with accountingprinciples generally accepted in the United States.  Certain of our accounting policies, includingthe estimated useful lives assigned to our assets, health benefit reserves,slot point reserves and determination of bad debt reserves, require that weapply significant judgment in defining the appropriate assumptions forcalculating financial estimates.  Bytheir nature, these judgments are subject to an inherent degree ofuncertainty.  Our judgments are based inpart on our historical experience, terms of existing contracts, observance oftrends in the gaming industry and information obtained from independentvaluation experts or other outside sources. We cannot assure you that our actual results will conform to ourestimates.  For additional information oncritical accounting policies and estimates, see “Item 7 Management’s Discussionand Analysis of Financial Condition and Results of Operations” and the notes toour audited consolidated financial statements included in our Annual Report on Form 10-Kfor the year ended December 31, 2007.

 

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

*** ***

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

 

Marketrisk is risk of loss arising from changes in market rates and prices, such asinterest rates, foreign currency exchange rates and commodity prices.  At June 30, 2008, we had $130.0 millionaggregate principal amount of the Notes, slot equipment purchase agreements of$1.7 million carrying an imputed interest rate of 3.327%, and hotel equipmentpurchase agreements of $0.1 million carrying interest rates averaging11.72%.   The Notes carry a fixedinterest rate of 8.75 %, provided no events of default have occurred.  Since the Notes and equipment purchaseagreements have fixed interest rates, there is no market risk associated withthese loans other than fair value market risk, which we believe to beinsignificant.  We have market riskassociated with funds that may be borrowed on the $15.0 million CreditFacility, due to an interest rate that floats with the LIBOR or primerate.  The term of the Credit Facilitywill mature on September 30, 2011. At June 30, 2008, $6.5 million was outstanding under the variablerate Credit Facility, carrying interest at 6.12%.  Assuming a 100 basis-point change in LIBOR atJune 30, 2008 and assuming no change in the funds borrowed on the $15.0million Credit Facility, our annual interest cost would change by approximately$65,000.

 

**We do not have any significant foreign currency exchangerate risk or commodity price risk and do not currently trade any marketsensitive instruments.**

*** ***

**Item4.  Controls and Procedures.**

*** ***

***Evaluation of Disclosure Controls***

*** ***

We evaluatedthe effectiveness of our disclosure controls and procedures as of three monthsended June 30, 2008.  Thisevaluation was done with the participation of our management, including ourChief Executive Officer and Chief Financial Officer.

 

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Disclosure controls and procedures are controls and other proceduresthat are designed to ensure that information required to be disclosed by us inthe reports that we file or submit under the Securities Exchange Act of 1934are recorded, processed, summarized and reported within the time periodsspecified in the Commission’s rules and forms.  Disclosure controls and procedures include,without limitation, controls and procedures designed to ensure that informationrequired to be disclosed by us in the reports that we file under the SecuritiesExchange Act of 1934 is accumulated and communicated to our manager, as appropriateto allow timely decisions regarding required disclosure.

 

***Limitations on theEffectiveness of Controls***

*** ***

Our management does not expect that our disclosure controls andprocedures or our internal controls over financial reporting will prevent allerror and all fraud.  A control system,no matter how well conceived and operated, can provide only reasonable, but notabsolute, 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 issues andinstances of fraud, if any, within us have been detected.  These inherent limitations include therealities that judgments in decision-making can be faulty and that breakdownscan occur because of simple error or mistake. Additionally, controls can be circumventedby the individual acts of some persons, by collusion of two or more people, orby management override of a control. Because the design of a control system is based upon certain assumptionsabout the likelihood of future events, there can be no assurance that anydesign will succeed in achieving its stated goals under all potential futureconditions.  Over time, controls maybecome inadequate because of changes in conditions, or the degree of compliancewith the policies or procedures may deteriorate. Because of the inherentlimitations in a cost-effective control system, misstatements due to error orfraud may occur and may not be detected.

 

***Conclusions***

*** ***

Based on this evaluation, our Chief Executive Officer and ChiefFinancial Officer have evaluated our disclosure controls and procedures (asdefined in the Securities Exchange Act of 1934 Rules 13a-15(e) and15d-15(e)) as of June 30, 2008, and have concluded that they are effectiveto timely alert them to material information relating to us required to beincluded in the reports that we file or submit under the Securities ExchangeAct of 1934.

 

***Changes in Internal Controls***

*** ***

Therewere no changes in our internal controls over financial reporting that occurredduring our last fiscal quarter, *i.e.*,the quarter ended June 30, 2008, that have materially affected, or arereasonably likely to materially affect, our internal controls over financialreporting.

 

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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.**

*** ***

On August 13, 2008, the Company entered into an Amendment NumberFour to Credit Agreement with Wells Fargo Foothill, Inc. and paid anextension fee of $150,000.  The amendmentextended the maturity date of the Credit Facility from March 30, 2009 to September 30,2011.  The foregoing summary of the amendment does not purport to becomplete and is subject to, and qualified in its entirety by, the full text ofthe amendment which is included in Exhibit 10.2 and incorporated herein byreference.

 

**Item6.  Exhibits.**

 

Exhibits:

 

| 10.1   |   | Third  Amendment to Asset Purchase Agreement signed June 2, 2008 incorporated  by reference to registrant’s Current Report on Form 8-K filed with the  Securities and Exchange Commission on June 4, 2008. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                           |
| 10.2   |   | Amendment  Number Four to Credit Agreement, dated as of August 13, 2008                                                                                                                                                        |
|   |   |                                                                                                                                                                                                                           |
| 12     |   | Computation  of Ratio of Earnings to Fixed Charges                                                                                                                                                                             |
|   |   |                                                                                                                                                                                                                           |
| 31.1   |   | Certification  pursuant to §302 of the Sarbanes-Oxley Act of 2002, Deborah J. Pierce                                                                                                                                      |
|   |   |                                                                                                                                                                                                                           |
| 31.2   |   | Certification  pursuant to §302 of the Sarbanes-Oxley Act of 2002, Neil G. Kiefer                                                                                                                                         |
|   |   |                                                                                                                                                                                                                           |
| 32.1   |   | Certification  pursuant to §906 of the Sarbanes-Oxley Act of 2002, Deborah J. Pierce                                                                                                                                      |
|   |   |                                                                                                                                                                                                                           |
| 32.2   |   | Certification  pursuant to §906 of the Sarbanes-Oxley Act of 2002, Neil G. Kiefer                                                                                                                                         |

 

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** **

**SIGNATURES**

** **

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

 

 
| **155 EAST TROPICANA, LLC**           | ** **                                                                      | ** ** |
|---------------------------------------|---------------------------------------------------------------------------------|------------|
|                                  |                                                                            |       |
|                                  |                                                                            |       |
| By:                                   | /s/ Deborah J. Pierce                                                           |       | August 14, 2008 |
|                                  |                                                                            |       |   |
|                                  | Deborah J. Pierce                                                               |       |   |
| * *                              | *Chief Financial Officer  (Principal Financial and Chief   Accounting Officer)* | * *   | * * |
| * *                              | * *                                                                        | * *   | * * |
| * *                              | * *                                                                        | * *   | * * |
| **155 EAST TROPICANA  FINANCE CORP.** | ** **                                                                      | ** ** |
|                                  |                                                                            |       |
|                                  |                                                                            |       |
| By:                                   | /s/ Deborah J. Pierce                                                           |       | August 14, 2008 |
|                                  |                                                                            |       |   |
|                                  | Deborah J. Pierce                                                               |       |   |
| * *                              | *Chief Financial Officer  (Principal Financial and Chief   Accounting Officer)* | * *   | * * |

 

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