Table of Contents

 

 

 

**UNITED STATES**

**SECURITIES AND EXCHANGECOMMISSION**

**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  September 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, LLC155 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 bySection 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant wasrequired to file such reports) and (2) has been subject to such filingrequirements for the past 90 days.    Yes  x    No  o

 

Indicate bycheck mark whether the registrant is a large accelerated filer, an acceleratedfiler, a non-accelerated filer, or a smaller reporting company .  See definition of  “large accelerated filer,” “acceleratedfiler” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:

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

 

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

 

 

 

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Table of Contents

 
| **PART I – FINANCIAL INFORMATION** | **3**                                                                                       |
|----------------------------------------------|---------------------------------------------------------------------------------------------|
|                                         |                                                                                        |   |
|     Item 1.              | Financial Statements                                                                        | 3 |
|                                         |                                                                                        |   |
|                                         | **155 EAST  TROPICANA, LLC (A Nevada Limited-Liability Company)**                           | * * |
| * *                                     | Condensed  Consolidated Balance Sheets (unaudited)                                          | 3 |
| * *                                     | Condensed  Consolidated Statements of Operations (unaudited)                                | 4 |
| * *                                     | Condensed  Consolidated Statements of Cash Flows (unaudited)                                | 5 |
| * *                                     | Notes to Condensed Consolidated Financial Statements  (unaudited)                           | 6 |
|                                         |                                                                                        |   |
|     Item 2.              | Management’s Discussion and Analysis of  Financial Condition and Results of Operations | 12 |
|                                         |                                                                                        |   |
|     Item 3.              | Quantitative and Qualitative Disclosures  About Market Risk                                 | 22 |
|                                         |                                                                                        |   |
|     Item 4.              | Controls and Procedures                                                                     | 22 |
|                                         |                                                                                        |   |
| **PART II – OTHER INFORMATION**    | ** **                                                                                  |
|                                         |                                                                                        |   |
|     Item 1.              | Legal Proceedings                                                                           | 24 |
|                                         |                                                                                        |   |
|     Item 1A.             | Risk Factors                                                                                | 24 |
|                                         |                                                                                        |   |
|     Item 2.              | Unregistered Sales of Equity Securities and  Use of Proceeds                                | 24 |
|                                         |                                                                                        |   |
|     Item 3.              | Defaults Upon Senior Securities                                                             | 24 |
|                                         |                                                                                        |   |
|     Item 4.              | Submission of Matters to a Vote of Security  Holders                                        | 24 |
|                                         |                                                                                        |   |
|     Item 5.              | Other Information                                                                           | 24 |
|                                         |                                                                                        |   |
|     Item 6.              | Exhibits                                                                                    | 25 |
|                                         |                                                                                        |   |
| **SIGNATURES**                               | **26**                                                                                      |
|                                              |                                                                                             |  |  |

 

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# **PART I – FINANCIAL INFORMATION**

# ** **

## ***Item 1.  Financial Statements.***

## *** ***

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

### ** **

### **CONDENSED CONSOLIDATEDBALANCE SHEETS**

 
| ** **                                                                                                          | ** ** | **September 30,** | ** **  | **December 31,** | ** ** |
|---------------------------------------------------------------------------------------------------------------------|------------|------------------------|-------------|-----------------------|------------|
| ** **                                                                                                          | ** ** | **2008**               | ** **  | **2007**              | ** ** |
| ** **                                                                                                          | ** ** | **(unaudited)**        | ** **  | ** **            | ** ** |
| **Assets**                                                                                                          |       |                   |        |                  |       |
| Current assets:                                                                                                     |       |                   |        |                  |       |
| Cash and cash equivalents                                                                                           |       | $                      | 6,869,131   |                  | $          | 5,861,991 |   |
| Accounts receivable, net of allowance for  doubtful accounts of $220,564 and $90,831 in 2008 and 2007, respectively |       | 972,928                |        | 1,880,454             |       |
| Inventories                                                                                                         |       | 802,003                |        | 931,029               |       |
| Prepaid expenses                                                                                                    |       | 1,659,993              |        | 1,576,356             |       |
| Total current assets                                                                                                |       | 10,304,055             |        | 10,249,830            |       |
| Property and equipment, net                                                                                         |       | 112,899,587            |        | 117,084,512           |       |
| Other long-term assets:                                                                                             |       |                   |        |                  |       |
| Deferred financing costs                                                                                            |       | 4,082,670              |        | 4,971,161             |       |
| Intangible assets                                                                                                   |       | 6,466,276              |        | 6,505,209             |       |
| Other assets                                                                                                        |       | 481,022                |        | 336,022               |       |
| Total other long-term assets                                                                                        |       | 11,029,968             |        | 11,812,392            |       |
| Total assets                                                                                                        |       | $                      | 134,233,610 |                  | $          | 139,146,734 |   |
|                                                                                                                |       |                   |        |                  |       |
| **Liabilities and Members’ (Deficit) Equity**                                                                  |       |                   |        |                  |       |
| Current liabilities:                                                                                                |       |                   |        |                  |       |
| Accounts payable                                                                                                    |       | $                      | 3,050,091   |                  | $          | 2,974,233 |   |
| Accrued interest payable                                                                                            |       | 5,687,500              |        | 2,843,750             |       |
| Accrued liabilities                                                                                                 |       | 2,021,819              |        | 1,399,930             |       |
| Purchase deposit and extension payments                                                                             |       | —                 |        | 3,500,000             |       |
| Current portion of long-term debt                                                                                   |       | 719,734                |        | 2,035,273             |       |
| Total current liabilities                                                                                           |       | 11,479,144             |        | 12,753,186            |       |
| Related party royalties payable                                                                                     |       | 3,904,657              |        | 2,848,796             |       |
| Long-term debt                                                                                                      |       | 136,870,205            |        | 136,552,084           |       |
| Total liabilities                                                                                                   |       | 152,254,006            |        | 152,154,066           |       |
|                                                                                                                |       |                   |        |                  |       |
| Commitments and contingencies                                                                                       |       |                   |        |                  |       |
|                                                                                                                |       |                   |        |                  |       |
| Members’ (deficit) equity:                                                                                     |       |                   |        |                  |       |
| Membership interests                                                                                                |       | 34,333,375             |        | 34,333,375            |       |
| Accumulated deficit                                                                                                 |       | (52,353,771            | )           | (47,340,707           | )          |
|                                                                                                                |       | (18,020,396            | )           | (13,007,332           | )          |
| Total liabilities and members’ (deficit)  equity                                                               |       | $                      | 134,233,610 |                  | $          | 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 CONSOLIDATEDSTATEMENTS OF OPERATIONS (unaudited)**

 
| ** **                                          | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended** | ** ** |
|-----------------------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **                                          | ** ** | **September 30,**           | ** ** | **September 30,**          | ** ** | **September 30,** | ** ** | **September 30,** | ** ** |
| ** **                                          | ** ** | **2008**                         | ** ** | **2007**                        | ** ** | **2008** | ** ** | **2007** | ** ** |
|                                                |       |                             |       |                            |       |   |   |   |   |
| Operating revenues:                                 |       |                             |       |                            |       |   |   |   |   |
| Casino                                              |       | $                                | 5,943,748  |                            | $          | 6,033,205 |   | $ | 19,289,157 |   | $ | 19,078,930 |   |
| Food, beverage and entertainment                    |       | 5,607,539                        |       | 6,014,952                       |       | 17,131,063 |   | 18,295,165 |   |
| Hotel and other                                     |       | 4,757,384                        |       | 5,857,564                       |       | 16,358,291 |   | 18,890,868 |   |
|                                                |       | 16,308,671                       |       | 17,905,721                      |       | 52,778,511 |   | 56,264,963 |   |
| Less promotional allowances                         |       | (2,097,428                       | )          | (1,676,549                      | )          | (6,006,344 | ) | (4,953,891 | ) |
| Net operating revenues                              |       | 14,211,243                       |       | 16,229,172                      |       | 46,772,167 |   | 51,311,072 |   |
|                                                |       |                             |       |                            |       |   |   |   |   |
| Operating expenses:                                 |       |                             |       |                            |       |   |   |   |   |
| Casino                                              |       | 3,783,791                        |       | 3,708,623                       |       | 11,312,701 |   | 11,432,638 |   |
| Food, beverage and entertainment                    |       | 3,724,279                        |       | 4,668,613                       |       | 11,124,890 |   | 13,986,611 |   |
| Hotel and other                                     |       | 2,122,661                        |       | 2,274,361                       |       | 6,107,974 |   | 6,673,196 |   |
| General and administrative                          |       | 4,542,948                        |       | 4,453,311                       |       | 12,978,360 |   | 14,305,142 |   |
| Depreciation and amortization                       |       | 1,645,582                        |       | 1,142,595                       |       | 4,804,842 |   | 4,680,165 |   |
| Related party royalties expenses                    |       | 334,070                          |       | 337,601                         |       | 1,055,863 |   | 1,055,570 |   |
| Total operating expenses                            |       | 16,153,331                       |       | 16,585,104                      |       | 47,384,630 |   | 52,133,322 |   |
| Operating loss                                      |       | (1,942,088                       | )          | (355,932                        | )          | (612,463 | ) | (822,250 | ) |
|                                                |       |                             |       |                            |       |   |   |   |   |
| Other income (expense):                             |       |                             |       |                            |       |   |   |   |   |
| Income on forfeited deposits and extension  fees    |       | —                           |       |                            |       | 5,500,000 |   |   |   |
| Interest income                                     |       | 29,853                           |       | 25,648                          |       | 120,976 |   | 78,089 |   |
| Interest expense                                    |       | (3,348,562                       | )          | (3,306,898                      | )          | (10,021,583 | ) | (9,887,913 | ) |
| Other income (expense), net                         |       | (3,318,709                       | )          | (3,281,250                      | )          | (4,400,607 | ) | (9,809,824 | ) |
| Net loss                                            |       | $                                | (5,260,797 | )                               | $          | (3,637,182 | ) | $ | (5,013,070 | ) | $ | (10,632,074 | ) |
|                                                |       |                             |       |                            |       |   |   |   |   |
| Loss allocable to preferred and common member       |       |                             |       |                            |       |   |   |   |   |
| interests:                                          |       |                             |       |                            |       |   |   |   |   |
|                                                |       |                             |       |                            |       |   |   |   |   |
| Income allocable to preferred interest- EW  Common, |       |                             |       |                            |       |   |   |   |   |
| LLC                                                 |       | $                                | 250,000    |                            | $          | 250,000 |   | $ | 750,000 |   | $ | 750,000 |   |
|                                                |       |                             |       |                            |       |   |   |   |   |
| Loss allocable to common member interests           |       | (5,510,797                       | )          | (3,887,182                      | )          | (5,763,070 | ) | (11,382,074 | ) |
|                                                |       |                             |       |                            |       |   |   |   |   |
| Net loss                                            |       | $                                | (5,260,797 | )                               | $          | (3,637,182 | ) | $ | (5,013,070 | ) | $ | (10,632,074 | ) |

 

*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 CONSOLIDATEDSTATEMENTS OF CASH FLOWS (unaudited)**

 
| ** **                                                                                | ** ** | **Nine Months Ended** | ** ** | **Nine Months Ended** | ** ** |
|-------------------------------------------------------------------------------------------|------------|---------------------------------|------------|---------------------------------|------------|
| ** **                                                                                | ** ** | **September 30,**          | ** ** | **September 30,**          | ** ** |
| ** **                                                                                | ** ** | **2008**                        | ** ** | **2007**                        | ** ** |
| ** **                                                                                | ** ** | ** **                      | ** ** | ** **                      | ** ** |
| **Cash Flow From Operating Activities**                                                   |       |                            |       |                            |       |
| Net loss                                                                                  |       | $                               | (5,013,070 | )                               | $          | (10,632,074 | ) |
| Adjustments to reconcile net income (loss)  to net cash provided by operating activities: |       |                            |       |                            |       |
| Depreciation and amortization                                                             |       | 4,804,840                       |       | 4,680,165                       |       |
| Amortization of deferred financing costs                                                  |       | 1,046,598                       |       | 1,046,597                       |       |
| Amortization of intangible asset                                                          |       | 38,933                          |       | 38,933                          |       |
|                                                                                      |       | —                          |       |                            |       |
| Changes in operating assets and  liabilities:                                             |       |                            |       |                            |       |
| Accounts receivable                                                                       |       | 907,526                         |       | (613,334                        | )          |
| Inventories                                                                               |       | 129,026                         |       | (31,040                         | )          |
| Prepaid expenses                                                                          |       | (83,637                         | )          | (123,739                        | )          |
| Accounts payable                                                                          |       | 75,864                          |       | 813,800                         |       |
| Related party royalties payable                                                           |       | 1,055,861                       |       | 1,055,571                       |       |
| Accrued interest payable                                                                  |       | 2,843,750                       |       | 2,843,750                       |       |
| Accrued liabilities                                                                       |       | 621,889                         |       | (654,037                        | )          |
| Net cash provided by (used in) operating  activities                                      |       | 6,427,580                       |       | (1,575,408                      | )          |
|                                                                                      |       |                            |       |                            |       |
| **Cash Flow From Investing Activities**                                                   |       |                            |       |                            |       |
| Capital expenditures                                                                      |       | (619,915                        | )          | (1,130,284                      | )          |
| Change in other assets                                                                    |       | (145,000                        | )          | —                          |       |
| Net cash (used in) investing activities                                                   |       | (764,915                        | )          | (1,130,284                      | )          |
|                                                                                      |       |                            |       |                            |       |
| **Cash Flow From Financing Activities**                                                   |       |                            |       |                            |       |
| Proceeds from issuance of long-term debt                                                  |       | 550,622                         |       | 2,317,133                       |       |
| Principal payments on equipment purchase  agreements                                      |       | (1,548,040                      | )          | (1,499,700                      | )          |
| Loan fees                                                                                 |       | (158,107                        | )          |                            |       |
| Redemption of purchase deposits and  extension fees                                       |       | (5,500,000                      | )          |                            |       |
| Proceeds from purchase deposit and  extension fee payment                                 |       | 2,000,000                       |       | 1,500,000                       |       |
| Net cash provided by financing activities                                                 |       | (4,655,525                      | )          | 2,317,433                       |       |
|                                                                                      |       |                            |       |                            |       |
| Increase (decrease) in cash and cash  equivalents                                         |       | 1,007,140                       |       | (388,259                        | )          |
| Cash and cash equivalents, beginning of  period                                           |       | 5,861,991                       |       | 6,164,192                       |       |
| Cash and cash equivalents, end of period                                                  |       | $                               | 6,869,131  |                            | $          | 5,775,933 |   |
|                                                                                      |       |                            |       |                            |       |
| **Supplemental disclosure of cash flow  information**                                     | ** ** | ** **                      | ** ** | ** **                      |       |
| Cash paid for interest                                                                    |       | $                               | 6,131,235  |                            | $          | 5,997,565 |   |
| 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 CondensedConsolidated Financial Statements (unaudited)**

### ** **

**September 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,Nevada with the intention of renovating the existing casino and hotel facilitywith a “Hooters” entertainment concept and theme.  The renovations were completed and the HôtelSan Rémo property was reopened as the new Hooters Casino Hotel onFebruary 3, 2006.  The Company’sbusiness is concentrated at the one casino and hotel property in Las Vegas,Nevada.  The renovations were financed bythe Company and it’s wholly owned subsidiary, 155 East Tropicana Finance Corp.,through a $130.0 million Senior Secured Notes offering that closed onMarch 29, 2005.  The Company’smembership interests are held two-thirds through Florida Hooters LLC andone-third through EW Common LLC.  Theinitial capitalization of the Company was provided by Florida Hooters LLC inthe form of a $5.1 million cash contribution and the assignment of rightswith respect to the Hooters trademark and logo and other intellectual propertyand by EW Common LLC in the form of a $25.0 million deemed capitalcontribution.  The deemed capital contributionfrom EW Common 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 fromNovember 1988 until the Company’s acquisition of the Hôtel San Rémo inAugust 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 CondensedConsolidated Financial Statements (unaudited) (continued)**

### ** **

**1.  ****Organization and Basis ofPresentation (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, 30 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 the NightOwl Showroom. 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 asof September 30, 2008 and the results of its operations for the threemonth and nine month periods ended September 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 Preferred and Common Member Interests*.  Aschedule is presented on the condensed consolidated statements of operationswhich allocates net income (loss) between the preferred interest held by EWCommon, LLC and the common member interests. As described in footnote 5,Preferred Return, a preferred return began accumulating on March 1, 2006and accumulates whether or not there are profits or funds available for thepayment of the preferred return. Under the Notes indenture, the preferredreturn is payable only if the Company’s coverage ratio meets certain criteria.No payments have ever been made through September 30, 2008.

 

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

 

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

### ** **

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

 

*Goodwill and OtherIntangible Assets*.  As explained in the notes to the consolidatedfinancial statements for the year ended December 31, 2007 contained in theForm 10-K filing which has been incorporated by reference, and inaccordance with SFAS 142, “Goodwill and Other Intangible Assets”, the Companytests for impairment of goodwill and indefinite-lived intangible assetsannually in the fourth quarter of each year. Our annual budget and forecasting process is also completed in thefourth quarter and provides key inputs into the impairment analysis.  The provisions of SFAS 142 call for interimtesting if an event occurs or circumstances change that would more likely thannot reduce the fair value of a reporting unit below its carrying value.  An example of an event is a significantadverse change in the business climate, which we believe has occurred duringthe third quarter.  Given that key inputsthat support the impairment analysis are not yet available, it was notreasonably possible to develop an estimate of any potential impairment in thethird quarter.  The annual impairmentanalysis will be completed during the fourth quarter.  We believe that there is a reasonablepossibility that the completion of these activities will result in a non-cash,impairment charge in the fourth quarter. The amount of the charge, however, cannot be reasonably estimated untilthe analysis is completed.

 

*RecentlyIssued Accounting Pronouncements.*  In September 2006, theFASB issued SFAS No. 157, *Fair ValueMeasurements*, which defines fair value, establishes a framework formeasuring fair value in GAAP, and expands disclosures about fair valuemeasurements.  SFAS 157 does not requireany new fair value measurements, but provides guidance on how to measure fairvalue by providing a fair value hierarchy used to classify the source of theinformation.  SFAS 157 is effective forfinancial statements issued for fiscal years beginning after November 15,2007 and interim periods within these fiscal years.  In February 2008, FASB issued FASB StaffPosition (“FSP”) FAS 157-2, which defers the effective date of SFAS 157 tofiscal years beginning after November 15, 2008, and interim periods withinthose fiscal years, for nonfinancial assets and nonfinancial liabilities thatare recognized or disclosed at fair value in an entity’s financial statementson a recurring basis.   As such, theCompany partially adopted the provisions of SFAS No. 157 effectiveJanuary 1, 2008, without any material impact to the Company’s financialposition, results of operations or cash flows. The Company expects to adopt theremaining provisions of SFAS No. 157 beginning in 2009; however, theCompany does not expect this adoption to have a material impact on itsfinancial 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.

 

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

 

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

### ** **

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

 

SFAS159 is effective as of the beginning of the first fiscal year afterNovember 15, 2007, provided the provisions of SFAS 157 are alsoapplied.  The Company adopted theprovisions of SFAS No. 159, but chose not to elect the fair value optionfor eligible items that existed at January 1, 2008. Accordingly, theCompany’s adoption of SFAS No. 159 did not have a material impact on itsfinancial position, results of operations or cash flows.

 

In December 2007, FASBissued SFAS No. 141R, “Business Combinations”.  Under SFAS 141R, an acquiring entity will berequired to recognize all the assets acquired and liabilities assumed in atransaction at the acquisition-date fair value, with limited exceptions,replacing SFAS 141’s cost-allocation process. SFAS 141R also includes 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 afterDecember 15, 2008.  Early adoptionis prohibited.  We will adopt SFAS 141Rin the first quarter of 2009.  The impacton our accounting for future business combinations once adopted will bedependent upon acquisitions that are made in the future.

 

In April 2008, theFinancial 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 iseffective for fiscal years beginning after December 15, 2008 and onlyapplies prospectively to intangible assets acquired after the effective date.Early adoption is not permitted. The Company believes this FSP, when adopted,will not have a material impact on its financial position, results ofoperations or cash flows.

 

In May 2008, the FASBissued SFAS 162 (“SFAS 162”), “The Hierarchy of Generally Accepted AccountingPrinciples”, which identifies the sources of accounting principles and theframework for selecting the principles used in the preparation of financialstatements of nongovernmental entities that are presented in conformity withgenerally accepted accounting principles. SFAS 162 will become effective sixty days following the Securities andExchange Commission’s approval of the Public Company Accounting Oversight Boardamendments to AU Section 411, “The Meaning of Present Fairly in ConformityWith Generally Accepted Accounting Principles”. The adoption of the provisions of SFAS 162 is not anticipated tomaterially impact the Company’s financial position, results of operations orcash flows.

 

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

 

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

### ** **

**3.  Long-term Debt**

** **

Long-term debt consistsof the following:

 
| ** **                          | ** ** | **September 30,** | ** **  | **December 31,** | ** ** |
|-------------------------------------|------------|------------------------|-------------|-----------------------|------------|
| ** **                          | ** ** | **2008**               | ** **  | **2007**              | ** ** |
| 8.75% Senior  secured notes (1)     |       | $                      | 130,000,000 |                  | $          | 130,000,000 |   |
| Senior  secured credit facility (2) |       | 6,806,186              |        | 6,255,565             |       |
| Equipment  purchase agreements (3)  |       | 783,753                |        | 2,331,792             |       |
| Total debt                          |       | 137,589,939            |        | 138,587,357           |       |
| Less:  Current portion of debt      |       | (719,734               | )           | (2,035,273            | )          |
| Total  long-term debt               |       | $                      | 136,870,205 |                  | $          | 136,552,084 |   |

 

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(1)          $130.0 million aggregate principal amount of8.75% Senior Secured Notes issued on March 29, 2005 and due on 2012.

 

(2)          Total draws against the Senior Secured CreditFacility as of September 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 plus2.00% per annum or LIBOR plus 3.50% per annum. As of September 30, 2008, the Credit Facility dueSeptember 30, 2011 carried an interest rate of 6.32% per annum.

 

(3)          During the nine months endedSeptember 30, 2007, the Company entered into a $0.3 million loan agreementto purchase approximately $0.4 million in hotel equipment.  The loan, which is collateralized by theequipment purchased, has a term of 18 months with an imputed interest rate of12.7%.

 

**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 atSeptember 30, 2008 for Hooters Gaming Corporation, Lags Venture, Inc.and Las Vegas Wings, Inc. were $2.0 million, $0.7 million, and $1.2million, respectively.  The Company beganaccruing these fees when the Hooters Casino Hotel opened on February 3,2006.  The payment of these royalty feesis restricted under the indenture governing the Notes.

 

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

 

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

### ** **

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

** **

**ProvidentAdvertising & Marketing, Inc.**

 

The majorityshareholder of Provident Advertising & Marketing, Inc.(“Provident”) is Edward C. Droste, a member of the Company’s management boardand an indirect beneficial owner of 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 nine months ended September 30, 2008and 2007 totaled $0.9 million and $1.4 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 $5.7 million atSeptember 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 $0.8 million and $0.9 million for the ninemonths ended September 30, 2008 and 2007. These fees are included ingeneral and 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 FinancialStatements (unaudited) (continued)**

### ** **

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

*** ***

**Preferred Return**

 

The Company’smembership interests include an EW Common LLC preferred account, whichaccumulates a preferred return rate of 4% per annum on the $25.0 millionaccount balance.  Such preferred returnbegan accumulating on March 1, 2006, and accumulates whether or not thereare profits or funds available for the payment of the preferred return.  Under the Notes indenture, the preferredreturn to EW Common LLC is payable only if the Company’s coverage ratio ofEBITDA to fixed charges (as defined in the indenture and after giving effect tothe payment of the preferred return) is 1.5 to 1 for the fiscal year asmeasured after the close of the fiscal year. As of September 30, 2008, $2.6 million relating to the preferred accounthas accumulated, but has not been paid. As the Company’s coverage ratio of EBITDA to fixed charges did not meetthis defined ratio, no liability has been recorded in the accompanyingconsolidated financial statements at September 30, 2008 and December 31,2007.

 

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

 

The following discussion andanalysis should be read together with our unaudited condensed consolidatedfinancial 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, 

 

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holdlicenses to sell wholesale foods and calendars and to operate hotel casinos inNevada and Hooters restaurants in Tampa Bay, Florida, Chicago, Illinois anddowntown Manhattan in New York.  LagsVentures, LLC is owned by a holder of the license rights to certain Hootersrestaurants in Nevada and South Florida. Pursuant to these license rights, the owners of Florida Hooters LLCoperate 39 Hooters restaurants, publish Hooters calendars, and operate aHooters foods business.  The owner ofLags Ventures, LLC is also the founder of the Dan Marino concept restaurantsand owns and operates 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 brandsold the trademark rights (excluding certain rights they retained forthemselves) to Hooters of America in 2001. As a result, Hooters of America is the trademark owner of the Hootersbrand and the operator and franchisor of Hooters restaurants.  Pursuant to the Hooters license assignment,we are required to pay Hooters of America a royalty fee, which totaledapproximately $0.9 million for the nine months ended September 30,2008.  Aside from the abovementionedroyalty fee, we are not otherwise affiliated with Hooters of America.

 

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 the hotelcasino 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.  AtSeptember 30, 2008, $6.8 million was outstanding on the Credit Facility.

 

***Results of Operations***

 

We generate hotel, casino, food, beverage andentertainment and retail revenues at the hotel casino property.  During the quarter ended September 30,2008, approximately 36.5% of the gross revenue was derived from the casino, 32.5%from food, beverage and entertainment and 31.0% from hotel and other.

 

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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 as variationsin the odds for different games of chance. Casino revenues, room revenues, food and beverage revenues, and otherrevenues vary due to general economic conditions and 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.

 

Food,beverage and entertainment revenues are derived from food and beverage sales inthe food, bar and entertainment outlets of the hotel casino, includingrestaurants, 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 food and beverage revenuecharged to patrons on their restaurant checks.

 

Thefollowing table summarizes the results of operations of 155 East Tropicana LLC, doing business as the Hooters Casino Hotel for the quarter and nine monthsended September 30, 2008 and 2007 (in thousands, except for percentages):

 

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| ** **                                | ** ** | **Quarter**             | ** ** | **Quarter**            | ** ** | **%**                   | ** ** | **Nine Months**   | ** ** | **Nine Months**   | ** ** | ** **    | ** ** |
|-------------------------------------------|------------|-------------------------|------------|------------------------|------------|-------------------------|------------|------------------------|------------|------------------------|------------|---------------|------------|
| ** **                                | ** ** | **Ended**               | ** ** | **Ended**              | ** ** | **Change**              | ** ** | **Ended**              | ** ** | **Ended**              | ** ** | **%**         | ** ** |
| ** **                                | ** ** | **September 30,**  | ** ** | **September 30,** | ** ** | **2008-**               | ** ** | **September 30,** | ** ** | **September 30,** | ** ** | **Change**    | ** ** |
| ** **                                | ** ** | **2008**                | ** ** | **2007**               | ** ** | **2007**                | ** ** | **2008**               | ** ** | **2007**               | ** ** | **2008-2007** | ** ** |
| ** **                                | ** ** | **(in thousands)** | ** ** | ** **             | ** ** | **(in thousands)** | ** ** | ** **             | ** ** |
| Casino revenues                           |       | $                       | 5,944      |                   | $          | 6,033                   |       | -1.5                   | %          | $                      | 19,289     |          | $          | 19,079 |   | 1.1 | % |
| Casino expenses                           |       | 3,784                   |       | 3,709                  |       | 2.0                     | %          | 11,313                 |       | 11,433                 |       | -1.0          | %          |
| Profit margin                             |       | 36.3                    | %          | 38.5                   | %          |                    |       | 41.3                   | %          | 40.1                   | %          |          |       |
|                                      |       |                    |       |                   |       |                    |       |                   |       |                   |       |          |       |
| Food, beverage and entertainment revenues |       | $                       | 5,608      |                   | $          | 6,015                   |       | -6.8                   | %          | $                      | 17,131     |          | $          | 18,295 |   | -6.4 | % |
| Food, beverage and entertainment expenses |       | 3,724                   |       | 4,669                  |       | -20.2                   | %          | 11,125                 |       | 13,987                 |       | -20.5         | %          |
| Profit margin                             |       | 33.6                    | %          | 22.4                   | %          |                    |       | 35.1                   | %          | 23.5                   | %          |          |       |
|                                      |       |                    |       |                   |       |                    |       |                   |       |                   |       |          |       |
| Hotel and other revenues                  |       | $                       | 4,757      |                   | $          | 5,858                   |       | -18.8                  | %          | $                      | 16,358     |          | $          | 18,891 |   | -13.4 | % |
| Hotel and other expenses                  |       | 2,123                   |       | 2,274                  |       | -6.6                    | %          | 6,108                  |       | 6,673                  |       | -8.5          | %          |
| Profit margin                             |       | 55.4                    | %          | 61.2                   | %          |                    |       | 62.7                   | %          | 64.7                   | %          |          |       |
|                                      |       |                    |       |                   |       |                    |       |                   |       |                   |       |          |       |
| Promotional allowances                    |       | $                       | 2,097      |                   | $          | 1,677                   |       | 25.0                   | %          | $                      | 6,006      |          | $          | 4,954 |   | 28.8 | % |
| Percent of gross revenues                 |       | 12.9                    | %          | 9.4                    | %          |                    |       | 11.4                   | %          | 8.8                    | %          |          |       |
|                                      |       |                    |       |                   |       |                    |       |                   |       |                   |       |          |       |
| General and administrative expenses       |       | $                       | 4,542      |                   | $          | 4,453                   |       | 2.0                    | %          | $                      | 12,978     |          | $          | 14,305 |   | -9.3 | % |
| Percent of net revenues                   |       | 32.0                    | %          | 26.1                   | %          |                    |       | 27.7                   | %          | 27.7                   | %          |          |       |

 

***Comparison of Quarter Ended September 30, 2008 with the QuarterEnded September 30, 2007***

 

A net loss of $5.3 millionwas generated for the quarter ended September 30, 2008 compared to a netloss of $3.6 million for the same quarter in 2007.

 

An operating loss of $1.9million for the quarter ended September 30, 2008 increased by $1.5 millionfrom a loss of $0.4 million in the same quarter last year.  The decreased operating profit was primarilyattributable to a decrease in net revenue of $2.1 million.  In general, the economy on the Las VegasStrip has suffered during the third quarter from declines in visitor counts,gaming revenue, and room rates as a result of the downturn in the generaleconomy.

 

Net operating revenues forthe quarter ended September 30, 2008 were $14.2 million, a decrease of$2.0 million or 12.4%, from $16.2 million generated during the same period inthe previous year.  The decline in netrevenue was largely a result of an increase in promotional allowances of $0.4million and  a decline of $1.1 million inroom revenue caused by falling room rates. Other Las Vegas casino/hotel market leaders announced they discountedroom rates during the third quarter of 2008 to attract visitation in thecurrent soft economy and expect the trend to continue.  For our property, the drop in net revenue of12.4% in the third quarter represented a deepening trend of decreased revenues.

 

Promotional allowances(which are subtracted from revenues) increased from $1.7 million to $2.1million, largely due to the promotional give away of show tickets and rooms tocasino customers.

 

Operating expenses were$16.2 million for the quarter ended September 30, 2008, a decrease of $0.4million or 2.6%, from $16.6 million during the same period in the previousyear.  This decrease in operatingexpenses was the result of an intense program of cost reductions.  Property-wide payroll was 

 

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analyzed in the last quarter of 2007 and payroll wasreduced in several areas where there was excess capacity in restaurants.  We also reduced payroll in other areas thatdid not impact our excellent customer service. Additionally, other operating expenses were evaluated and trimmed whereappropriate.

 

*Casino.* Casino revenues decreased by $0.1 million to $5.9 million for thequarter ended September 30, 2008, compared to $6.0 million for the quarterended September 30, 2007.  Thedecrease was the result of a $0.2 million decline in table games revenue, witha slight offset from the $0.1 million increase in slot revenue.

 

Tablegames and poker revenue was $2.3 million for the quarter endedSeptember 30, 2008, a decrease of $0.2 million, or 8.7%, compared to thetable games revenue of $2.5 million from the prior year’s quarter.  Table game drop decreased by $1.0 million orby 7.8%, to $12.2 million for the quarter ended September 30, 2008compared to $13.2 million for the quarter ended September 30, 2007. Thetable games generated an average win per table of $763 per day for the quarterended September 30, 2008 as compared to $803 per day for the quarter endedSeptember 30, 2007.

 

Slotrevenue of $3.7 million for the quarter ended September 30, 2008 was anincrease of 3.8% compared to $3.5 million in the same period in 2007.  The average win per machine per day was $63for the quarter ended September 30, 2008 as compared to $59 for thequarter ended September 30, 2007.   We continued targeting our marketing efforts to increase slot playthrough targeted slot marketing programs aimed at attracting a flow ofcustomers to the casino floor.

 

Casinoexpenses, which included casino operational expenses and casino marketingincreased slightly to $3.8 million for the quarter ended September 30,2008 compared to $3.7 million for the quarter ended September 30,2007.  The profit margin for casinooperations decreased slightly to 36.3% during the quarter endedSeptember 30, 2008 from 38.5% during the quarter ended September 30,2007.

 

*Food, beverage, and entertainment.* Food, beverage and entertainment revenue was$5.6 million for the quarter ended September 30, 2008 as compared to $6.0million for 2007, a decrease of $0.4 million, or 6.8%. Food and beveragerevenue declined due to a slight 1.9% decline in food covers caused by theclosure of the Dam Coffee Shop in October 2007, along with a 5.2% declinein average check.  This was partiallyoffset by the opening of the Dixie Dam Country Bar on May 23, 2008, whichgenerated $0.2 million in beverage revenue in the quarter endedSeptember 30, 2008.

 

Food,beverage and entertainment expenses decreased to $3.7 million during thequarter ended September 30, 2008 from $4.7 million during the quarterended September 30, 2007, a decrease of $1.1 million or 20.2%.  The savings in food, beverage andentertainment expenses were facilitated by increased efficiencies in payrolland other operating expenses with the closing of our excess restaurantcapacity.

 

Theprofit margin for food, beverage, and entertainment operations increased to33.6% for the quarter ended September 30, 2008 from 22.4% in the samequarter in 2007 due to operational efficiencies.

 

*Hotel and other.*  Hotel and other revenue (which includes hotelroom revenue, retail, spa, and other miscellaneous revenue) decreased by $1.1million or 18.8% to $4.8 million for the quarter ended 

 

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September 30,2008 from $5.9 million for the quarter September 30, 2007.

 

Room revenuewas $3.5 million for the quarter ended September 30, 2008 compared to $4.3million in 2007.  Average daily roomrates decreased to $58 for the quarter ended September 30, 2008 from $82for the quarter ended September 30, 2007, while occupancy rates increasedto 94.1% for the quarter ended September 30, 2008 from 87.9% for thequarter ended September 30, 2007. Occupancy rates increased largelybecause of successful increased sales through the wholesalers, internetproviders and our group sales.

 

Salesfrom our retail outlets selling Hooters logo merchandise decreased 4% to $1.1million for the quarter ended September 2008 from $1.3 million for thequarter ended September 30, 2007.

 

Hotel and other expensesdecreased by 6.7% or $0.2 million to $2.1 million during the quarter endedSeptember 30, 2008 from $2.3 million during the quarter endedSeptember 30, 2007, due to savings in payroll and other room departmentoperating expenses. The profit margin for hotel and other revenue was 55.4% inthe third quarter of 2008 compared to 61.2% for that same period in the prioryear.

 

Retail sales generated aprofit margin of 42% for the quarter ended September 30, 2008 compared to43% for the quarter ended September 30, 2007.

 

*General andadministrative.* General and administrative expense includes costs associated withmarketing, information technology, finance, accounting, and propertyoperations. General and administrative expense increased $0.1 million or 2.0%to $4.5 million for the quarter ended September 30, 2008 compared to $4.4million for the quarter ended September 30, 2007.

 

*Depreciationand amortization expense.*  Depreciation and amortization expense of $1.6million for the quarter ended September 30, 2008 increased by $0.5million, or 44.0%, from $1.1 million for the quarter ended September 30,2007 due to a year-to-date adjustment that decreased depreciation in the thirdquarter of 2007.

 

*Related party royalties expense.* Beginning on February 3, 2006, we incurred related party royaltyfees pursuant to agreements with Hooters Gaming Corporation, LagsVentures, Inc., and Las Vegas Wings, Inc.  These related party royalties expense totaled$0.3 million during the quarters ended September 30, 2008 and 2007. Thepayment of the related party royalties is restricted under the Notesindenture.  The fees can only be paidafter the close of the fiscal year and only if our debt coverage ratio is 1.5to 1 for that fiscal year.  The paymentsof the royalty fees are further limited to the sum of 2% of revenue and 3% ofEBITDA, as defined in the indenture.

 

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

 

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***Comparison of Nine Months Ended September 30, 2008 with the NineMonths Ended September 30, 2007***

 

Net loss of $5.0 million wasgenerated for the nine months ended September 30, 2008 compared to a netloss of $10.6 million for the same nine months in 2007.  The $5.6 million improvement was dueprimarily to slightly increased operating profits and income from forfeiteddeposits and extension fees as described in more detail in the paragraphsbelow.

 

Operating loss of $0.6million for the nine months ended September 30, 2008 improved by $0.2 millionfrom a loss of $0.8 million in the same period last year.  The increased operating profit was  attributable to cost savings.

 

Net operating revenues forthe nine months ended September 30, 2008 were $46.8 million, a decrease of$4.8 million or 9.4%, from $51.6 million of net operating revenues for the ninemonth ended September 30, 2007.

 

*Casino.*  Casino revenues increased by $0.2 million to$19.3 million for the nine months ended September 30, 2008, compared to$19.1 million for the nine months ended September 30, 2007 because of oursuccessful slot promotions.

 

 Table games revenue was $6.8 million for thenine months ended September 30, 2008, a decrease of $0.7 million, or10.1%, compared to the table games revenue of $7.5 million from the prior year’sfirst nine months.  Table game dropdecreased to $40.6 million, or by 8.8%, for the nine months endedSeptember 30, 2008 compared to $44.5 million for the nine months endedSeptember 30, 2007, while table game hold percentage decreased from 17.0%in 2007 to 16.7% in 2008.  The tablegames generated an average win per table of $821 per day for the first ninemonths of 2008 compared to $882 for the nine months of 2007. Slot revenue of$12.0 million for the nine months ended September 30, 2008 was an increaseof $2.1 million or 22.2% compared to $9.9 million in the same period in2007.  The average win per machine perday was $70 for the nine months ended September 30, 2008 compared to $62for the same period in 2007.

 

Casino expenses decreased by$0.1 million or 1.0% to $11.3 million for the nine months endedSeptember 30, 2008 compared to $11.4 million for the nine months endedSeptember 30, 2007. The profit margin for casino operations increased from40.1% during the nine months ended September 30, 2007 to 41.3% during thenine months ended September 30, 2008.

 

*Food, beverage and entertainment.*  Food,beverage and entertainment revenue was $17.1 million for the nine months endedSeptember 30, 2008 as compared to $18.3 million for September 30,2007, a decrease of $1.2 million or 6.4%. The food revenues decreased $1.4 million or 12.7% to $9.4 million forthe nine months ending September 30, 2008 compared to $10.8 million forthe nine months ending September 30, 2007. Beverage revenue (whichincludes complimentary beverages) decreased by $0.3 million or 4.4% to $6.6million for the nine months ended September 30, 2008 from $6.9 millionduring the nine months ended September 30, 2007.  Showroom revenue increased $0.5 million dueto a full nine months of showroom revenue in 2008 of $1.1 million as comparedto showroom revenue of $0.6 million in 2007 when the showroom opened inmid-April.

 

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Food,beverage and entertainment expenses decreased from $14.0 million during thenine months ended September 30, 2007 to $11.3 million during the ninemonths ended September 30, 2008, a decrease of $2.9 million or 20.5%.  The profit margin for food, beverage andentertainment operations increased from 23.5% during the nine months endedSeptember 30, 2007 to 35.1% during the nine months endedSeptember 30, 2008 due to operational efficiencies in payroll and cost ofsales.

 

*Hotel and other.*  Hotel and other revenue (which includes hotelroom revenue, retail, spa and other miscellaneous revenue) decreased by $2.5million, or 13.4%, to $16.4 million for the nine months endedSeptember 30, 2008 from $18.9 million for the nine months ended September 30,2007.  Room revenue decreased $2.0million or 14.3% to $12.2 million for the nine months ended September 30,2008 compared to $14.2 million in 2007 due to a drop in average daily room rate(ADR) . The ADR decreased to $69 for the nine months ended September 30,2008 compared to $82 for the prior year and occupancy for the nine month endedSeptember 30, 2008 increased to 93.2% compared to 91.3% for nine monthsended September 30, 2007.

 

Salesfrom the retail outlets was $3.5 million in the nine months endedSeptember 30, 2008, a decrease of $0.3 million from the nine months endedSeptember 30, 2007.

 

Hotel and other expensesdecreased by $0.6 million or 8.5% from $6.7 million during the nine monthsended September 30, 2007 to $6.1 million during the nine months endedSeptember 30, 2008 due to operational efficiencies in payroll anddepartmental expenses. The profit margin for hotel and other was 62.7% for thenine months ended September 30, 2008 compared to 64.7% for the same periodin the prior year. Retail sales generated a profit margin of 46.2% for the ninemonths ended September 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$1.3 million or 9.3% to $13.0 million for the nine months endedSeptember 30, 2008 compared to $14.3 million for the nine months endedSeptember 30, 2007. This decrease was principally due to significantdecreases in advertising and marketing expenses, legal fees and various otheradministrative costs.

 

*Depreciation and amortization expense.* Depreciation and amortization expense of $4.8 million for the ninemonths ended September 30, 2008 increased by $0.1 million, or 2.7%, from$4.7 million for the nine months ended September 30, 2007.

 

*Related party royalties expense.* Beginning on February 3, 2006, we incurred related party royaltyfees pursuant to agreements with Hooters Gaming Corporation, LagsVentures, Inc., and Las Vegas Wings, Inc.  These related party royalties expense totaled$1.1 million during both the nine months ended September 30, 2008 and2007. The payment of the related party royalties is restricted under the Notesindenture.  The fees can only be paidafter the close of the fiscal year and only if our debt coverage ratio is 1.5to 1 for that fiscal year.  The paymentsof the royalty fees are further limited to the sum of 2% of revenue and 3% ofEBITDA as defined in the indenture.

 

*Income on forfeited deposits andextension fees*.  In June of 2008, we recorded income onforfeited deposits and extension fees of $5.5 million in connection with thetermination of the purchase agreement (the “Agreement”) with Hedwigs Las VegasTop Tier, LLC. (the “Buyer”).

 

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* *

*Interest income.*  Interest income was $121,000 for the ninemonths ended September 30, 2008, compared to $78,100 for the nine monthsended September 30, 2007.

 

*Interest expense.*  Interest expense was $10.0million for the nine months ended September 30, 2008, compared to $9.9million for the nine months ended September 30, 2007, an increase of $0.1million due to an increase in the debt outstanding on the line of credit.  .

 

*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 ofSeptember 30, 2008:

 
| ** **                                   | ** ** | **Payments Due By Year** | ** ** |
|----------------------------------------------|------------|-----------------------------------------|------------|
| ** **                                   | ** ** | ** **                              | ** ** | **Less than** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                   | ** ** | **Total**                               | ** ** | **1 year** | ** ** | **1-3 years** | ** ** | **3-5 years** | ** ** | **Thereafter** | ** ** |
| ** **                                   | ** ** | **(dollars in thousands)**    | ** ** |
| Equipment  purchase financing agreements (1) |       | $                                       | 784        |   | $ | 720 |   | $ | 64 |   | $ | — |   | $ | — |   |
| Long-term  debt (2)                          |       | 136,806                                 |       | — |   | — |   | 136,806 |   | — |   |
| Operating  contracts (3)                     |       | 5,779                                   |       | 1,864 |   | 3,860 |   | 55 |   | — |   |
| Total                                        |       | $                                       | 143,369    |   | $ | 2,584 |   | $ | 3,924 |   | $ | 136,861 |   | $ | — |   |

 

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(1)          We entered into various equipment purchaseagreements in connection with the renovation and rebranding of the HootersCasino Hotel.

(2)          The long-term debt represents the $6.8million in outstanding draws against the Credit Facility as of June 30,2008 due on September 30, 2011 and the $130.0 million Notes issued onMarch 29, 2005 and due on 2012.

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

 

***Liquidity and Capital Resources***

 

For the nine months endedSeptember 30, 2008, we were provided $6.4 million of cash in operatingactivities, which was augmented by income of $5.5 million in forfeited depositsand extension fees related to the termination of the Agreement,  which we received from the Buyer in 2007 and2008.

 

For the nine months endedSeptember 30, 2008, $0.6 million of cash was used for capitalexpenditures.

 

For the nine months endedSeptember 30, 2008, we used $4.7 million of cash from financingactivities. We borrowed $0.6 million on our line of credit, offset by $1.5million in principal payments on debt. Deposits of earnest money and extension fees of $2.0 million received in2008 (along with $3.5 million received in 2007) were taken to net income withthe termination of the Agreement.  TheAgreement was terminated on June 6, 2008 when the Buyer did not make anadditional required payment 

 

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of $0.5 million.

 

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.

 

Our Credit Facility is a revolving credit facility of $15.0 million,which originally matured 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 $6.8 million at September 30, 2008. Anadditional $0.5 million of the Credit Facility is not available due to anoutstanding letter of credit issued against the Credit Facility.  Subsequent to quarter end, we borrowed anadditional $2.6 million on October 1, 2008 and used the proceeds topartially fund a bond payment. Currently, the Credit Facility has a balance of $5.1 million availablefor additional draws.  All outstandingprincipal and interest under the Credit Facility is due and payable onSeptember 30, 2011.

 

AtSeptember 30, 2008, we had $6.9 million in cash equivalents.  Our cash flow from operations during thethird quarter of 2008 was a negative cash flow of $0.1 million.  During the quarter ended September 30,2008, our operating income declined from the same quarter in 2007 by $1.6million.  The Las Vegas economy and inparticular, the impact we have recently felt in our falling room rates havecaused us to reevaluate our future cash flow from operations.  With limited availability on our CreditFacility, we must obtain funds through additional debt, equity infusion or thesale of assets or we must see a substantial improvement in operating cash flowsin order to continue to meet our obligations over the next twelve months.  Management is currently evaluating operationsand is exploring opportunities for revenue improvement and further costcontrol.  No assurance can be given thatour cash flow will be adequate to meet our anticipated working capital needs,capital expenditures and scheduled payments of interest on our indebtedness.

 

We are also exploring our options for raising additional capital whichinclude a recapitalization, refinancing, restructuring or reorganization of ourobligations or a sale of assets.  In thepast, operating cash flows have fallen short of covering debt service andcapital expenditure requirements resulting in downgrading of our Bond ratings andpotentially affecting our ability to raise capital in the future.  Although the potential for future operationalimprovements and the underlying value of the Company’s real estate and otherassets may provide assistance in raising capital, there can be no assurancethat we will be successful in undertaking any such alternative in the nearterm, nor can there be any assurance that we will be successful inrestructuring or reorganizing our existing debt obligations.  In the event that we cannot raise additionalfunds or operations continue to decline, we may be unable to satisfy ourobligations as they become due and may ultimately result in our inability tocontinue as a going concern.

 

***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, valuation of goodwill and other intangible assets and thedetermination of bad debt reserves, require that we apply significant judgmentin defining the appropriate assumptions for calculating financialestimates.  By their nature, thesejudgments are subject to an inherent degree of uncertainty.  Our judgments are based in part on ourhistorical experience, terms of existing contracts, observance of trends in thegaming industry and information 

 

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obtainedfrom independent valuation experts or other outside sources.  We cannot assure you that our actual resultswill conform to our estimates.

 

Foradditional information on critical accounting policies and estimates, see “Item7 Management’s Discussion and Analysis of Financial Condition and Results ofOperations” and the notes to our audited consolidated financial statementsincluded in our Annual Report on Form 10-K for the year endedDecember 31, 2007.

 

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

## *** ***

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

 

Marketrisk is risk of loss arising from changes in market rates and prices, such asinterest rates, foreign currency exchange rates and commodity prices.  At September 30, 2008, we had $130.0million aggregate principal amount of the Notes, slot equipment purchaseagreements of $0.7 million carrying an imputed interest rate of 3.327%, andhotel equipment purchase agreements of $0.1 million carrying interest ratesaveraging 11.72%.   The Notes carry afixed interest rate of 8.75 %, provided no events of default haveoccurred.  Since the Notes and equipmentpurchase agreements have fixed interest rates, there is no market riskassociated with these loans other than fair value market risk, which we believeto be insignificant.  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 prime rate.  The term of the Credit Facility will matureon September 30, 2011.  AtSeptember 30, 2008, $6.8 million was outstanding under the variable rateCredit Facility, carrying interest at 6.32%. Assuming a 100 basis-point change in LIBOR at September 30, 2008and assuming no change in the funds borrowed on the $15.0 million CreditFacility, our annual interest cost would change by approximately $68,000.

 

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

 

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

## *** ***

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

## *** ***

We evaluated the effectiveness of our disclosure controls andprocedures as of the three months ended September 30, 2008.  This evaluation was done with theparticipation of our management, including our Chief Executive Officer andChief Financial Officer.

 

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, asappropriate to allow timely decisions regarding required disclosure.

 

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## ***Limitations on the Effectiveness ofControls***

## *** ***

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 issuesand instances of fraud, if any, within us have been detected.  These inherent limitations include therealities that judgments in decision-making can be faulty and that breakdownscan occur because of simple error or mistake. Additionally, controls can becircumvented by the individual acts of some persons, by collusion of two ormore people, or by management override of a control.  Because the design of a control system isbased upon certain assumptions about the likelihood of future events, there canbe no assurance that any design will succeed in achieving its stated goalsunder all potential future conditions. Over time, controls may become inadequate because of changes inconditions, or the degree of compliance with the policies or procedures maydeteriorate. Because of the inherent limitations in a cost-effective controlsystem, misstatements due to error or fraud may occur and may not be detected.

 

## ***Conclusions***

## *** ***

Based on this evaluation, our Chief Executive Officer and Chief FinancialOfficer have evaluated our disclosure controls and procedures (as defined inthe Securities Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e)) asof September 30, 2008, and have concluded that they are effective totimely 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 September 30, 2008, that have materially affected, orare reasonably likely to materially affect, our internal controls overfinancial reporting.

 

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# **PART II – OTHER INFORMATION**

# ** **

## ***Item 1.  Legal Proceedings.***

## *** ***

None.

 

## ***Item 1A.  Risk Factors.***

## *** ***

 A description of our risk factors can befound in Item 1A of our Annual Report on Form 10-K, as amended, for theyear ended December 31, 2007. The following information representsmaterial changes to those risk factors during the nine months endedSeptember 30, 2008.

 

**RecentEconomic Developments - *Recent disruptions in thefinancial markets could adversely affect our ability to restructure ourexisting debt or raise additional financing, which may ultimately affect ourability to continue as a going concern.***

 

 Significant disruptions in the banking systemand financial markets have resulted in a tightening of credit marketsworldwide. Liquidity in the global credit markets has been severely contractedby these market disruptions, making it costly to obtain new lines of credit orto refinance existing debt. The effects of these disruptions are widespread anddifficult to quantify, and it is impossible to predict when the global creditmarkets will improve or when the credit contraction will stop. While the UnitedStates and other governments have enacted legislation and taken other actionsto help alleviate these conditions, there is no assurance that such steps willhave the effect of easing the conditions in credit and capital markets.  Given the negative impact that the generaleconomic downturn has had on our results of operations in recent months, ourability to continue as a going concern may depend upon our ability torestructure our existing debt or to obtain additional debt or equity financing,as described in “Management’s Discussion and Analysis of Financial Conditionand Results of Operations.” Given the state of the current credit environment,it may be difficult to restructure our existing debt or to obtain anyadditional financing on acceptable terms, which may ultimately result in ourinability to continue as a going concern.

 

## ***Item 2.  Unregistered Sales of Equity Securities andUse of Proceeds.***

## *** ***

None.

 

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

## *** ***

None.

 

## ***Item 4.  Submission of Matters to a Vote of SecurityHolders.***

## *** ***

 None.

 

## ***Item 5.  Other Information.***

## *** ***

None.

 

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

## *** ***

Exhibits:

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

# ** **

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# **SIGNATURES**

# ** **

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

 

**155 EAST TROPICANA, LLC**

 

 
| By:      | /s/ Deborah J. Pierce             |     | November 14, 2008 |
|----------|-----------------------------------|----------|------------------------|
|     |                              |     |                   |
|     | Deborah J. Pierce                 |     |                   |
| * * | *Chief Financial Officer*         | * * |
| * * | *(Principal Financial and  Chief* | * * |
| * * | *Accounting Officer)*             | * * |

 

 

**155EAST TROPICANA FINANCE CORP.**

 

 
| By:      | /s/ Deborah J. Pierce             |     | November 14, 2008 |
|----------|-----------------------------------|----------|------------------------|
|     |                              |     |                   |
|     | Deborah J. Pierce                 |     |
| * * | *Chief Financial Officer*         | * * |
| * * | *(Principal Financial and  Chief* | * * |
| * * | *Accounting Officer)*             | * * |

 

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