**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**WASHINGTON, D.C. 20549**

 

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**FORM10-Q**

**(Mark One)**

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

 

**For the quarterly period endedJune 30, 2005**

 

**OR**

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

 

**For the transition period from               to               **

 

**Commission File Number 333-124924**

 

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** **

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

(Exact Name of Registrantas 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**               | ** ** | **10022**                                |
| (Address of Principal  Executive Offices)                        |       | (Zip Code)                               |

** **

**(702) 597-6076**

(Registrant’s TelephoneNumber, Including Area Code)

 

Indicateby check mark whether the Registrant (1) has filed all reports required bySection 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the Registrant was required to filesuch reports) and (2) has been subject to such filing requirements for the past90 days.    Yes  ý    No  o

 

**Indicate by check mark whether theRegistrant is an accelerated filer (as defined in Rule 12b-2 of the SecuritiesExchange Act of 1934).    Yes  **o    No  ý

 

 

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| **PART I – FINANCIAL INFORMATION** |
|-----------------------------------------|
|                                    |   |
|                                    | Item 1. | Financial Statements. |
|                                    |   |   |
|                                    |   | **155 East  Tropicana, LLC (A development stage company)** |
|                                    |   | Condensed  Consolidated Balance Sheets (unaudited) |
|                                    |   | Condensed  Consolidated Statement of Operations (unaudited) |
|                                    |   | Condensed  Consolidated Statement of Cash Flows (unaudited) |
|                                    |   | Notes to  Condensed Consolidated Financial Statements |
|                                    |   |   |
|                                    |   | **Hôtel  San Rémo Casino and Resort (A Division of S.I. Enterprises, Inc.)** |
|                                    |   | Condensed Combined  Balance Sheets (unaudited). |
|                                    |   | Condensed  Combined Statements of Income (unaudited) |
|                                    |   | Condensed  Combined Statements of Cash Flows (unaudited) |
|                                    |   | Notes to  Condensed Combined Financial Statements |
|                                    |   |   |
|                                    | Item 2. | Management’s  Discussion and Analysis of Financial Condition and Results of Operations. |
|                                    |   |   |
|                                    | Item 3. | Quantitative  and Qualitative Disclosures About Market Risk. |
|                                    |   |   |
|                                    | Item 4. | Controls and  Procedures. |
|                                    |   |   |
| **PART II – OTHER INFORMATION**    |
|                                    |   |   |
|                                    | Item 1. | Legal Proceedings. |
|                                    |   |   |
|                                    | Item 2. | Unregistered  Sales of Equity Securities and Use of Proceeds. |
|                                    |   |   |
|                                    | Item 3. | Defaults  Upon Senior Securities. |
|                                    |   |   |
|                                    | Item 4. | Submission  of Matters to a Vote of Security Holders. |
|                                    |   |   |
|                                    | Item 5. | Other Information. |
|                                    |   |   |
|                                    | Item 6. | Exhibits. |
|                                    |   |   |
| **SIGNATURES**                          |

 

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# **PART I – FINANCIALINFORMATION**

## ** **

## **Item 1.  FinancialStatements.**

 

155 East Tropicana, LLC

(A development stagecompany)

 

Condensed ConsolidatedBalance Sheets

 
| ** **                                        | ** ** | **June 30,  2005** | ** **  | **December 31,  2004** | ** ** |
|---------------------------------------------------|------------|--------------------|-------------|------------------------|------------|
| ** **                                        | ** ** | **(unaudited)**    | ** **  | ** **             | ** ** |
| **Assets**                                        |       |               |        |                   |       |
| Current assets:                                   |       |               |        |                   |       |
| Cash and cash  equivalents                        |       | $                  | 17,196,401  |                   | $          | 1,220,851 |   |
| Receivables                                       |       | 211,014            |        | 8,300                  |       |
| Prepaid expenses                                  |       | 679,215            |        | 56,771                 |       |
| Total current  assets                             |       | 18,086,630         |        | 1,285,922              |       |
|                                              |       |               |        |                   |       |
| Property and  equipment, net                      |       | 71,856,944         |        | 67,665,688             |       |
|                                              |       |               |        |                   |       |
| Other long-term  assets:                          |       |               |        |                   |       |
| Restricted cash                                   |       | 59,133,857         |        | 4,000,000              |       |
| Deferred  financing costs                         |       | 7,730,788          |        | 1,428,325              |       |
| Intangible  assets                                |       | 1,100,000          |        | 1,100,000              |       |
| Other assets                                      |       | 121,721            |        | 100,000                |       |
| Total other  long-term assets                     |       | 68,086,366         |        | 6,628,325              |       |
| Total assets                                      |       | $                  | 158,029,940 |                   | $          | 75,579,935 |   |
|                                              |       |               |        |                   |       |
| **Liabilities  and Members’ Equity**         |       |               |        |                   |       |
| Current  liabilities:                             |       |               |        |                   |       |
| Due to Hôtel San  Rémo                  |       | $                  | 885,468     |                   | $          | 1,760,434 |   |
| Accounts payable                                  |       | 2,478,172          |        | —                 |       |
| Accrued  liabilities                              |       | 2,935,484          |        | —                 |       |
| Total current  liabilities                        |       | 6,299,124          |        | 1,760,434              |       |
|                                              |       |               |        |                   |       |
| Long-term debt                                    |       | 130,000,000        |        | 48,500,000             |       |
| Total  liabilities                                |       | 136,299,124        |        | 50,260,434             |       |
| Commitments and  contingencies                    |       |               |        |                   |       |
| Members’ equity:                             |       |               |        |                   |       |
| Membership  interests                             |       | 26,233,375         |        | 26,233,375             |       |
| Deficit  accumulated during the development stage |       | (4,502,559         | )           | (913,874               | )          |
|                                              |       | 21,730,816         |        | 25,319,501             |       |
| Total  liabilities and members’ equity       |       | $                  | 158,029,940 |                   | $          | 75,579,935 |   |

 

*Theaccompanying notes are an integral part of these unaudited condensedconsolidated financial statements.*

 

1

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155 East Tropicana, LLC

(A development stagecompany)

 

Condensed ConsolidatedStatements of Operations

 
| ** **                                                                                                                                                                                                                                      | ** ** | **Three Months  Ended June 30,** | ** ** | **Six Months  Ended June 30,** | ** ** | **For the Period  from Inception  (June 17, 2004)  through  June 30,** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|------------------------------------------------------------------------|------------|
| ** **                                                                                                                                                                                                                                      | ** ** | **2005**                         | ** ** | **2005**                       | ** ** | **2005**                                                               | ** ** |
| ** **                                                                                                                                                                                                                                      | ** ** | **(unaudited)**                  | ** ** | **(unaudited)**                | ** ** | **(unaudited)**                                                        | ** ** |
| **Revenues**                                                                                                                                                                                                                                    |       |                             |       |                           |       |                                                                   |       |
| Related-party  lease income                                                                                                                                                                                                                     |       | $                                | 1,564,390  |                           | $          | 3,939,324                                                              |       | $ | 6,089,706 |   |
| Interest income                                                                                                                                                                                                                                 |       | 562,283                          |       | 577,273                        |       | 577,273                                                                |       |
|                                                                                                                                                                                                                                            |       | 2,126,673                        |       | 4,516,597                      |       | 6,666,979                                                              |       |
| Costs and  expenses:                                                                                                                                                                                                                            |       |                             |       |                           |       |                                                                   |       |
| Pre-opening  expenses                                                                                                                                                                                                                           |       | 335,146                          |       | 600,036                        |       | 703,445                                                                |       |
| Depreciation                                                                                                                                                                                                                                    |       | 406,281                          |       | 812,562                        |       | 1,589,697                                                              |       |
|                                                                                                                                                                                                                                            |       |                             |       |                           |       |                                                                   |       |
|                                                                                                                                                                                                                                            |       | 741,427                          |       | 1,412,598                      |       | 2,293,142                                                              |       |
|                                                                                                                                                                                                                                            |       |                             |       |                           |       |                                                                   |       |
| Operating income                                                                                                                                                                                                                                |       | 1,385,246                        |       | 3,103,999                      |       | 4,373,837                                                              |       |
|                                                                                                                                                                                                                                            |       |                             |       |                           |       |                                                                   |       |
| **Other  expense**                                                                                                                                                                                                                              |       |                             |       |                           |       |                                                                   |       |
| Interest expense, net  of capitalized interest of $56,583, $88,922 and $111,958 for the three months  ended June 30, 2005, six months ended June 30, 2005 and for the period of  inception (June 17, 2004) through June 30, 2005, respectively. |       | 3,092,033                        |       | 4,446,158                      |       | 6,629,870                                                              |       |
| Loss on  extinguishment of debt                                                                                                                                                                                                                 |       | —                           |       | 2,246,526                      |       | 2,246,526                                                              |       |
|                                                                                                                                                                                                                                            |       |                             |       |                           |       |                                                                   |       |
| Total other  expense                                                                                                                                                                                                                            |       | 3,092,033                        |       | 6,692,684                      |       | 8,876,396                                                              |       |
|                                                                                                                                                                                                                                            |       |                             |       |                           |       |                                                                   |       |
| Net loss                                                                                                                                                                                                                                        |       | $                                | (1,706,787 | )                              | $          | (3,588,685                                                             | )          | $ | (4,502,559 | ) |

 

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

 

2

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155 East Tropicana, LLC

(A development stagecompany)

 

Condensed ConsolidatedStatements of Cash Flows

 
| ** **                                                                                  | ** ** | **Six Months Ended  June 30, 2005** | ** ** | **For the Period from  Inception (June 17,  2004) through  June 30, 2005** | ** ** |
|---------------------------------------------------------------------------------------------|------------|-------------------------------------|------------|----------------------------------------------------------------------------|------------|
| ** **                                                                                  | ** ** | **(unaudited)**                     | ** ** | **(unaudited)**                                                            | ** ** |
| **Cash  flows from operating activities**                                                   |       |                                |       |                                                                       |       |
| Net loss                                                                                    |       | $                                   | (3,588,685 | )                                                                          | $          | (4,502,559 | ) |
| Adjustments to  reconcile net loss to net cash provided by operating activities:            |       |                                |       |                                                                       |       |
| Depreciation                                                                                |       | 812,562                             |       | 1,589,697                                                                  |       |
| Amortization of  debt issuance costs                                                        |       | 533,152                             |       | 909,027                                                                    |       |
| Loss on  extinguishment of debt                                                             |       | 2,246,526                           |       | 2,246,526                                                                  |       |
| Changes in  assets and liabilities:                                                         |       |                                |       |                                                                       |       |
| Receivables                                                                                 |       | (202,714                            | )          | (211,014                                                                   | )          |
| Prepaid expenses                                                                            |       | (622,444                            | )          | (679,209                                                                   | )          |
| Accounts payable                                                                            |       | 2,478,172                           |       | 2,478,172                                                                  |       |
| Accrued liabilities                                                                         |       | 2,935,484                           |       | 2,935,484                                                                  |       |
| Net cash  provided by operating activities                                                  |       | 4,592,053                           |       | 4,766,124                                                                  |       |
| **Cash  flows from investing activities**                                                   |       |                                |       |                                                                       |       |
| Acquisition of  Hotel San Remo—transaction costs and expenses                          |       | —                              |       | (2,466,981                                                                 | )          |
| Capital  expenditures                                                                       |       | (5,003,818                          | )          | (5,979,666                                                                 | )          |
| Restricted cash                                                                             |       | (55,133,857                         | )          | (59,133,857                                                                | )          |
| Other assets                                                                                |       | (21,721                             | )          | (121,721                                                                   | )          |
| Net cash used in  investing activities                                                      |       | (60,159,396                         | )          | (67,702,225                                                                | )          |
| **Cash  flows from financing activities**                                                   |       |                                |       |                                                                       |       |
| Cash  contributions from Florida Hooters LLC                                                |       | —                              |       | 5,133,375                                                                  |       |
| Payment of debt  financing costs                                                            |       | (7,720,391                          | )          | (9,524,591                                                                 | )          |
| Extinguishment  of debt                                                                     |       | (48,500,000                         | )          | (92,245,708                                                                | )          |
| Loan penalties  from extinguishment of debt                                                 |       | (1,361,750                          | )          | (1,361,750                                                                 | )          |
| Proceeds from  issuance of long-term debt                                                   |       | 130,000,000                         |       | 178,500,000                                                                |       |
| Due to Hotel San  Remo                                                                      |       | (874,966                            | )          | (368,824                                                                   | )          |
| Net cash  provided by financing activities                                                  |       | 71,542,893                          |       | 80,132,502                                                                 |       |
| Increase in cash  and cash equivalents                                                      |       | 15,975,550                          |       | 17,196,401                                                                 |       |
| Cash and cash  equivalents, beginning of period                                             |       | 1,220,851                           |       | —                                                                     |       |
| Cash and cash  equivalents, end of period                                                   |       | $                                   | 17,196,401 |                                                                       | $          | 17,196,401 |   |
|                                                                                        |       |                                |       |                                                                       |       |
| **Supplemental  disclosure of cash flow information**                                       | ** ** | ** **                          | ** ** | ** **                                                                 | ** ** |
| Cash paid for  interest, net of capitalized interest                                        |       | $                                   | 1,126,418  |                                                                       | $          | 2,934,257 |   |
|                                                                                        |       |                                |       |                                                                       |       |
| Noncash  investing and financing activities:                                                |       |                                |       |                                                                       |       |
| Contribution by  Florida Hooters LLC of intangible assets pursuant to assignment agreements |       | $                                   | —     |                                                                       | $          | 1,100,000 |   |
|                                                                                        |       |                                |       |                                                                       |       |
| Issuance of  membership interest with priority return to EW Common LLC                      |       | $                                   | —     |                                                                       | $          | 20,000,000 |   |

 

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

 

3

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155 East Tropicana, LLC

(A development stagecompany)

 

Notes to CondensedConsolidated Financial Statements (unaudited)

 

June 30, 2005

 

**1. Organizationaland Basis of Presentation**

 

155 East Tropicana, LLC,a Nevada limited-liability company (the “Company”), was incorporated onJune 17, 2004 to acquire the real property and non-gaming assets of theHôtel San Rémo in Las Vegas, Nevada, with the intention of renovating theexisting facility with a “Hooters” entertainment concept and theme. The Companyand its wholly owned subsidiary, 155 East Tropicana Finance Corp., completed a$130 million Senior Secured Notes offering on March 29, 2005. The Company’smembership interests are held two-thirds through Florida Hooters LLC andone-third through EW Common LLC. The initial capitalization of the Company wasprovided by Florida Hooters LLC in the form of a $5.0 million cashcontribution and the assignment of rights with respect to the Hooters trademarkand logo and other intellectual property, and by EW Common LLC in the form of a$20.0 million deemed capital contribution.

 

Florida Hooters LLC is ajoint venture between Hooters Gaming LLC and Lags Ventures, LLC. Hooters GamingLLC is owned by the holders of licenses to operate Hooters restaurants in theTampa Bay, Chicago and Manhattan areas, as well as for the sale of wholesalefoods and calendars and Nevada hotel/gaming, and includes most of the originalfounders of the Hooters brand. Lags Ventures, LLC is owned by a holder of thelicense rights to Hooters restaurants in South Florida and the State of Nevada.Pursuant to these license rights, the owners of Florida Hooters LLC operate 39Hooters restaurants, publish Hooters calendars and operate a Hooters foodbusiness. The owner of Lags Ventures, LLC is also the founder of the Dan Marinoconcept restaurants, and owns and operates five Dan Marino concept restaurants.

 

EW Common LLC is owned90% by Eastern & Western Hotel Corporation (“Eastern &Western”) and 10% by Michael J. Hessling. Eastern & Western isbeneficially owned by Sukeaki and Toyoroku Izumi. Eastern & Westernand its affiliates owned the real property and non-gaming assets of Hôtel SanRémo from November 1988 until the Company’s acquisition of the Hôtel SanRémo in August 2004. Mr. Hessling served as the executive vicepresident and the chief operating officer of the Hôtel San Rémo fromJanuary 1989 until the acquisition, at which time he became the chiefoperating officer of the Company.

 

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

 

4

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Certain of the Company’saccounting policies require that the Company apply significant judgment indefining the appropriate assumptions for calculating financial estimates. Bytheir nature, these judgments are subject to an inherent degree of uncertainty.The Company’s judgments are based in part on its historical experience, termsof existing contracts, observance of trends in the gaming industry andinformation obtained from independent valuation experts or other outsidesources. There is no assurance, however, that actual results will conform toestimates.

 

The accompanyingcondensed consolidated financial statements should be read in conjunction withthe financial statements and notes thereto for the year ended December 31,2004, included in the Company’s Registration Statement on Form S-4/A filed June16, 2005. Significant intercompany transactions between the Company and itswholly owned subsidiary have been eliminated in consolidation.

 

**2. Acquisition**

 

In August 2004, theCompany completed the acquisition of the real property and non-gaming assets ofthe Hôtel San Rémo for approximately $67.5 million including transactioncosts and expenses. The acquisition was funded by the Company through a termloan totaling $48.5 million which was used to extinguish the Hôtel SanRémo’s existing indebtedness of $43.7 million, a commitment to pay theexisting owner of Hôtel San Rémo $1.3 million and the issuance to EWCommon LLC of a 331/3% membership interest with priorityreturn valued at $20.0 million.

 

The acquisition of theHôtel San Rémo has been accounted for as a purchase. The following table setsforth the determination of the purchase price (in thousands):

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

 

5

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The preliminaryallocation of the purchase price to the underlying Hôtel San Rémo assetsacquired is as follows (in thousands):

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

 

Management has developedthe preliminary purchase price allocation based on comparable land sales,discounted cash flow analysis and other available information. The Company hasretained a third-party appraiser to value the assets acquired to assist infinalizing the purchase price allocation.

 

If and following suchtime as the Company receives its gaming license, the Company will acquire thegaming assets of Hôtel San Rémo consisting principally of slot machines andcustomer lists from Eastern & Western, and will credit the capitalaccount of EW Common LLC for an additional $5.0 million (or, if EW Common LLCis unable to obtain the necessary gaming licensing prior to January 31,2006, an additional $5 million unsecured subordinated promissory note) andalso purchase the then existing working capital from Eastern &Western.

** **

**3. Long-term Debt**

** **

**Notes Offering**

 

On March 29, 2005, theCompany issued $130.0 million aggregate principal amount of 83⁄4% Senior SecuredNotes due 2012, in a private placement. On August 5, 2005, the Companysuccessfully exchanged all of the private placement notes for new notes (“Notes”).The Notes have substantially identical terms as the original notes, except thatthe new notes have been registered under the Securities Act of 1933 and will befreely tradable. Interest payments on the Notes are due semi annually, on eachApril 1 and October 1, commencing on October 1, 2005. The Notes are secured byall of the Company’s and, to the extent in existence, guarantors’ 1) existingand future assets (other that certain excluded existing and future assets).

 

6

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2) the Company’s equityinterest in any guarantors and 3) existing renovation disbursement and interestreserve accounts as described below. The Notes are redeemable at the option ofthe Company on or after April 1, 2009. The indenture governing the Notesrequires the Company to establish a renovation disbursement account in theamount of $50.8 million and interest reserve account in the amount of $10.7million. The indenture also contains certain provisions which restrict or limitthe Company’s ability to, among other things, incur more debt, pay dividends,redeem stock or make other distributions, enter into transactions withaffiliates or transfer or sell assets. The Company used the proceeds from theNotes offering to refinance existing indebtedness and will (together with cashfrom operations and proceeds from equipment financing), renovate the hotelcasino and provide working capital.

** **

**New Senior SecuredCredit Facility**

 

The Company entered intoa new $15.0 million senior secured credit facility concurrently with theoffering of the Notes. The new senior secured credit facility is secured by afour-year revolving credit facility of up to the lesser of $15.0 million orthree times trailing twelve month EBITDA through September 30, 2006 and twotimes thereafter, but the multiple of EBITDA requirement will not apply if theborrowings are less than $7.5 million. EBITDA for any fiscal period is defined inthe new senior secured credit facility as the Company’s consolidated net income(or loss), minus extraordinary gains (as defined) and interest income, plusinterest expense, income taxes and depreciation and amortization for suchperiod, and subject to other adjustments as described in the new senior securedcredit facility agreement.

 

At the Company’s option,the interest rate will be either the lender’s prime rate plus 2.00% per annumor LIBOR plus 3.50% per annum. All the obligations under the new senior securedcredit facility are secured by first priority liens on and security interest inall of the Company’s properties and assets. The lien on the collateral thatsecures the Notes are contractually subordinated to the liens securing theprincipal amount of borrowings of up $15.0 million (plus related interest,fees, indemnities, costs and expenses) under the new senior secured creditfacility. The senior secured credit facility required the Company to pay aclosing fee of $225,000, and unused commitment fees of 0.50% per annum on anyunused portion of the new senior secured credit facility, and, if terminatedprior to the third anniversary date, a prepayment premium of 1.00% of themaximum credit amount for each year or partial year remaining from thetermination date to the third anniversary date. The new senior secured creditfacility also contains customary financial covenants and other events ofdefault. The Company had no borrowings outstanding under this credit facilityon June 30, 2005 or December 31, 2004.

 

7

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**IntercreditorAgreement**

 

Concurrently with theclosing of the private placement notes offering and new senior secured creditfacility, the Company entered into an intercreditor agreement, which definesthe rights of the lenders under the new senior secured credit facility inrelation to the rights of the trustee and the holders of the Notes with respectto the collateral securing the Notes. The intercreditor agreement, among otherthings, provides that the liens securing the Notes and any guarantees thereofare contractually subordinated (other than the security interests in therenovation disbursement account, which will be senior, and interest reserveaccount, which will not secure the new senior secured credit facility) to theliens securing the principal amount of indebtedness of up to $15.0 million(plus related interest, fees, indemnities, costs and expenses) under the newsenior secured credit facility. The trustee’s ability to exercise rights andremedies in respect of the collateral are also subject to the terms of theintercreditor agreement.

** **

**4. Lease Agreements**

 

The Company, as lessor,has entered into a casino lease and hotel lease with Eastern & Westerncovering the real property and non-gaming assets of the Hôtel San Rémo acquiredby the Company.

** **

**Casino Lease**

 

The casino lease covers those portions of the HôtelSan Rémo containing the showroom, gaming and liquor servicing areas, the casinofloor where gaming activities occur, surveillance areas, count rooms, thecashier’s cage and other areas ancillary to the casino footprint.

 

The term of the original casino lease extended to theearlier of October 31, 2005 or the last day of the month following the Company’sreceipt of all appropriate governmental and regulatory approvals to conductgaming and liquor sales at the Hôtel San Rémo (the “Licensing”). The casinolease was revised in March 2005 to extend the term of the lease to the earlierof the date on which none of the Notes is outstanding or the last day of themonth in which the Company receives its gaming license. Minimum monthly base rentpayments of $125,000 are due from August 3, 2004 until the re-opening of theHôtel San Rémo as the new Hooters Casino Hotel. After the re-opening, thetenant, Eastern & Western, will pay an adjusted base rent of $450,000 permonth. This base rent can be adjusted at the Company’s sole and absolutediscretion six months after re-opening and again eighteen months afterre-opening, but no assurances can be made regarding the timing of thelicensing.

 

8

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Under the provisions of the casino lease, Eastern& Western is allowed to deposit $30,000 into a “Capital Reserve Account”each month for capital improvements to the casino such as the purchase ofgaming devices. The casino lease also provides for Eastern & Western tofund $120,000 each month to a “Change in Control Reserve” and $55,000 toestablish an “Expense Reserve” to be used for the payment of legal, accounting,and professional fees and other general business expenses including licensingrenewal costs. Eastern & Western is required to fund any excess cash flowremaining after payment of rent and funding of the reserves into a restrictedcash account to be used to secure Eastern & Western’s guarantee of theCompany’s existing borrowings.

** **

**Hotel Lease**

 

The hotel lease betweenEastern & Western and the Company covers those portions of the Hôtel SanRémo containing all non-casino areas, including the hotel.

 

The term of the originalhotel lease is the same as the term of the original casino lease. The hotellease was amended in March 2005 and the term of the amended hotel lease is thesame as the amended casino lease.

 

Minimum lease paymentsdue under the Hotel Lease consist of a minimum rent and a percentage rent. Theminimum rent is $250,000 per month. The percentage rent is equal to 100% of allrevenues received from the operations of the hotel, less actual operationalexpenses (including minimum rent) and working capital reserves which aredetermined and agreed upon monthly between the Company and Eastern & Western.No working capital reserves were agreed to or funded for the lease period fromAugust 3, 2004 to June 30, 2005. While the minimum rent is paid on a monthlybasis, the percentage rent must be paid to the Company in arrears on the firstday of each calendar quarter. Percentage rental income earned for the quarterending June 30, 2005 was $439,390; for six months ending June 30, 2005 was$1,689,324; and for inception to date was $2,001,324. There were no rentreceivables at June 30, 2005.

 

The estimated monthlyminimum lease rentals due under the casino lease and the hotel lease total$375,000 monthly.

 

9

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**5.Commitments and Contingencies**

** **

**ConstructionContracts**

 

The Company has enteredinto design and construction contracts related to the renovation of the HôtelSan Rémo to Hooters Casino Hotel totaling $39.0 million at June 30, 2005.

** **

**Litigation**

 

The Company is not involved in any material litigation at June 30, 2005that in the opinion of management would have a material impact on the Company’sfinancial position, cash flows, or results of operations.

 

10

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Hôtel San Rémo Casino andResort

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

 

Condensed CombinedBalance Sheets

 
| ** **                                                                                             | ** ** | **June 30,  2005** | ** ** | **December 31,  2004** | ** ** |
|--------------------------------------------------------------------------------------------------------|------------|--------------------|------------|------------------------|------------|
| ** **                                                                                             | ** ** | **(unaudited)**    | ** ** | ** **             | ** ** |
| **Assets**                                                                                             | ** ** | ** **         | ** ** | ** **             | ** ** |
| Current assets:                                                                                        |       |               |       |                   |       |
| Cash and cash  equivalents                                                                             |       | $                  | 3,553,668  |                   | $          | 4,470,919 |   |
| Accounts  receivable, net of allowance for doubtful accounts of $125,794 in 2005 and  $146,845 in 2004 |       | 1,252,669          |       | 1,161,510              |       |
| Due from 155  East Tropicana, LLC                                                                      |       | 885,468            |       | 1,760,434              |       |
| Inventories                                                                                            |       | 234,340            |       | 274,957                |       |
| Prepaid expenses                                                                                       |       | 664,025            |       | 681,698                |       |
| Deferred tax  assets                                                                                   |       | 13,746             |       | 13,746                 |       |
| Total current  assets                                                                                  |       | 6,603,916          |       | 8,363,264              |       |
| Property and  equipment:                                                                               |       |               |       |                   |       |
| Furniture,  fixtures and equipment                                                                     |       | 7,140,345          |       | 7,140,345              |       |
| Construction in  progress                                                                              |       | —             |       | 15,699                 |       |
|                                                                                                   |       | 7,140,345          |       | 7,156,044              |       |
| Less accumulated  depreciation                                                                         |       | (5,893,431         | )          | (5,705,503             | )          |
| Net property and  equipment                                                                            |       | 1,246,914          |       | 1,450,541              |       |
| Deferred tax  asset                                                                                    |       | 2,161,969          |       | 2,401,372              |       |
| Other assets                                                                                           |       | 302,088            |       | 81,547                 |       |
| Total assets                                                                                           |       | $                  | 10,314,887 |                   | $          | 12,296,724 |   |
|                                                                                                   |       |               |       |                   |       |
| **Liabilities  and Division Equity**                                                                   |       |               |       |                   |       |
| Current  liabilities:                                                                                  |       |               |       |                   |       |
| Accounts payable                                                                                       |       | $                  | 1,765,290  |                   | $          | 1,610,160 |   |
| Accrued expenses                                                                                       |       | 1,333,508          |       | 1,827,381              |       |
| Income taxes  payable to S.I. Enterprises, Inc.                                                        |       | 1,150,763          |       | 1,150,763              |       |
| Current portion  of long-term debt                                                                     |       | 97,179             |       | 235,905                |       |
| Total current  liabilities                                                                             |       | 4,346,740          |       | 4,824,209              |       |
|                                                                                                   |       |               |       |                   |       |
| Commitments and  contingencies                                                                         |       |               |       |                   |       |
|                                                                                                   |       |               |       |                   |       |
| Division equity                                                                                        |       | 5,968,147          |       | 7,472,515              |       |
| Total  liabilities and division equity                                                                 |       | $                  | 10,314,887 |                   | $          | 12,296,724 |   |

 

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

 

11

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Hôtel San Rémo Casino andResort

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

 

Condensed CombinedStatements of Operations

(unaudited)

 
| ** **                            | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|---------------------------------------|------------|------------------------|------------|----------------------|------------|
| ** **                            | ** ** | **June 30, 2005**      | ** ** | **June 30, 2004**    | ** ** | **June 30, 2005** | ** ** | **June 30, 2004** | ** ** |
| ** **                            | ** ** | ** **             | ** ** | ** **           | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Operating  revenues**               |       |                   |       |                 |       |   |   |   |   |
| Casino                                |       | $                      | 2,896,134  |                 | $          | 3,222,939 |   | $ | 6,214,024 |   | $ | 6,500,379 |   |
| Food and  beverage                    |       | 1,721,714              |       | 2,061,140            |       | 3,635,669 |   | 4,128,793 |   |
| Hotel and other                       |       | 3,989,556              |       | 3,885,335            |       | 8,450,754 |   | 7,860,017 |   |
|                                  |       | 8,607,404              |       | 9,169,414            |       | 18,300,447 |   | 18,489,189 |   |
| Less promotional  allowances          |       | (528,595               | )          | (562,350             | )          | (1,111,726 | ) | (1,146,739 | ) |
| Net operating  revenues               |       | 8,078,809              |       | 8,607,064            |       | 17,188,721 |   | 17,342,450 |   |
|                                  |       |                   |       |                 |       |   |   |   |   |
| **Operating  expenses**               |       |                   |       |                 |       |   |   |   |   |
| Casino                                |       | 1,658,072              |       | 1,720,918            |       | 3,423,254 |   | 3,456,586 |   |
| Food and  beverage                    |       | 1,569,423              |       | 1,623,437            |       | 3,141,979 |   | 3,237,882 |   |
| Hotel and other                       |       | 1,079,711              |       | 1,133,991            |       | 2,198,183 |   | 2,234,366 |   |
| General and  administrative           |       | 1,991,808              |       | 1,747,023            |       | 4,033,578 |   | 3,389,975 |   |
| Depreciation  expense                 |       | 93,748                 |       | 543,571              |       | 187,928 |   | 1,085,250 |   |
| Related party  lease expense          |       | 1,564,390              |       | —               |       | 3,939,324 |   | — |   |
| Restructuring  costs                  |       | —                 |       | 701,725              |       | — |   | 981,287 |   |
| Total operating  expenses             |       | 7,957,152              |       | 7,470,665            |       | 16,924,246 |   | 14,385,346 |   |
| Operating income                      |       | 121,657                |       | 1,136,399            |       | 264,475 |   | 2,957,104 |   |
| Other income  (expense):              |       |                   |       |                 |       |   |   |   |   |
| Interest income                       |       | 106,410                |       | 71,712               |       | 206,365 |   | 134,486 |   |
| Interest expense                      |       | (2,327                 | )          | (631,159             | )          | (4,934 | ) | (1,451,672 | ) |
| Foreign currency  translation         |       | —                 |       | 959,366              |       | — |   | 284,448 |   |
| Loss on sale of  asset                |       | —                 |       | (1,842               | )          | — |   | (1,842 | ) |
| Other income  (expense), net          |       | 104,083                |       | 398,077              |       | 201,431 |   | (1,034,580 | ) |
| Income before  income taxes           |       | 225,740                |       | 1,534,476            |       | 465,906 |   | 1,922,524 |   |
| Provision  (benefit) for income taxes |       | (94,866                | )          | 477,375              |       | 239,403 |   | 598,097 |   |
| Net income                            |       | $                      | 320,606    |                 | $          | 1,057,101 |   | $ | 226,503 |   | $ | 1,324,427 |   |

 

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

 

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Hôtel San Rémo Casino andResort

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

 

Condensed CombinedStatements of Cash Flows

(unaudited)

 
| ** **                                                                         | ** ** | **Six Months Ended** | ** ** |
|------------------------------------------------------------------------------------|------------|----------------------|------------|
| ** **                                                                         | ** ** | **June 30,  2005**   | ** ** | **June 30,  2004** | ** ** |
| ** **                                                                         | ** ** | ** **           | ** ** | ** ** | ** ** |
| **Cash  Flow From Operating Activities**                                           |       |                 |       |   |   |
| Net income                                                                         |       | $                    | 226,503    |   | $ | 1,324,427 |   |
| Adjustments to  reconcile net income to net cash provided by operating activities: |       |                 |       |   |   |
| Depreciation                                                                       |       | 187,928              |       | 1,085,250 |   |
| Deferred income  tax                                                               |       | 239,403              |       | — |   |
| Foreign currency  translation                                                      |       | —               |       | (284,448 | ) |
| Change in  operating assets and liabilities:                                       |       |                 |       |   |   |
| Accounts  receivable                                                               |       | (70,108              | )          | (365,243 | ) |
| Provision for  doubtful accounts                                                   |       | (21,051              | )          | (4,134 | ) |
| Inventories                                                                        |       | 40,617               |       | (30,879 | ) |
| Prepaid expenses                                                                   |       | 17,673               |       | (62,619 | ) |
| Accounts payable                                                                   |       | 155,130              |       | 326,118 |   |
| Accrued expenses                                                                   |       | (493,873             | )          | 560,163 |   |
| Income taxes  payable to S.I. Enterprises, Inc.                                    |       | —               |       | 598,097 |   |
|                                                                               |       |                 |       |   |   |
| Net cash  provided by operating activities                                         |       | 282,222              |       | 3,146,732 |   |
|                                                                               |       |                 |       |   |   |
| **Cash  Flow From Investing Activities**                                           |       |                 |       |   |   |
| Capital  expenditures                                                              |       | (15,699              | )          | (730,235 | ) |
| Other assets                                                                       |       | (220,541             | )          | 35,000 |   |
|                                                                               |       |                 |       |   |   |
| Net cash used in  investing activities                                             |       | (236,240             | )          | (695,235 | ) |
|                                                                               |       |                 |       |   |   |
| **Cash  Flow From Financing activities**                                           |       |                 |       |   |   |
| Due from 155  East Tropicana, LLC                                                  |       | 874,966              |       | — |   |
| Principal  payments on long-term debt                                              |       | (138,726             | )          | (556,073 | ) |
| Proceeds from  new debt                                                            |       | —               |       | 221,710 |   |
| Advances (to)  from affiliates, net                                                |       | (1,699,473           | )          | (731,816 | ) |
|                                                                               |       |                 |       |   |   |
| Net cash used in  financing activities                                             |       | (963,233             | )          | (1,066,179 | ) |
|                                                                               |       |                 |       |   |   |
| Increase  (decrease) in cash and cash equivalents                                  |       | (917,251             | )          | 1,385,318 |   |
| Cash and cash  equivalents, beginning of period                                    |       | 4,470,919            |       | 2,703,229 |   |
| Cash and cash  equivalents, end of period                                          |       | $                    | 3,553,668  |   | $ | 4,088,547 |   |
| ** **                                                                         | ** ** | ** **           | ** ** | ** ** | ** ** |
| **Supplemental  disclosure of cash flow information**                              |       |                 |       |   |   |
| Cash paid during  period for interest                                              |       | $                    | 4,934      |   | $ | 1,302,003 |   |

 

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

 

13

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HôtelSan Rémo Casino and Resort

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

 

Notes to CondensedCombined Financial Statements (unaudited)

 

June 30, 2005

**1. Organizationand Basis of Presentation**

 

The accompanyingcondensed combined financial statements present the operations of Hôtel SanRémo Casino and Resort (“Hôtel San Rémo”), a division of S.I.Enterprises, Inc. (the “Parent Company”), a Nevada corporation, located inLas Vegas, Nevada. Hôtel San Rémo commenced gaming operations onFebruary 16, 1990. The accompanying condensed combined financialstatements represent the assets, liabilities and operations of the hotel andgaming facilities and include certain accounts of Eastern & WesternHotel Corporation (“Eastern & Western”) and I&P Corporation,Colorado (“I&P”), both Nevada corporations. Eastern & Western,which holds the gaming license in Nevada, owns all gaming assets used by HôtelSan Rémo. I&P owned the real property and non-gaming assets of Hôtel SanRémo until August 3, 2004 at which time they were acquired by 155 EastTropicana, LLC (see Note 2) and then leased back to Hôtel San Rémo pursuant tocasino lease and hotel lease arrangements (see Note 3).

 

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

 

All significantintercompany accounts and transactions have been eliminated in the combinedfinancial statements.

 

The accompanyingcondensed combined financial statements have been prepared by Hôtel San Rémo,without audit, pursuant to the rules and regulations of the Securities andExchange Commission. Accordingly, the condensed combined financial statementsdo contain all adjustments (consisting of normal recurring adjustments) that,in the opinion of management, are necessary to present fairly the Hotel SanRemo’s financial position, results of operations and cash flows for the interimperiods included herein. The interim results reflected in these combinedfinancial statements are not necessarily indicative of results to be expectedfor the full fiscal year.

 

The accompanyingcondensed combined financial statements should be read in conjunction with theDecember 31, 2004 financial statements and notes thereto included in theRegistration Statement on Form S-4/A of 155 East Tropicana, LLC and 155 EastTropicana Finance Corp. filed with the SEC on June 16, 2005.

 

14

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**2. Acquisition by155 East Tropicana, LLC.**

 

In August 2004, thereal property and non-gaming assets owned by and associated with Hôtel San Rémowere acquired by 155 East Tropicana, LLC (“155”) for approximately$67.5 million including transaction costs and expenses. 155 is a jointventure between Florida Hooters LLC and EW Common LLC. EW Common LLC was formedto hold Eastern & Western’s membership interest in 155. EWCommon LLC is owned 90% by Eastern & Western and 10% by Michael J.Hessling, the executive vice president and chief operating officer of Hôtel SanRémo. Immediately prior to the acquisition, the real property and non-gamingassets of Hôtel San Rémo with a net book value of $25,956,004 and long-termdebt of $43,745,708 were transferred to EW Common LLC. Because EWCommon LLC and Hôtel San Rémo are entities under common control, thesetransfers were reflected as division equity transactions.

 

The acquisition wasfunded by 155 through a term loan totaling $48.5 million which was used toextinguish the Hôtel San Rémo’s existing indebtedness, a commitment to pay$1.3 million to Mr. Izumi, and the issuance to EW Common LLC ofa 331/3% membership interest with priority return in 155for a deemed initial capital contribution of $20.0 million. 155 has leasedto the Hôtel San Rémo pursuant to casino and hotel lease agreements, the realproperty and non-gaming assets acquired. If and following such time as 155receives its gaming license, 155 will acquire the gaming assets of Hôtel SanRémo consisting principally of slot machines and customer lists fromEastern & Western and will credit the capital account of EW Common LLCfor an additional $5.0 million and also purchase the then existing workingcapital of Hôtel San Rémo.

 

On March 29, 2005, 155successfully completed the issuance of $130 million in principal amount 83⁄4%,Senior Secured Notes due 2012 (the “Notes”). Proceeds from the Notes offeringwill be used principally to renovate the Hotel San Remo into the Hooters CasinoHotel.

** **

**3. Casino andHotel Leases**

 

In connection with theacquisition of Hôtel San Rémo’s real property and non-gaming assets by 155,Eastern & Western, as lessee, and 155 entered into lease agreements with155 to lease back the casino and hotel property previously owned by Hôtel SanRémo.

 

15

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**Casino Lease**

 

The casino lease betweenEastern & Western and 155 covers those portions of the Hôtel San Rémocontaining the showroom, gaming and liquor servicing areas, the casinoancillary to the casino footprint.

 

The term of the originalcasino lease extended to the earlier of October 31, 2005 or the last day of themonth following 155’s receipt of all appropriate governmental and regulatoryapprovals to conduct gaming and liquor sales at the Hôtel San Rémo (the “Licensing”).The casino lease was amended in March 2005 to extend the term of the lease tothe earlier of the date on which none of the Notes is outstanding or the lastday of the month in which 155 receives its gaming license.

 

Monthly base rentpayments of $125,000 are due from August 3, 2004 until the re-opening of theHôtel San Rémo as the new Hooters Casino Hotel. After the re-opening, thetenant, Eastern & Western, will pay an adjusted base rent of $450,000 permonth. This base rent can be adjusted at 155’s sole and absolute discretion sixmonths after re-opening and again eighteen months after re-opening, but noassurances can be made regarding the timing of the Licensing.

 

Eastern & Western is allowedto deposit $30,000 into a “Capital Reserve Account” each month for capitalimprovements to the casino such as the purchase of gaming devices. Eastern& Western is allowed to spend the capital reserves before the end of thecasino lease term. Eastern & Western may also use amounts in the CapitalReserve Account to fund operating cash shortfalls. The casino lease alsorequires Eastern & Western to fund $120,000 each month to a “Change inControl Reserve” which Eastern & Western will be obligated to pay at thetermination of the casino lease and $55,000 a month to establish an “ExpenseReserve” to be used for the payment of legal and accounting fees and othergeneral business expenses including licensing renewal costs.

 

The casino lease willterminate on the earlier of (1) the date on which none of the Notes is outstandingor (2) the last day of the month following the receipt by 155 of all licensing requiredby the appropriate governmental and regulatory authorities to conduct gamingand liquor sales at Hôtel San Rémo.

 

16

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**Hotel Lease**

 

The hotel lease betweenEastern & Western and 155 covers those portions of the Hôtel San Rémocontaining all non-casino areas including the hotel. The term of the originalhotel lease was the same as the term of the original casino lease. The hotellease was amended in March 2005 and the term of the amended lease is the sameas the amended casino lease.

 

Minimum lease payments due under the hotel lease consist of a minimumrent and a percentage rent. The minimum rent is $250,000 per month. Thepercentage rent is equal to 100% of all revenues received from the operation ofthe hotel, less actual operational expenses (including minimum rent) andworking capital reserves which are determined and agreed upon monthly by 155and Eastern & Western. No capital reserves were agreed to or funded for theperiod from August 3, 2004 to March 31, 2005. While the minimum rent is paid ona monthly basis on the first of each month the percentage rent must be paid inarrears to 155 on the first day of each month. Percentage rental expenseincurred for the three and six month periods ended June 30, 2005 totaled$439,390 and $1,689,324, respectively. Total rental expense was $1,564,390 and$3,939,324 during the quarter and six months ended June 30, 2005, respectively.

 

17

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## ** **

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

 

Thefollowing discussion and analysis should be read in conjunction with the “SelectedCombined Financial Data” and the audited financial statements and related notesincluded in our Registration Statement on Form S**-**4/Afiled with the SEC on June 16, 2005.

 

**155 East Tropicana, LLC (Owner of Hotel Casino)**

*** ***

***Overview***

 

155East Tropicana, LLC (the “Company”) was formed on June 17, 2004 to acquire theHôtel San Rémo from Eastern & Western Hotel Corporation. Our commonmembership interests are held two-thirds through Florida Hooters LLC andone-third through EW Common LLC.

 

FloridaHooters LLC is a joint venture between Hooters Gaming LLC and Lags Ventures,LLC. Hooters Gaming LLC is owned by the holders of licenses to operate Hootersrestaurants in the Tampa Bay, Chicago and Manhattan areas as well as forwholesale foods, calendars and Nevada hotel/gaming, and includes most of theoriginal founders of the Hooters brand. Lags Ventures, LLC is owned by a holderof the license rights to Hooters restaurants in south Florida and the State ofNevada. Pursuant to these license rights, the owners of Florida Hooters LLCoperate 39 Hooters restaurants, publish Hooters calendars, and operate aHooters foods business. The owner of Lags Ventures, LLC is also the founder ofthe Dan Marino concept restaurants and owns and operates five Dan Marinoconcept restaurants.

 

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

 

Ouraffiliates have granted us assignments of certain license agreements pertainingto the use of the Hooters brand as well as the Dan Marino, Martini Bar and Pete& Shorty’s concept restaurants, which will allow us to operate the HootersCasino Hotel. Pursuant to the Hooters license assignment, we are required topay the owner of the Hooters trademark, Hooters of America, a royalty fee. Theoriginal founders of the Hooters brand sold the trademark rights (excludingcertain rights they retained for themselves) to Hooters of America in 2001.

 

As aresult, Hooters of America is the trademark owner of the Hooters brand and theoperator and franchisor of approximately 380 Hooters restaurants. We are notaffiliated with Hooters of America.

 

Becausewe have not yet received the gaming license necessary to operate a hotelcasino, the Hôtel San Rémo is currently operated by Eastern & Westernpursuant to two separate leases with us. We expect to receive our gaminglicense during 2005, but no assurances can be given that we will be able toobtain the license. If we do not receive the gaming license, the hotel casinowill continue to be operated by Eastern & Western under the leases untilthe earlier of our receipt of the gaming license or the date the $130 millionin principal amount Senior Secured Notes issued by us on March 29, 2005, (the “Notes”)are no longer outstanding.

 

InAugust 2004, we acquired the Hôtel San Rémo, not including the gaming equipmentand working capital, for $67.5 million from Eastern & Western. Inconnection with the acquisition, we refinanced $43.7 million of Eastern &Western’s existing indebtedness and issued to Eastern & Western $20.0million of preferred equity representing one-third of our common membershipinterests. EW 

 

18

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CommonLLC was formed to hold Eastern & Western’s membership interests in us.Concurrently, we issued to Florida Hooters LLC two-thirds of our commonmembership interests in exchange for $5.0 million cash and the assignment ofcertain rights with respect to trademarks and licenses.

 

Wehave conducted no business or operations other than in connection with theacquisition and subsequent leasing of the Hôtel San Rémo.

 

OnMarch 29, 2005, we issued $130.0 million aggregate principal amount of 83⁄4%Senior Secured Notes due 2012, (the “Notes”) in a private placement. Interestpayments on the Notes are due semi-annually, on each April 1 and October 1,commencing October 1, 2005. The Company used the proceeds from the Notesoffering to refinance existing indebtedness and is using the remaining proceeds(together with cash from operations and proceeds from equipment financing), torenovate the hotel casino and to provide working capital. The indenturegoverning the Notes required the Company to establish a renovation disbursementaccount in the amount of $50.8 million and interest reserve account in theamount of $11.2 million and these accounts are presented on the balance sheetas restricted cash.

 

Inconnection with the offering of the Notes, the Company formed a wholly ownedsubsidiary, 155 East Tropicana Finance Corp., solely for the purpose offacilitating the Notes offering as a co-issuer of the Notes.

 

TheCompany also entered into a new $15.0 million senior secured creditfacility concurrently with the offering of the Notes. The Company has not drawnon this line of credit during the first six months of 2005 or subsequentlythrough August 11, 2005.

 

Untilwe receive the gaming and other licenses and permits necessary to operate ahotel casino, the Hôtel San Rémo will continue to be leased to Eastern &Western as the licensed operator under two lease agreements for the hotel andthe casino operations. Upon receipt of our gaming license, we will issue EWCommon LLC an additional $5.0 million of our preferred membership interests or,in certain circumstances, in the form of an unsecured subordinated note, inexchange for the gaming equipment and customer lists. The gaming assets used inthe casino operations at the Hôtel San Rémo will be transferred to us and thecasino and hotel leases will terminate when we are licensed.

 

***Results ofOperations — Quarter ended June 30, 2005***

 

*RentalIncome* — During the second quarter of 2005, we leased thehotel and casino to Eastern & Western under two separate lease agreements.Pursuant to the casino lease arrangement, the casino, showroom, liquorservicing areas and other casino related areas are leased for $125,000 permonth. Rental income of $375,000 was received under the casino lease for thequarter ended June 30, 2005. Pursuant to the lease for the hotel, restaurantsand other areas of the hotel casino property, rental income was $250,000 permonth, plus a percentage rent equal to 100% of all revenues received by Eastern& Western from the operation of the hotel and restaurants, less operatingexpenses and working capital reserves, as defined in the hotel lease agreement.Rental income of $1.2 million was earned under the hotel lease for the quarterended June 30, 2005.

 

Currently,we are in the process of obtaining liquor and gaming licenses which will allowus to operate the existing Hôtel San Rémo and, upon re-opening, the HootersCasino Hotel. Following our receipt of such licensing, the two lease agreementsfor the hotel and casino will terminate. As a result, we will cease to receivethe rental income under the lease agreements and we will receive any cash flowonly from the operations of the casino hotel.

 

19

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*InterestIncome* — On March 29, 2005, the Company issued Notes, in aprivate placement. Interest income of $0.6 million was earned for the threemonths ended June 30, 2005, largely on the invested net proceeds of the Notes.

 

*Pre-OpeningExpenses* — Pre-opening expense of $0.3 million consists oflegal, professional, general and other general administrative expenses.

 

*Interestexpense* — Interest expense on the $130.0 million Notes was$3.2 million, which included amortization of loan fees of $0.3 million.

 

*IncomeTaxes* — We are a limited-liability company and are treated asa partnership for federal income tax purposes. Accordingly, we have notrecorded any provision for federal income taxes in our financial statementsbecause the taxable income or loss for the Company will be included in theincome tax returns of the members.

 

*DepreciationExpense* — The Hôtel San Rémo acquisition price was allocatedbetween land $26.8 million, building $39.8 million, and equipment $0.9 million.Depreciation expense of $0.4 million was incurred for the second quarter of2005 relating to the building and equipment owned by the Company.

 

***Results ofOperations — Six months ended June 30, 2005***

 

*RentalIncome* — Pursuant to the terms of the casino and hotel leasearrangements described previously, rental income of $3.9 million was earnedunder the leases during the six months ending June 30, 2005.

 

Currently,we are in the process of obtaining liquor and gaming licenses which will allowus to operate the existing Hôtel San Rémo and, upon re-opening, the HootersCasino Hotel. Following our receipt of such licensing, the two lease agreementsfor the hotel and casino will terminate. As a result, we will cease to receivethe rental income under the lease agreements and we will receive any cash flowfrom the operations of the casino hotel.

 

*InterestIncome* — On March 29, 2005, the Company issued$130.0 million aggregate principal amount of 8 3⁄4% Senior Secured Notes due2012 (the “Notes”), in a private placement. Interest income of $0.6 million wasearned for the six months ended June 30, 2005, largely on the invested netproceeds of the Notes.

 

*Pre-OpeningExpenses* — Pre-opening expense of $0.6 million consists oflegal, professional, general and other general administrative expenses.

 

*InterestExpense* — In connection with the acquisition of the Hôtel SanRémo, we incurred debt of $48.5 million. Interest expense (net of interestcapitalized) on this loan was $1.3 million for the period from January 1, 2005through the date that the loan was paid-off on March 29, 2005, which includes$0.2 million for the amortization of loan fees. Interest expense on the $130.0million Notes was $4.4 million, which included amortization of loan fees of$0.3 million.

 

*IncomeTaxes* — We are a limited-liability company and are treated asa partnership for federal income tax purposes. Accordingly, we have notrecorded any provision for federal income taxes in our financial statementsbecause the taxable income or loss for the Company will be included in theincome tax returns of the members.

 

20

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*DepreciationExpense* — The Hôtel San Rémo acquisition price was allocatedbetween land $26.8 million, building $39.8 million, and equipment $0.9 million.Depreciation expense of $0.8 million was incurred for the first six months of2005 relating to the building and equipment owned by the Company.

 

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

 

*RentalIncome* — Pursuant to the terms of the casino and hotel leasearrangements described previously, rental income of $6.1 million was earnedunder the leases from the period of Inception (June 17, 2004) through June 30,2005.

 

*InterestIncome* — Interest income of $0.6 million was earned on thenet proceeds from the Notes and other cash investments.

 

*Pre-OpeningExpenses* — Pre-opening expense of $0.7 million consists oflegal, professional and other general administrative expenses.

 

*DepreciationExpense*— Depreciation expense of $1.6 million was incurredfor the period of Inception (June 17, 2004) through June 30, 2005 relating tothe building and equipment owned by the Company.

 

*InterestExpense* — Interest expense under our old bank debt (net ofinterest capitalized) was $3.4 million for the period from inception (June 17,2004) through March 29, 2005, which includes $0.6 million for the amortizationof loan fees. Interest expense on the $130.0 million Notes was $3.3 million,which included amortization of loan fees of $0.3 million.

 

***Liquidity andCapital Resources***

 

The members of 155 East Tropicana, LLC contributed$5.0 million to the Company in initial capital contributions during the periodfrom Inception (June 17, 2004) through June 30, 2005. $4.0 million of thiscapital contribution was set aside in a restricted account and used ascollateral for the $48.5 million loan obtained by 155 East Tropicana, LLC topurchase the Hôtel San Rémo and to pay expenses involved with the purchase. 155East Tropicana, LLC also issued $20.0 million in membership interests withpriority returns to Eastern & Western Hotel Corporation representing aone-third common interest as part of the acquisition of the real property andnon-gaming assets of Hotel San Remo.

 

During the first six months of 2005, the mostsignificant events affecting our liquidity and capital resources were cashflows generated from financing activities consisting of the successfulcompletion of the Notes offering whose proceeds were used to payoff existingindebtedness of $48.5 million, make a $1.1 million payment to an existing ownerof Hôtel San Rémo and pay $7.7 million in debt financing costs. The followingschedule summarizes our completed and projected use of the proceeds from theNotes offering (in millions):

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

 

21

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Forthe six months ended June 30, 2005, $60.2 million was used in investingactivities, consisting of an increase to restricted funds of $55.1 million, andcapital expenditures of $5.0 million. Upon repayment of the existingindebtedness on March 29, 2005, $4.0 million in restricted funds were released.At June 30, 2005, $59.1 million of the proceeds from the Notes offering areheld as restricted cash.

 

Duringthe first six months of 2005, the Company expended $5.0 million of its cash inrenovation activities largely for architectural, design fees and buildingconstruction. The renovation project which will convert the Hotel San Remo intothe Hooters Casino Hotel is expected to be completed in the first quarter of2006.

 

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

 

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

 

All ofthe obligations under the new senior secured credit facility are secured byfirst priority liens on and security interests in all of the Company’sproperties and assets. The lien on the collateral that secures the Notes arecontractually subordinated to the liens securing the principal amount ofborrowings of up $15.0 million (plus related interest, fees, indemnities,costs and expenses) under the new senior secured credit facility. The new seniorsecured credit facility requires the Company to pay an unused fee of 0.50% perannum on any unused portion of the new senior secured credit facility, and, ifterminated prior to the third anniversary date, a prepayment premium of 1.00%of the maximum credit amount for each year or partial year remaining from thetermination date to the third anniversary date. The new senior secured creditfacility also contains customary financial covenants and other covenants andevents of default. The senior secured credit facility can be used foradditional working capital or capital expenditures, at the Company’sdiscretion. Currently, the Company meets the requirements necessary to borrowthe full $15 million.

 

Inaddition to the Notes and the new senior secured credit facility, we intend toenter into furniture, fixtures and equipment financing of $5.9 million duringthe year ending December 31, 2005.

 

155East Tropicana, LLC generated net cash flow from operations of $4.6 million forthe six months ended June 30, 2005, principally from rental income under thecasino and hotel lease.

 

It isanticipated that existing operations at Hôtel San Rémo (and rent payments tothe Company) will continue throughout the renovation period, except for ashutdown and training period of approximately thirty days prior to the grandopening of Hooters Casino Hotel.

 

Webelieve that we have additional flexibility to cover contingencies that mayarise during the renovation through the use of our cash and cash equivalents(which were $17.2 million at June 30, 2005), the interest reserve account whichcovers the first two interest payments on the Notes (which are due October 1,2005 and April 1, 2006), our rental income from Eastern & Western orexpected cash flow 

 

22

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fromoperations upon the opening of the Hooters Casino Hotel, and our ability todraw against our new $15.0 million senior secured credit facility.

 

Webelieve the cash from operations, current cash and the available borrowingsunder the new senior secured credit facility will be adequate to meet theanticipated working capital, capital expenditure, renovation and debt serviceobligations for the next twelve months. However, we cannot predict withcertainty the duration of the renovation and shutdown periods due to the manyvariables involved in the renovation process. No assurances can be given thatthe renovation project will be completed as scheduled. Additionally, noassurance can be given, that our sources of financing will be sufficient tocover all contingencies which may arise in the renovation project or meet ourother capital and liquidity requirements or that additional financing, ifrequired, will be available, or, if available, will be on terms favorable tous.

 

**Hôtel San Rémo (Predecessor)**

 

***Overview***

 

HôtelSan Rémo commenced gaming operations on February 16, 1990. The condensedcombined financial statements represent the assets, liabilities and operationsof the hotel and gaming facilities and includes only certain accounts ofEastern & Western and I&P Corporation, Colorado (which has merged intoEastern & Western). Members of the Izumi family are 100% owners of S.I.Enterprises, Inc. which owns 100% of Eastern & Western. The principalbusiness of Eastern & Western is the ownership and operation of hotels.

 

Currently,Eastern & Western, which holds the gaming license in Nevada, owns allgaming assets used by Hôtel San Rémo. Under the casino lease and the hotellease, Eastern & Western, through the Hôtel San Rémo, is operating thehotel casino property.

 

***Results ofOperations***

 

HôtelSan Rémo generates hotel, casino, food and beverage, entertainment and retailrevenues at the hotel casino property. In the six months ending June 30, 2005,approximately 34.0% of the gross revenue was derived from the casino, 46.2%from hotel rooms and 19.8% from food and beverage.

 

Casinorevenue is derived primarily from patrons wagering on slot machines, tablegames and other gaming activities. Table games include blackjack, craps,roulette, and specialty games. Casino revenue is defined as the win from gamingactivities, computed as the difference between gaming wins and losses, not thetotal amount wagered. “Table game drop” and “slot handle” are casino industryspecific terms used to identify the amount wagered by patrons for a casinotable game or slot machine, respectively. “Table game hold” and “slot hold”represent the percentage of the total amount wagered by the patron that thecasino has won. Hold is derived by dividing the amount won by the casino (“tablegame win” and “slot win”) by the amount wagered by the patron. Casino revenueis recognized at the end of each gaming day.

 

Roomrevenue is derived from rooms and suites rented to guests. “Average daily rate”is an industry specific term used to define the average amount of revenue perrented room per day. “Occupancy percentage” defines the total percentage ofrooms occupied, and is computed by dividing the number of rooms occupied by thetotal number of rooms available. Room revenue is recognized at the time theroom is provided to the guest.

 

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Foodand beverage revenues are derived from food and beverage sales in the foodoutlets of the hotel casino, including restaurants, room service and banquets.Food and beverage revenue is recognized at the time food and/or beverage isprovided to the guest. “Covers” are the number of patrons served in a foodoutlet. “Average check” is the average amount of food and beverage revenuecharged to patrons on their restaurant checks.

 

Casinorevenues vary from time to time due to general economic conditions, table gamehold, slot hold, and occupancy percentages at the Hôtel San Rémo and otherhotels in Las Vegas. Casino revenues also vary depending upon the amount ofgaming activity as well as variations in the odds for different games of chance.Casino revenues, room revenues, food and beverage revenues, and other revenuesvary due to general economic conditions and competition. During the first sixmonths of 2005, Las Vegas has continued to experience an upward trend in totalvisitation, as well as gaming win, hotel occupancy and hotel daily average roomrates. The Hôtel San Rémo has benefited from these trends.

 

Thefollowing table summarizes our results of operations (in thousands):

 
| ** **                           | ** ** | **Six Months Ended  June 30,  2005** | ** ** | **Six Months Ended  June 30,  2004** | ** ** | **%  Change  2005-2004** | ** ** |
|--------------------------------------|------------|--------------------------------------|------------|--------------------------------------|------------|--------------------------|------------|
| Casino revenues                      |       | $                                    | 6,214      |                                 | $          | 6,500                    |       | –4.4 | % |
| Casino expenses                      |       | 3,423                                |       | 3,457                                |       | –1.0                | %          |
| Profit margin                        |       | 44.9                                 | %          | 46.8                                 | %          |                     |       |
|                                 |       |                                 |       |                                 |       |                     |       |
| Food and  beverage revenues          |       | $                                    | 3,636      |                                 | $          | 4,129                    |       | –11.9 | % |
| Food and  beverage expenses          |       | 3,142                                |       | 3,238                                |       | –3.0                | %          |
| Profit margin                        |       | 13.6                                 | %          | 21.6                                 | %          |                     |       |
|                                 |       |                                 |       |                                 |       |                     |       |
| Hotel and other  revenues            |       | $                                    | 8,451      |                                 | $          | 7,860                    |       | 7.5 | % |
| Hotel and other  expenses            |       | 2,198                                |       | 2,234                                |       | –1.6                | %          |
| Profit margin                        |       | 74.0                                 | %          | 71.6                                 | %          |                     |       |
|                                 |       |                                 |       |                                 |       |                     |       |
| Promotional  allowances              |       | $                                    | 1,112      |                                 | $          | 1,147                    |       | –3.1 | % |
| Percent of gross  revenues           |       | 6.1                                  | %          | 6.2                                  | %          |                     |       |
|                                 |       |                                 |       |                                 |       |                     |       |
| General and  administrative expenses |       | $                                    | 4,034      |                                 | $          | 3,390                    |       | 19.0 | % |
| Percent of net  revenues             |       | 23.5                                 | %          | 19.5                                 | %          |                     |       |

 

Thefollowing discussion presents an analysis of Hôtel San Rémo’s results ofoperations for the three months ended and six months ended June 30, 2005 and2004, respectively.

 

***Comparison ofQuarter ended June 30, 2005 with Quarter ended June 30, 2004***

 

HôtelSan Rémo recorded income before income taxes of $0.2 million for the quarterended June 30, 2005 compared with income before income taxes of $1.5 millionfor the quarter ended June 30, 2004. The decrease in income before income taxwas due to the related party lease expense of $1.6 million recorded for thesecond quarter of 2005 under the hotel and casino property leases, with 155East Tropicana LLC and a decline in net operating revenue of $0.5 million.

 

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*Casino*—Casino revenues were at $2.9 million for the quarter ended June 30, 2005, comparedto $3.2 million for the quarter ended June 30, 2004, a decrease of $0.3 millionor 9.38%. Table games revenue was down by $0.1 million in the second quarter2005 as a result of a decrease to 18.4% in the table game hold percentage from19.0% in the prior year quarter and a table game drop decline of $0.3 millionor 5.3%. Slot revenue of $2.0 million for the second quarter of 2005 was downby $0.3 million or 11.4% as compared with the same quarter in the prior year.The decline in casino revenue is attributable to construction disruption.During the quarter, approximately one-fourth of the casino floor was closedbecause of remodeling of Pete and Shorty’s Sports bar and the lobby bar.

 

Theoperating margin for the casino decreased slightly from 46.6% of casino revenueduring the quarter ended June 30, 2004 to 42.7% in 2005.

 

*Food andBeverage* — Food and beverage revenue was $1.7 million for thequarter ended June 30, 2005 as compared to $2.1 million for 2004, a decrease of15.2%. Food revenue decreased by $0.3 million or 20.7% for the quarter endedJune 30, 2005. This decrease was a result of covers in the restaurantsdeclining by 30,000, or 19.8%, combined with a $0.17 decrease in average guestcheck. Gross beverage revenue (which includes complimentary beverages)decreased by $18,000 or 3.5%, largely in the category of complimentarybeverages served on the casino floor. These declines in revenue areattributable to construction disruption.

 

Theprofit margin for the food and beverage departments declined to 8.9% for thequarter ended June 30, 2005 as compared to a margin of 21.3% for the quarterended June 30, 2004.

 

*Hotel andOther* — Hotel and other revenue increased by $0.1 million, or2.7%, to $4.0 million for the quarter ended June 30, 2005 as compared to $3.9million for the quarter ended June 30, 2004. The occupancy rate remainedrelatively flat at 85.5% for the quarter ended June 30, 2005 as compared to84.6% for the quarter ended June 30, 2004. The improvement in hotel and otherrevenue was the result of an increase of 5.0% in average daily room rate to$69.82 for the quarter ended June 30, 2005 from $66.48 for the quarter endedJune 30, 2004. There was also a general increase in average daily room rates inthe Las Vegas market in 2005. According to the Las Vegas Convention andVisitors Authority, the Las Vegas average daily room rates increased by $16.67,or 17.8%, for the two months ended May 31, 2005 as compared to the same twomonths in 2004.

 

HôtelSan Rémo’s room operating margin increased to 72.9% for the quarter ended June30, 2005 from 70.8% for the quarter ended June 30, 2004. This increase inprofitability in the hotel is due to higher revenue per room based on theincrease in average daily room rate.

 

*Generaland Administrative* — General and administrative expensesincludes costs associated with corporate, marketing, information technology,finance, accounting, and property operations. General and administrativeexpense was $2.0 million for the quarter ended June 30, 2005, an increase of$0.3 million compared to $1.7 million for the quarter ended June 30, 2004. Thisincrease was principally due to increased professional fees, payroll expenseand insurance.

 

*Depreciation*— Depreciation expense of $0.1 million for the quarter endedJune 30, 2005 was a decrease of $0.4 million, or 80%, from $0.5 million for thequarter ended June 30, 2004. This decrease was the result of the acquisition ofthe real property and non-gaming assets of Hôtel San Rémo by 155 EastTropicana, LLC in August 2004. The depreciable assets (net of accumulateddepreciation) of $1.2 million remaining at June 30, 2005 are gaming assets thatwill be transferred to 155 East Tropicana, LLC upon its obtaining a gaminglicense.

 

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*InterestIncome* — Interest income was flat at $0.1 million for thequarter ended June 30, 2005, and for quarter ended June 30, 2004.

 

*InterestExpense* — Interest expense for the quarter ended June 30,2005, decreased by $0.6 million, or 99.6%, as compared to the quarter endedJune 30, 2004. This was the result of the extinguishment of the Hôtel San Rémo’sexisting indebtedness in August 2004 as part of the acquisition of the HotelSan Remo’s real property and non-gaming assets by 155 East Tropicana, LLC.

 

*Provision(Benefit) for Income Taxes* — The provision (benefit) for income taxes for the quarter ended June 30,2005 of $0.1 million benefit varies from the tax calculated by applying thefederal statutory rate (35%) to income before income taxes dur to permanent taxdifferences and an adjustment for income taxes based on year-to-date incomebefore income taxes.

 

***Comparison of Sixmonths Ended June 30, 2005 with Six months Ended June 30, 2004***

 

HôtelSan Rémo recorded income before income taxes of $0.5 million for the six monthsended June 30, 2005 compared with income before income taxes of $1.9 millionfor the six months ended June 30, 2004. The decrease in income before incometax was due to the related party lease expense of $3.9 million recorded for thefirst six months of 2005 under the hotel and casino property leases, with 155East Tropicana LLC, netted against a decline in restructuring cost of $1.0million and interest expense of $1.4 million when comparing to the same periodin 2004.

 

*Casino.*Casino revenues were at $6.2 million for the six months ended June 30, 2005,compared to $6.5 million for the six months ended June 30, 2004. Table gamesrevenue was up slightly by $33,000 in the first six months 2005 as a result ofan increase to 18.8% in the table game hold percentage from 18.6% in the prioryear six months offset by a table game drop decline of $0.3 million. Slotrevenue of $4.3 million for the first six months of 2005 was down from slotrevenue of $4.5 million for the first six months ended June 30, 2004. Slotcoin-in and revenue was affected by construction disruption beginning in May of2005.

 

Theoperating margin for the casino decreased slightly from 46.8% of casino revenueduring the six months ended June 30, 2004 to 44.9% in 2005.

 

*Food and Beverage*— Food and beverage revenue was $3.6 million for the six months ended June 30,2005 as compared to $4.1 million for 2004. Food revenue decreased by $0.5million or 16.7% for the six months ended June 30, 2005. This decrease was aresult of covers in the restaurants declining by 45,000, or 15.4%, combinedwith a $0.15 decrease in average guest check.

 

Theprofit margin for the food and beverage departments declined to 13.6% for thesix months ended June 30, 2005 as compared to a margin of 21.6% for the sixmonths ended June 30, 2004.

 

*Hotel andOther* — Hotel and other revenue increased by $0.6 million, or7.5%, to $8.5 million for the six months ended June 30, 2005 as compared to$7.9 million for the six months ended June 30, 2004. The occupancy rateincreased slightly to 85.4% for the six months ended June 30, 2005 as comparedto 84.4% for the six months ended June 30, 2004. The improvement in hotel andother revenue was the result of an increase of 8.8% in average daily room rateto $73.09 for the six months ended June 30, 2005 from $67.16 for the six monthsended June 30, 2004. There was also a general increase in average daily roomrates in the Las Vegas market in 2005. According to the Las Vegas Conventionand Visitors Authority, the Las Vegas average daily room rates increased by$12.42, or 13.2%, for the five months ended may 31, 2005 as compared to thesame five months in 2004.

 

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HôtelSan Rémo’s room operating margin increased to 74.0% for the six months endedJune 30, 2005 from 71.6% for the six months ended June 30, 2004. This increasein profitability in the hotel is due to higher revenue per room based on theincrease in average daily room rate.

 

*Generaland Administrative* — General and administrative expensesincludes costs associated with corporate, marketing, information technology,finance, accounting, and property operations. General and administrativeexpense increased $0.6 million to $4.0 million for the six months ended June30, 2005 compared to $3.4 million for the six months ended June 30, 2004. Thisincrease was principally due to increased professional fees, payroll expenseand insurance.

 

*Depreciation*— Depreciation expense of $0.2 million for the six months ended June 30, 2005was a decrease of $0.9 million, or 83%, from $1.1 million for the six monthsended June 30, 2004. This decrease was the result of the acquisition of thereal property and non-gaming assets of Hotel San Remo by 155 East Tropicana,LLC in August 2004. The depreciable assets (net of accumulated depreciation) of$1.2 million remaining at June 30, 2005 are gaming assets that will betransferred to 155 East Tropicana, LLC upon its obtaining a gaming license.

 

*InterestIncome* — Interest income increased by $0.1, to $0.2 millionfor the six months ended June 30, 2005, as compared to $0.1 million for sixmonths ended June 30, 2004.

 

*InterestExpense* — Interest expense for the six months ended June 30,2005, decreased by $1.4 million, or 99.7%, as compared to the six months endedJune 30, 2004. This was the result of the extinguishment of the Hotel San Remo’sexisting indebtedness in August 2004 as part of the acquisition of the HotelSan Remo’s real property and non-gaming assets by 155 East Tropicana, LLC.

 

*Provision(Benefit) for Income Taxes* — The provision for income taxes for the six months ended June 30, 2005 of$0.2 million varies from the tax calculated by applying the federal statutoryrate (35%) to income before income taxes due to permanent tax differences resultingfrom disallowed employment taxes and other items.

 

***Liquidity andCapital Resources***

 

Forthe six months ended June 30, 2005, Hôtel San Rémo generated $0.3 million incash flow from operations compared to $2.5 million for the same six months in2004. This was due to the $3.9 million in related party lease expense. This waspartially offset by a decrease of $1.4 million in interest expense for thefirst six months in 2005 as compared to the first six months 2004 as a resultof the pay-off of our bank debt. Net cash of $0.2 million was used in investingactivities as a result of purchasing other assets. Net cash of $1.0 million wasused in financing activities as a result of net advances to affiliates.

 

InAugust 2004, existing borrowings of the Hôtel San Rémo were extinguished asdescribed above.

 

Eastern& Western, through Hôtel San Rémo, currently operates the hotel and casinooperations under two separate leases. The leases will terminate on the earlierof (i) the date on which none of the Notes issued by 155 East Tropicana, LLCare outstanding, and (ii) the last day of the month following receipt by 155East Tropicana, LLC of all licensing required by the appropriate governmentaland regulatory authorities to conduct gaming and liquor sales at the Hôtel SanRémo. At that time, Hôtel San Rémo will also transfer the remaining gamingassets to 155 East Tropicana, LLC in exchange for $5.0 million in additionalmembership interests with priority return. 155 East Tropicana, LLC also willpurchase the working capital of Hôtel San Rémo. Under the casino and hotelleases, the minimum rental payments total $375,000 each month through the dateof re-opening, except for an abatement of the 

 

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monthly rent during theperiod the Hotel San Remo is closed down for pre-opening activities andretraining, which period is estimated to be one month. In addition to theminimum base rent, Eastern & Western also pays a percentage rent which isequal to 100% of the non-gaming profits. After the re-opening, which is plannedfor February 2006, the minimum monthly rent for the two agreements, if still inplace, is $700,000 plus the percentage rent of the non-gaming profits. It isanticipated that 155 East Tropicana, LLC will obtain its gaming license during2005, but there can be no such assurances. After paying various creditors, thecash and other current assets and liabilities that are not specifically beingtransferred to 155 East Tropicana, LLC, will be distributed to the owners ofHôtel San Rémo.

 

Inconnection with the renovation, a substantial amount of the current gamingequipment owned by the Hotel San Remo will be replaced. Hotel San Remo intendsto enter into contracts for the purchase of approximately $7.1 million in slotmachine equipment. Payments on the equipment will not be due until after thereopening. 155 East Tropicana, LLC anticipates assuming these contracts uponreceiving its gaming license.

 

*IncomeTaxes* — Hôtel San Rémo’s results of operations are includedin the consolidated federal tax return filed by S.I. Enterprises, Inc.Accordingly, the current federal income tax liability or benefit resulting fromthe taxable income or loss generated by the Hôtel San Rémo is recognized by theParent Company in its consolidated tax return and the resultingprovision/benefit for income taxes has been reflected in the Hotel San Remo’scombined financial statements.

 

***Critical Accounting Policies andEstimates***

 

Adescription of critical accounting policies and estimates is included in themanagement discussion and analysis included in the Registration Statement onForm S-4/A of 155 East Tropicana, LLC and 155 East Tropicana Finance Corp.filed with the SEC on June 16, 2005.

 

***Quantitative and QualitativeDisclosures about Market Risk***

 

Thefollowing discusses 155 East Tropicana, LLC’s and Hôtel San Rémo’s exposure tomarket risk related to changes in interest rates, equity prices and foreigncurrency exchange rates. 155 East Tropicana, LLC and Hôtel San Rémo do notbelieve that their respective exposure 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 June30, 2005, Hôtel San Rémo is not exposed to market risks.  The Notes carry a fixed interest rate of 83⁄4%,provided no events of default have occurred. 155 East Tropicana, LLC has marketrisk associated with funds that may be borrowed in the future on the new $15million senior secured credit facility, due to an interest rate that floatswith LIBOR. The term of the senior secured credit facility will mature on March30, 2009. No amounts are outstanding under this variable rate credit facilityat June 30, 2005.

 

Neither155 East Tropicana, LLC nor Hôtel San Rémo has any significant foreign currencyexchange rate risk or commodity price risk and does not currently trade anymarket sensitive instruments.

 

## **Item 3.  Quantitativeand Qualitative Disclosures About Market Risk.**

## ** **

When used in this report and elsewhere by managementfrom time to time, the words “believes”, “anticipates” and “expects” andsimilar expressions are intended to indemnify forward-looking statement withrespect to our financial condition, results of operations and our business,including our expansion, legal proceedings and employee matters.  Certain important factors, including but notlimited to, 

 

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competition from other gaming operations, constructionrisks, the inherent uncertainty and costs associated with litigation andgovernmental and regulatory investigations, and licensing and other regulatoryrisks, could cause our actual results to differ materially from those expressedin our forward-looking statements. Further information on potential factors which could affect ourfinancial condition, results of operations and business including, withoutlimitation, the re-branding and renovation, legal proceedings and employeematters are included in our filings with the Securities and ExchangeCommission.  Readers are cautioned not toplace undue reliance on any forward-looking statements.  We undertake no obligation to publiclyrelease any revision to such forward-looking statements to reflect events orcircumstances after the date hereof.

 

Market risk is the risk of loss arising from changesin market rates and prices, such an interest rates, foreign currency exchangerates and commodity prices.  As of June30, 2005, Hôtel San Rémo is not exposed to market risks.  At June 30, 2005, 155 East Tropicana, LLC has$130 million aggregate principal amount of the Notes.  The Notes carry a fixed interest rate,provided no events of default have occurred. 155 East Tropicana, LLC has market risk associated with funds that maybe borrowed on our $15.0 million senior secured credit facility, due to aninterest rate that floats with LIBOR. The term of our senior secured credit facility will mature on March 30,2009.  No amounts are outstanding under oursenior secured credit facility at June 30, 2005.

 

Neither 155 East Tropicana, LLC nor Hôtel San Rémo hasany significant foreign currency exchange rate risk or commodity price risk anddoes not currently trade any market sensitive instruments.

 

## **Item 4.  Controlsand Procedures.**

## ** **

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

#####  

We evaluated the effectiveness of our disclosurecontrols and procedures as of the six months ended June 30, 2005.  This evaluation was done with theparticipation of our manager and its management team.

 

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

 

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

#####  

Our manager does not expect that our disclosurecontrols and procedures or our internal controls over financial reporting willprevent all error and all fraud.  Acontrol system, no matter how well conceived and operated, can provide onlyreasonable, but not absolute, assurance that the objectives of a control systemare met.  Further, any control systemreflects limitations on resources, and the benefits of a control system must beconsidered relative to its costs.  Becauseof the inherent limitations in all control systems, no evaluation of controlscan provide absolute assurance that all control issues and instances of fraud,if any, within us have been detected. These inherent limitations include the realities that judgments indecision-making can be faulty and that breakdowns can occur because of simpleerror or mistake. Additionally, controls can be circumvented by the individualacts of some persons, by collusion of two or 

 

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more people, or by management override of acontrol.  The design of a control systemis also based upon certain assumptions about the likelihood of future events,there can be no assurance that any design will succeed in achieving its statedgoals under all potential future conditions; over time, controls may becomeinadequate because of changes in conditions, or the degree of compliance withthe policies or procedures may deteriorate. Because of the inherent limitationsin a cost-effective control system, misstatements due to error or fraud mayoccur and may not be detected.

 

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

#####  

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

 

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

#####  

There were no changes in our internal controls overfinancial reporting that occurred during our last fiscal quarter, *i.e.*, the quarter ended June 30, 2005,that have materially affected, or are reasonably likely to materially affect,our internal controls over financial reporting.

 

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# **PART II – OTHER INFORMATION**

# ** **

## **Item 1.  LegalProceedings.**

## ** **

None.

 

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

## ** **

None.

 

## **Item 3.  DefaultsUpon Senior Securities.**

## ** **

None.

 

## **Item 4.  Submissionof Matters to a Vote of Security Holders.**

## ** **

None.

 

## **Item 5.  OtherInformation.**

## ** **

None.

 

## **Item 6.  Exhibits.**

## ** **

(a)           Exhibits:

 

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

 

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

 

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

 

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

 

31

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# **SIGNATURES**

# ** **

Pursuant to the requirements of the SecuritiesExchange Act of 1934, the registrant has duly caused this report to be signedon its behalf by the undersigned thereunto duly authorized.

 
| 155 East Tropicana, LLC |                      |
|-------------------------|---------------------------|
|                    |                      |
|                    |                      |
| By:                     | /s/ Deborah J. Pierce     |   | August 15, 2005 |
|                    |                      |   |   |
|                    | Deborah J. Pierce         |   |
| * *                | *Chief Financial Officer* | * * |

 

 
| 155 East Tropicana Finance  Corp. |                      |
|-----------------------------------|---------------------------|
|                              |                      |
|                              |                      |
| By:                               | /s/ Deborah J. Pierce     |   | August 15, 2005 |
|                              |                      |   |   |
|                              | Deborah J. Pierce         |   |
| * *                          | *Chief Financial Officer* | * * |

 

32

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