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** **

**UNITED STATES**

**SECURITIES AND EXCHANGECOMMISSION**

**WASHINGTON, D.C. 20549**

 

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**FORM 10-Q**

 

**(MarkOne)**

 

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

 

**For the quarterly period ended March 31, 2010**

 

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

(Exact Name of Registrant as Specified in its Charter)

 

| **NEVADA  NEVADA**                                               | ** ** | **20-1363044  20-2546581**               |
|------------------------------------------------------------------|------------|------------------------------------------|
| (State or Other Jurisdiction   of Incorporation or Organization) |       | (I.R.S. Employer  Identification Number) |
|                                                             |       |                                     |
| **115 East Tropicana Avenue  Las Vegas, Nevada**                 | ** ** | **89109**                                |
| (Address of Principal Executive Offices)                         |       | (Zip Code)                               |

 

**(702) 597-6076**

(Registrant’s Telephone Number, Including Area Code)

 

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Indicate by check mark whether the registrant(1) has filed all reports required by Section 13 or 15(d) of theSecurities Exchange Act of 1934 during the preceding 12 months (or for suchshorter period that the registrant was required to file such reports) and(2) has been subject to such filing requirements for the past 90days.    Yes  x    No  o

 

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

 

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

 

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

 

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

 

 

 

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Table of Contents

 
| **PART I —  FINANCIAL INFORMATION** | **3**                                                                                       |
|-----------------------------------------------|---------------------------------------------------------------------------------------------|
|                                          |                                                                                        |   |
| Item 1.                                       | Financial  Statements                                                                       | 3 |
|                                          |                                                                                        |   |
|                                          | **155 EAST  TROPICANA, LLC (A NEVADA LIMITED-LIABILITY COMPANY)**                           |   |
|                                          |                                                                                        |   |
|                                          | Condensed Consolidated Balance Sheets (unaudited)                                           | 3 |
|                                          | Condensed  Consolidated Statements of Operations (unaudited)                                | 4 |
|                                          | Condensed  Consolidated Statements of Cash Flows (unaudited)                                | 5 |
|                                          | Notes to Condensed Consolidated Financial Statements (unaudited)                            | 6 |
|                                          |                                                                                        |   |
| Item 2.                                       | Management’s  Discussion and Analysis of Financial Condition and Results of Operations | 13 |
|                                          |                                                                                        |   |
| Item 3.                                       | Quantitative  and Qualitative Disclosures About Market Risk                                 | 21 |
|                                          |                                                                                        |   |
| Item 4T.                                      | Controls and Procedures                                                                     | 22 |
|                                          |                                                                                        |   |
| **PART II  — OTHER INFORMATION**    |                                                                                        |
|                                          |                                                                                        |   |
| Item 3.                                       | Defaults Upon  Senior Securities                                                            | 24 |
|                                          |                                                                                        |   |
| Item  6.                                      | Exhibits                                                                                    | 24 |
|                                          |                                                                                        |   |
| **SIGNATURES**                                |                                                                                        | **25** |

 

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# **PART I — FINANCIALINFORMATION**

 

## ***Item1.  Financial Statements.***

 

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

### ** **

### **CONDENSED CONSOLIDATED BALANCE SHEETS**

 
| ** **                                                                                                           | ** ** | **March 31,** | ** **  | **December 31,** | ** ** |
|----------------------------------------------------------------------------------------------------------------------|------------|--------------------|-------------|-----------------------|------------|
| ** **                                                                                                           | ** ** | **2010**           | ** **  | **2009**              | ** ** |
| ** **                                                                                                           | ** ** | **(unaudited)**    | ** **  | ** **            | ** ** |
| **Assets**                                                                                                           |       |               |        |                  |       |
| Current  assets:                                                                                                     |       |               |        |                  |       |
| Cash  and cash equivalents                                                                                           |       | $                  | 7,283,614   |                  | $          | 5,382,524 |   |
| Accounts  receivable, net of allowance for doubtful accounts of $88,012 and $230,387 in  2010 and 2009, respectively |       | 714,810            |        | 572,016               |       |
| Inventories                                                                                                          |       | 805,602            |        | 857,161               |       |
| Prepaid  expenses                                                                                                    |       | 1,014,854          |        | 1,141,389             |       |
| Total  current assets                                                                                                |       | 9,818,880          |        | 7,953,090             |       |
| Property  and equipment, net                                                                                         |       | 107,915,094        |        | 109,468,531           |       |
| Other  long-term assets:                                                                                             |       |               |        |                  |       |
| Deferred  financing costs                                                                                            |       | 2,318,233          |        | 2,614,971             |       |
| Intangible  assets                                                                                                   |       | 2,330,281          |        | 2,343,258             |       |
| Other  assets                                                                                                        |       | 383,301            |        | 722,456               |       |
| Total  other long-term assets                                                                                        |       | 5,031,815          |        | 5,680,685             |       |
| Total  assets                                                                                                        |       | $                  | 122,765,789 |                  | $          | 123,102,306 |   |
|                                                                                                                 |       |               |        |                  |       |
| **Liabilities and Members’ Deficit**                                                                            |       |               |        |                  |       |
| Current  liabilities:                                                                                                |       |               |        |                  |       |
| Accounts  payable                                                                                                    |       | $                  | 1,993,417   |                  | $          | 1,590,036 |   |
| Accrued  interest payable                                                                                            |       | 17,155,104         |        | 14,311,346            |       |
| Accrued  liabilities                                                                                                 |       | 1,265,213          |        | 968,903               |       |
| Current  portion of long-term debt                                                                                   |       | 145,145,339        |        | 145,137,293           |       |
| Total  current liabilities                                                                                           |       | 165,559,073        |        | 162,007,578           |       |
| Related  party royalties payable                                                                                     |       | 5,485,648          |        | 5,272,584             |       |
| Long-term  debt                                                                                                      |       | 763,207            |        | 925,913               |       |
| Total  liabilities                                                                                                   |       | 171,807,928        |        | 168,206,075           |       |
|                                                                                                                 |       |               |        |                  |       |
| Commitments  and contingencies                                                                                       |       |               |        |                  |       |
|                                                                                                                 |       |               |        |                  |       |
| Members’  deficit:                                                                                              |       |               |        |                  |       |
| Membership  interests                                                                                                |       | 34,333,375         |        | 34,333,375            |       |
| Accumulated  deficit                                                                                                 |       | (83,375,514        | )           | (79,437,144           | )          |
|                                                                                                                 |       | (49,042,139        | )           | (45,103,769           | )          |
| Total  liabilities and members’ deficit                                                                         |       | $                  | 122,765,789 |                  | $          | 123,102,306 |   |

 

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

 

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

 

### **CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS**

 
| ** **                        | ** ** | **Three Months Ended** | ** ** | **Three Months Ended** | ** ** |
|-----------------------------------|------------|------------------------|------------|------------------------|------------|
| ** **                        | ** ** | **March 31,**     | ** ** | **March 31,**     | ** ** |
| ** **                        | ** ** | **2010**               | ** ** | **2009**               | ** ** |
| ** **                        | ** ** | **(unaudited)**        | ** ** | **(unaudited)**        | ** ** |
| Operating  revenues:              |       |                   |       |                   |       |
| Casino                            |       | $                      | 4,225,723  |                   | $          | 5,565,194 |   |
| Food,  beverage and entertainment |       | 4,486,091              |       | 5,329,168              |       |
| Hotel  and other                  |       | 3,692,980              |       | 4,006,962              |       |
|                              |       | 12,404,794             |       | 14,901,324             |       |
| Less  promotional allowances      |       | (1,119,668             | )          | (1,559,905             | )          |
| Net  operating revenues           |       | 11,285,126             |       | 13,341,419             |       |
|                              |       |                   |       |                   |       |
| Operating  expenses:              |       |                   |       |                   |       |
| Casino                            |       | 2,488,455              |       | 3,130,471              |       |
| Food,  beverage and entertainment |       | 2,613,873              |       | 3,370,190              |       |
| Hotel  and other                  |       | 1,624,198              |       | 1,723,849              |       |
| General  and administrative       |       | 3,054,558              |       | 3,444,776              |       |
| Restructuring  expense            |       | 115,331                |       | 454,790                |       |
| Depreciation  and amortization    |       | 1,676,171              |       | 1,631,118              |       |
| Related  party royalties expense  |       | 213,064                |       | 313,113                |       |
| Total  operating expenses         |       | 11,785,650             |       | 14,068,307             |       |
| Operating  loss                   |       | (500,524               | )          | (726,888               | )          |
|                              |       |                   |       |                   |       |
| Other  income (expense):          |       |                   |       |                   |       |
| Interest  income                  |       | —                 |       | 1,365                  |       |
| Interest  expense                 |       | (3,437,846             | )          | (3,333,452             | )          |
| Other  income (expense), net      |       | (3,437,846             | )          | (3,332,087             | )          |
| Net  loss                         |       | $                      | (3,938,370 | )                      | $          | (4,058,975 | ) |

 

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

 

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

 

### **CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS**

 
| ** **                                                                       | ** ** | **Three Months Ended********March 31,********2010** | ** ** | **Three Months Ended********March 31,********2009** | ** ** |
|----------------------------------------------------------------------------------|------------|----------------------------------------------------------|------------|----------------------------------------------------------|------------|
| ** **                                                                       | ** ** | **(unaudited)**                                          | ** ** | **(unaudited)**                                          | ** ** |
| **Cash Flow From Operating Activities**                                          |       |                                                     |       |                                                     |       |
| Net  loss                                                                        |       | $                                                        | (3,938,370 | )                                                        | $          | (4,058,975 | ) |
| Adjustments  to reconcile net loss to net cash provided byoperating  activities: |       |                                                     |       |                                                     |       |
| Depreciation  and amortization                                                   |       | 1,676,171                                                |       | 1,631,118                                                |       |
| Amortization  of debt issuance costs                                             |       | 296,738                                                  |       | 296,738                                                  |       |
| Amortization  of intangible asset                                                |       | 12,977                                                   |       | 12,978                                                   |       |
| Changes  in assets and liabilities:                                              |       |                                                     |       |                                                     |       |
| Accounts  receivable                                                             |       | (142,794                                                 | )          | (118,087                                                 | )          |
| Inventories                                                                      |       | 51,559                                                   |       | 12,594                                                   |       |
| Prepaid  expenses                                                                |       | 126,535                                                  |       | 202,020                                                  |       |
| Accounts  payable                                                                |       | 403,381                                                  |       | 108,168                                                  |       |
| Accrued  interest payable                                                        |       | 2,843,758                                                |       | 2,843,751                                                |       |
| Accrued  liabilities                                                             |       | 296,310                                                  |       | 182,125                                                  |       |
| Related  party royalties payable                                                 |       | 213,064                                                  |       | 313,113                                                  |       |
| Net  cash provided by operating activities                                       |       | 1,839,329                                                |       | 1,425,543                                                |       |
|                                                                             |       |                                                     |       |                                                     |       |
| **Cash Flow From Investing Activities**                                          |       |                                                     |       |                                                     |       |
| Capital  expenditures                                                            |       | (122,734                                                 | )          | (261,397                                                 | )          |
| Change  in other assets                                                          |       | 339,155                                                  |       | 19,999                                                   |       |
| Net  cash provided by (used in) investing activities                             |       | 216,421                                                  |       | (241,398                                                 | )          |
|                                                                             |       |                                                     |       |                                                     |       |
| **Cash Flow From Financing Activities**                                          |       |                                                     |       |                                                     |       |
| Proceeds  from issuance of long-term debt                                        |       | 5,069                                                    |       | 3,409,427                                                |       |
| Principal  payments on equipment purchase agreements                             |       | (159,729                                                 | )          | (172,379                                                 | )          |
| Net  cash (used in) provided by financing activities                             |       | (154,660                                                 | )          | 3,237,048                                                |       |
|                                                                             |       |                                                     |       |                                                     |       |
| Increase  in cash and cash equivalents                                           |       | 1,901,090                                                |       | 4,421,193                                                |       |
| Cash  and cash equivalents, beginning of period                                  |       | 5,382,524                                                |       | 4,980,299                                                |       |
| Cash  and cash equivalents, end of period                                        |       | $                                                        | 7,283,614  |                                                     | $          | 9,401,492 |   |
|                                                                             |       |                                                     |       |                                                     |       |
| **Supplemental disclosure of cash flow information**                             |       |                                                     |       |                                                     |       |
| Cash  paid for interest, net of capitalized interest                             |       | $                                                        | 297,350    |                                                     | $          | 489,701 |   |
|                                                                             |       |                                                     |       |                                                     |       |
| Assets  acquired through equipment purchase agreements                           |       | $                                                        | —     |                                                     | $          | 2,527,221 |   |

 

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

 

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

 

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

 

**March 31, 2010**

 

**1.  Organization and Basis of Presentation**

** **

155East Tropicana, LLC, a Nevada limited-liability company (the “Company”) wasincorporated on June 17, 2004 to acquire the real and personal property ofthe Hôtel San Rémo Casino and Resort (the “Hôtel San Rémo”) in Las Vegas, Nevadawith the intention of renovating the existing casino and hotel facility with a “Hooters”entertainment concept and theme.  Therenovations were completed and the Hôtel San Rémo property was reopened as thenew Hooters Casino Hotel on February 3, 2006.  The Company’s business is concentrated at theone casino and hotel property in Las Vegas, Nevada.  The renovations were financed by the Companyand its wholly owned subsidiary, 155 East Tropicana Finance Corp. through a$130 million Senior Secured Notes offering on March 29, 2005.  The Company’s membership interests are heldtwo-thirds through Florida Hooters LLC and one-third through EW CommonLLC.  The initial capitalization of theCompany was provided by Florida Hooters LLC in the form of a $5.1 millioncash contribution and the assignment of rights with respect to the Hooterstrademark and logo and other intellectual property and by EW Common LLC in theform of a $25.0 million deemed capital contribution.  The deemed capital contribution from EW CommonLLC carries with it a priority return of four percent on the contributionannually as described in Note 6.  Thepayment of this priority return is subject to meeting certain financialcovenants associated with the Company’s debt.

 

FloridaHooters LLC is a joint venture between Hooters Gaming LLC and Lags Ventures,LLC.  Hooters Gaming LLC is owned by theholders of licenses to operate Hooters restaurants in the Tampa Bay, Florida,Chicago, Illinois and downtown Manhattan in New York as well as for the sale ofwholesale foods and calendars and Nevada hotel/gaming and includes most of theoriginal founders of the Hooters brand. Pursuant to these license rights, the owners of Florida Hooters LLCoperate 41 Hooters restaurants, publish Hooters calendars and operate a Hootersfood business.  Lags Ventures, LLC isowned by a holder of the license rights to Hooters restaurants in South Floridaand the State of Nevada.  The owner ofLags Ventures, LLC is also the founder of the Dan Marino concept restaurantsand owns and operates one Dan Marino concept restaurant.

 

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

 

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

 

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

 

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

### ** **

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

 

The Hooters Casino Hotelfeatures a casino floor with 620  slotand video poker machines, 24 table games, 696 hotel rooms including 17 suites,a tropical pool area, retail outlets, and dining and entertainment optionswhich include a Hooters restaurant, and Mad Onion restaurant,  a sports bar, and several bars and Night OwlShowroom.

 

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

 

Fairvalue measurements affect the Company’s accounting and impairment assessmentsof its long-lived assets, and other intangibles.  Fair value measurements also affect theCompany’s accounting for certain of its liabilities.  Fair value is defined as the price that wouldbe received to sell an asset or paid to transfer a liability in an orderlytransaction between market participants at the measurement date and is measuredaccording to a hierarchy that includes: “Level 1” inputs, such as quoted pricesin an active market; “Level 2” inputs, which are observable inputs for similarassets; or “Level 3” inputs, which are unobservable inputs.   The Company estimated the fair value of theNotes using “Level 2” inputs.

 

Aspermitted by the rules and regulations of the Securities and ExchangeCommission, certain information and footnote disclosures normally included infinancial statements prepared in accordance with generally accepted accountingprinciples have been condensed or omitted. These condensed consolidated financial statements should be read inconjunction with the Company’s 2009 annual consolidated financial statementsand notes thereto included in the Company’s Annual Report on Form 10-K forthe year ended December 31, 2009.

 

Inthe opinion of management, the accompanying unaudited condensed consolidatedfinancial statements contain all adjustments — which include normal recurringadjustments — necessary to present fairly the Company’s financial position asof March 31, 2010 and the results of its operations for the three monthperiods ended March 31, 2010 and 2009. The results of operations for such periods are not necessarilyindicative of the results to be expected for the full year.

 

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

 

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

### ** **

**2.  Liquidity and Financial Position**

 

The Company has significantindebtedness and financial commitments in 2010. As of March  31, 2010, the Company had $163.0 million in total debtand unpaid interest.  Currently, theSenior Secured Credit Facility, (“Credit Facility”), is fully extended and theCompany has no additional availability to borrow against the CreditFacility.  The Company does not believeit will be able to generate sufficient cash flows from operations to fund itsfinancial commitments over the next year and cannot provide any assurances thatit will be able to raise additional capital.

 

Based on anticipated futureoperations, the Company does not believe that cash on hand at  March 31, 2010 of $7.3 million andexpected cash flows in the remainder of 2010 will be adequate to meet the totalfinancial obligations which include (1) anticipated operational expenses, (2) debtservice on equipment leases and the Credit Facility, (3) capital expensesand (4) delinquent and scheduled payments of interest on the Notes.  The Company was unable to make the interestpayment on the Notes due April 1, 2009 and October 1, 2009 and April 1,2010 and does not expect to make the payment due October 1, 2010. Currently,other obligations are being paid in the normal course of business.  Due to the Company’s inability to make theinterest payments, an event of default occurred under the indenture governingthe Notes.  As a result, the note holderscould exercise certain remedies provided under the indenture.   The Company has received Notice of Defaultand Reservation of Rights letters (the “Default Letters”) from the lendersunder the Credit Facility.  The DefaultLetters state that (i) an event of default exists under the CreditFacility as a result of the Company’s failure to obtain control agreements forone or more deposit accounts established and maintained by the Company and as aresult of failure to pay interest on the Notes, (ii) as a result of theevent of default, the lenders are under no further obligation to extend furthercredit under the Credit Facility, (iii) the lenders will continue toevaluate their response to the event of default, and (iv) the Company nolonger has an option of paying the LIBOR interest rate, but must pay the WellsFargo prime rate  plus the default rate,which is equal to four percentage points above prime rate.  The lenders have not elected to acceleratethe indebtedness under the Credit Facility. The Company has entered into discussions with the note holders and theCredit Facility lenders to attempt to negotiate forbearance agreements pursuantto which they would agree not to exercise, for a specified period of time,their remedies under the indenture or the Credit Facility.  The Company has engaged a financial advisorto assist with its evaluation of financial and strategic alternatives, whichmay include a recapitalization, refinancing, restructuring or reorganization ofits obligations or a sale of some or all of its business.  The Company and its advisors are activelyworking toward such a transaction.  TheCompany cannot be assured that it will be successful in negotiating forbearancewith the note holders or Credit Facility lender or in undertaking any suchalternative transaction in the near term.

 

Ifthe Company is not successful in obtaining a forbearance or entering into atransaction to address its liquidity and capital structure, the note holdershave the ability to accelerate repayment of all amounts outstanding under theindenture ($147.1 million at March 31, 2010) and the Credit Facility

 

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

 

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

### ** **

**2.Liquidity and Financial Position (continued)**

 

lendershave the ability to accelerate repayment of all amounts outstanding under theCredit Facility ($14.5 million at March 31, 2010, plus an irrevocableletter of credit for $0.5 million at March 31, 2010).  If either the Notes indebtedness or theCredit Facility indebtedness were to be accelerated, the Company would berequired to refinance or restructure the payments on that debt.  The Company cannot be assured that it will besuccessful in completing a refinancing or restructuring.  If the Company is unable to do so, it may determineto seek protection under Chapter 11 of the U.S. Bankruptcy Code.

 

The conditions and eventsdescribed above raise a substantial doubt about the Company’s ability tocontinue as a going concern.  The Companyhas classified the majority of its debt at March 31, 2010, as a currentliability on the balance sheet.  Theaccompanying condensed consolidated financial statements do not include alladjustments to reflect the possible future effects on the recoverability andclassification of assets or the amounts and classifications of liabilities thatmay result should the Company be unable to continue as a going concern.

 

**3.  Summaryof Significant Accounting Principles**

 

*Recently Issued Accounting Pronouncements.* The Financial Accounting Standards Board (the “FASB”)issued ASU No. 2010-06, *Fair Value Measurementsand Disclosures (Topic 820): Improving Disclosures about Fair ValueMeasurements.*  The guidanceclarifies and extends the disclosure requirements about recurring andnonrecurring fair value measurements. The Standard is effective for reporting periods beginning after December 15,2009.  The Company adopted the Standardin the first quarter of 2010 and it did not have a material impact on thecondensed consolidated financial statements.

 

TheFASB issued ASU No. 2010-16, *Entertainment-Casinos(Topic 924): Accruals for Casino Jackpot Liabilities.*  The guidance clarifies that an entity shouldnot accrue jackpot liabilities (or portions thereof) before a jackpot is won ifthe entity can avoid paying that jackpot. Jackpots should be accrued and charged to revenue when an entity has theobligation to pay the jackpot.  Thisguidance applies to both base jackpots and the incremental portion of theprogressive jackpots and is effective for reporting periods beginning on orafter December 15, 2010.  Adoptionmay result in a cumulative-effect adjustment to the opening retained earningsin the period of adoption and the Company is currently determining the impacton the consolidated financial statements.

 

Avariety of proposed or otherwise potential accounting standards are currentlyunder study by standard-setting organizations and certain regulatory agencies.Because of the tentative and preliminary nature of such proposed standards, wehave not yet determined the effect, if any, that the implementation of suchproposed standards would have on our consolidated financial statements.

 

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**155 EAST TROPICANA, LLC**

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

 

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

### ** **

**4.   Debt**

** **

Debt consists ofthe following:

 
| ** **                          | ** ** | **March 31,** | ** **  | **December 31,** | ** ** |
|-------------------------------------|------------|--------------------|-------------|-----------------------|------------|
| ** **                          | ** ** | **2010**           | ** **  | **2009**              | ** ** |
| 8.75%  Senior secured notes (1)     |       | $                  | 130,000,000 |                  | $          | 130,000,000 |   |
| Senior  secured credit facility (2) |       | 14,484,961         |        | 14,479,892            |       |
| Equipment  purchase agreements (3)  |       | 1,423,585          |        | 1,583,314             |       |
| Total  debt                         |       | $                  | 145,908,546 |                  | $          | 146,063,206 |   |

 

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(1)   130.0million aggregate principal amount of 8.75% Notes issued on March 29, 2005and due April 1,  2012.  The interest payments of $5.7 million due April 1,2009, October 1, 2009 and April 1, 2010 on the Notes were not paid bythat date or within the 30-day grace period. The Notes are currently in default and the Note holders have the abilityto exercise the remedies set forth in the indenture, including accelerating repayment of all amounts outstanding under the indenture ($147.1 millionin principal and interest at March 31, 2010).

 

(2)   Outstandingdraws against the Senior Secured Credit Facility as of March 31, 2010 and December 31,2009 are due on September 30, 2011, unless accelerated under thedefault.  As of March 31, 2010, theCredit Facility carried an interest rate of 7.25% per annum. The CreditFacility is currently in default and the Note holders have the ability toaccelerate repayment of all amounts outstanding under thecredit agreement ($14.5 million in principal at March 31, 2010).    The lenders have not elected to acceleratethe indebtedness under the Credit Facility. Interest payments on the CreditFacility are paid and current.

 

(3)   Duringthe first quarter 2009, the Company entered into a $2.1 million equipmentpurchase agreement with IGT for a new slot system.  The monthly payments are $58,000 per monthfor 36 months and the Company is current with payments.  Principal payments of $0.7 million are due inthe next year on equipment purchase agreements

 

**Debt-Fair Value of DebtInstruments**

 

TheNotes and Credit Facility are currently in default.  The Notes are not trading, so there is nomarket data available on the trading value of the Notes.  Based on the fact that the Company isfinancially unable to pay the interest on the Note and due to the currentcredit market, the value of the Notes are substantially and materially impaired.Based on trading values of the bonds of other casino/hotel properties that havedefaulted on their interest payments, we currently estimate the fair marketvalue of our Notes to be $23.0 million at March 31, 2010 and December 31,2009.  However, this value is subject to

 

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

 

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

### ** **

**4.  Debt (continued)**

 

continuouslychanging circumstances and every casino/hotel property is subject to varyingfinancial and physical conditions. The Company believes that the value of the $14.5 million Credit Facilityhas not been impaired due to its senior secured position against all of theCompany’s assets.

 

**5.  Related Party Transactions**

** **

**Royalties Expense**

** **

**Pursuant to agreements related to the use of certaintrademarks, the Company must pay fees and royalties to related parties.  Afee equal to 3% of all net profits earned from gaming activities is payable toHooters Gaming Corporation and  a fee of4% of cash sales from the Hooters branded restaurant, and 3% of the gross saleswith any merchandise with a Hooters logo, is payable to Las Vegas Wings, Inc. The total fees accrued at March 31, 2010 for Hooters Gaming Corporation,Lags Venture, Inc. and Las Vegas Wings, Inc. were $2.8 million, $0.9million, and $1.7 million, respectively. The Company began accruing these fees when the Hooters Casino Hotelopened on February 3, 2006.  Thepayment of these royalty fees is restricted under the indenture governing theNotes.**

** **

**ProvidentAdvertising & Marketing, Inc.**

 

The majority shareholder of Provident Advertising & Marketing, Inc.(“Provident”) is Edward C. Droste, a member of the Company’s management boardand an indirect beneficial owner of 3.96% of the Company’s membershipinterests.  Provident was engaged by theCompany to provide services related to the planning and development of aninitial advertising and marketing plan and for the continued development andimplementation of a strategic marketing plan for the Hooters Casino Hotel.  Provident continues to be involved as theCompany’s advertising firm.  In addition,the Company purchases Hooters logo items from Provident for uniforms and forresale in the Company’s gift shops.  Theamounts paid to Provident during the quarters ended March 31, 2010 and2009 totaled $0.2 million and $0.4 million, respectively.

 

***6.  Commitmentsand Contingencies***

*** ***

***Litigation***

*** ***

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

 

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

 

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

### ** **

***6. Commitments andContingencies (continued)***

*** ***

***ContractualCommitments***

*** ***

TheCompany has entered into operational contracts totaling $2.7 million at March 31,2010.

 

**Hooters of America Royalty Payments**

 

Beginningon February 3, 2006, the Company was required to pay the owner of theHooters trademark, Hooters of America, a royalty fee equal to 2% of all netrevenues of the hotel and casino (excluding the Dan Marino’s Restaurant, whichthe Company closed on November 30, 2009) and 1% of revenues from the Peteand Shorty’s Tavern less miscellaneous expenses.  The total fees paid to Hooters of Americawere $0.2 million and $0.2 million for the quarters ended March 31, 2010and 2009, respectively.  These fees areincluded in general and administrative expenses on the accompanying condensedconsolidated statements of operations.

 

**Preferred Return**

 

TheCompany’s membership interests include an EW Common LLC preferred account whichaccumulates a preferred return rate of 4% per annum on the $25.0 millionaccount balance.  Such preferred returnbegan accumulating on March 1, 2006, and accumulates whether or not thereare profits or funds available for the payment of the preferred return.  Under the Notes indenture, the preferredreturn to EW Common LLC is payable only if the Company’s coverage ratio ofEBITDA to fixed charges (as defined in the indenture and after giving effect tothe payment of the preferred return) is 1.5 to 1 for the fiscal year asmeasured after the close of the fiscal year. As of March 31, 2010, $4.1 million relating to the preferredaccount has accumulated, but has not been paid. As the Company’s coverage ratio of EBITDA to fixed charges did not meetthis defined ratio, no liability has been recorded in the accompanyingconsolidated financial statements at March 31, 2010 and December 31,2009.

 

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## ***Table of Contents***

 

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

## *** ***

The following discussion andanalysis should be read together with our unaudited condensed consolidatedfinancial statements and the accompanying notes.  This discussion contains forward-lookingstatements, within the meaning of Section 27A of Securities Act of 1933,as amended, Section 21E of the Securities Exchange Act of 1934, asamended, and the Private Securities Litigation Reform Act of 1995, includingstatements regarding our expected financial position, business and financingplans.  Some of the forward-lookingstatements can be identified by the use of forward-looking term such as “believes,”“expects,” “may,” “will,” “should,” “could,” “seek,” “intends,” “plans,” “estimates,”“anticipates,” or other comparable terms. Forward-looking statements involve inherent risks and uncertaintieswhich could cause actual results to differ materially from those in theforward-looking statement, including those discussed herein and elsewhere inour Annual Report on Form 10-K filed with the Securities and ExchangeCommission (“Commission”), on March 31, 2009, particularly under theheading “Risk Factors.”  We cautionreaders not to place undue reliance upon any such forward-looking statements,which speak only as of the date made.

 

**ExecutiveOverview**

 

***Liquidity and Financial Position***

 

Wehave significant indebtedness and financial commitments in 2010.  As of March 31, 2010, we had $163.0million in total debt and unpaid interest. Currently, the Credit Facility is fully extended and we have noadditional availability to borrow against the Credit Facility.  We do not believe we will be able to generatesufficient cash flows from operations to fund our financial commitments overthe next year and cannot provide any assurances that we will be able to raiseadditional capital.

 

Basedon anticipated future operations,  cashon hand at March 31, 2010 of $7.3 million and expected cash flows will beadequate to meet our total financial obligations which include (1) anticipatedoperational expenses, (2) debt service on equipment leases and CreditFacility, (3) capital expenses and (4) delinquent and scheduledpayments of interest on the Notes.  Wewere unable to make the interest payment on the Notes due April 1, 2009, October 1,2009 and April 1, 2010 and do not expect to make the payment due October 1,2010.  Currently, our other obligationsare being paid in the normal course of business.  Due to our inability to make the interestpayments, an event of default occurred under the indenture governing theNotes.  As a result, the note holderscould exercise certain remedies provided under the indenture governing theNotes.   We received default andreservation of rights letters (“Default Letters”) from the lenders under theCredit Facility.  The Default Lettersstate that (i) an event of default exists under the Credit Facility as aresult of our failure to obtain control agreements for one or more depositaccounts established and maintained by us and also as a result of failure topay interest on the Notes, (ii) as a result of the event of default, thelenders are under no further obligation to extend further credit under theCredit Facility, (iii) the lenders will continue to evaluate theirresponse to the events of default, and (iv) we no longer have an option ofpaying the LIBOR interest rate, but must pay the Wells Fargo prime rate plusthe default rate, which is equal to four percentage points above primerate.  At the current time, the lendershave not elected to accelerate the indebtedness under the Credit Facility.  We have entered into discussions with thenote holders and the Credit Facility lenders to attempt to negotiateforbearance agreements pursuant to which they would agree not to exercise, fora specified period of time, their respective remedies under the indenture orthe Credit Facility.  We have engaged afinancial advisor to assist with the evaluation of financial and strategicalternatives, which may include a recapitalization, refinancing, restructuringor reorganization of our obligations or a sale of some or all of ourbusiness.  Our advisors and we areactively working toward such a transaction. We cannot be assured that we will be successful in negotiatingforbearance with the note holders or Credit Facility lenders or in undertakingany such alternative transaction in the near term.

 

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Ifwe are not successful in obtaining a forbearance or entering into a transactionto address our liquidity and capital structure, the note holders have theability to accelerate repayment of all amounts outstanding under the indenture($147.1 million at March 31, 2010) and the Credit Facility lenders havethe ability to accelerate repayment of all amounts outstanding under the CreditFacility ($14.5 million at March 31, 2010, plus an irrevocable letter ofcredit for $0.5 million at March 31, 2010).  If either the Notes indebtedness or theCredit Facility indebtedness were to be accelerated, we would be required torefinance or restructure the payments on that debt.  We cannot be assured that we would besuccessful in completing a refinancing or restructuring.  If we are unable to do so, we may determineto seek protection under Chapter 11 of the U.S. Bankruptcy Code.

 

Theconditions and events described above raise a substantial doubt about theCompany’s ability to continue as a going concern.  We have classified the majority of our debtat March 31, 2010 as a current liability on the balance sheet.  The accompanying condensed consolidatedfinancial statements do not include all adjustments to reflect the possiblefuture effects on the recoverability and classification of assets or theamounts and classifications of liabilities that may result should we be unableto continue as a going concern.

 

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

 

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

 

FloridaHooters LLC is a joint venture between Hooters Gaming LLC and Lags Ventures,LLC. The owners of Hooters Gaming LLC, which include most of the originalfounders of the Hooters brand, hold licenses to sell wholesale foods andcalendars and to operate hotel casinos in Nevada and Hooters restaurants inTampa Bay, Florida, Chicago, Illinois, and downtown Manhattan in New York. LagsVentures, LLC is owned by a holder of the license rights to certain Hootersrestaurants in South Florida and the State of Nevada. Pursuant to these licenserights, the owners of Florida Hooters LLC operate 41 Hooters restaurants,publish Hooters calendars, and operate a Hooters foods business.

 

Eastern &Western owns 90% of EW Common LLC, while our President owns the balance.Eastern & Western owned the Hôtel San Rémo from November 1988until our acquisition of the Hôtel San Rémo in 2004.

 

Ouraffiliates have granted us assignments of certain license agreements pertainingto the use of the Hooters brand as well as the Dan Marino (which terminated November 30,2009) and Pete & Shorty’s concept restaurants, which will allow us tooperate the Hooters Casino Hotel.  Theoriginal founders of the Hooters brand sold the trademark rights (excludingcertain rights they retained for themselves) to Hooters of America in2001.  As a result, Hooters of America isthe trademark owner of the Hooters 

 

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brandand the operator and franchisor of Hooters restaurants.  Pursuant to the Hooters license assignment,we are required to pay Hooters of America a royalty fee, which totaledapproximately $0.2 million for the three months ended March 31, 2010.  Aside from the abovementioned royalty fee, weare not otherwise affiliated with Hooters of America.

 

OnMarch 29, 2005, we issued $130.0 million aggregate principal amountof 8.75% Senior Secured Notes due 2012, or the old notes, in a privateplacement.  The old notes weresubsequently exchanged with new notes (the “Notes”) registered under theSecurities Act of 1933 on Form S-4. Interest payments on the Notes are due semi-annually, on each April 1and October 1.

 

Weused the proceeds from the offering to refinance existing indebtedness, andused the remaining proceeds (together with cash from operations and proceedsfrom equipment financing) to renovate the hotel casino and to provide workingcapital.

 

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

 

Wealso entered into the Credit Facility concurrently with the offering.  As of March 31, 2010, $14.5 million wasoutstanding on the Credit Facility, which, together with a letter of credit inthe amount of $0.5 million, represents all of the funds available under theCredit Facility.

 

TheCompany was unable to make the interest payment on the Notes due April 1,2009, October 1, 2009 and April 1, 2010 and does not expect to makethe payment due October 1, 2010. Currently, our other obligations arebeing paid in the normal course of business. Due to the Company’s inability to make the interest payments, an eventof default occurred under the indenture governing the Notes.  As a result, the note holders could exercisecertain remedies provided under the indenture.  The Company has received Notice of Default and Reservation of Rightsletters (the “Default Letters”) from the lenders under the CreditFacility.  The Company has entered intodiscussions with the note holders and the Credit Facility lenders to attempt tonegotiate forbearance agreements pursuant to which they would agree not toexercise, for a specified period of time, their remedies under the indenture orthe Credit Facility.  The Company hasengaged a financial advisor to assist with its evaluation of financial and strategicalternatives, which may include a recapitalization, refinancing, restructuringor reorganization of its obligations or a sale of some or all of itsbusiness.  The Company and its advisorsare actively working toward such a transaction. The Company cannot be assured that it will be successful in negotiatingforbearance with the note holders or Credit Facility lender or in undertakingany such alternative transaction in the near term.

 

***Results of Operations***

 

We generate hotel, casino, food and beverage,entertainment and retail revenues at the hotel casino property.  During the quarter ended March 31, 2010,approximately 34.1% of the gross revenue was derived from the casino, 36.2%from food and beverage, and 29.8% from hotel and other.

 

Casinorevenue is derived primarily from patrons wagering on slot machines, tablegames and other gaming activities.  Tablegames include blackjack, craps, roulette, and specialty games.  Casino revenue is defined as the win fromgaming activities, computed as the difference between gaming wins 

 

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andlosses, not the total amount wagered.  “Tablegame drop” and “slot handle” are casino industry specific terms used toidentify the amount wagered by patrons for a casino table game or slot machine,respectively.  “Table game hold” and “slothold” represent the percentage of the total amount wagered by the patron thatthe casino has won.  Hold is derived bydividing the amount won by the casino (“table game win” and “slot win”) by theamount wagered by the patron.  Casinorevenue is recognized at the end of each gaming day.

 

Casinorevenues vary from time to time due to general economic conditions, table gamehold, slot hold, and occupancy percentages at the Hooters Casino Hotel andother hotels in Las Vegas.  Casinorevenues also vary depending upon the amount of gaming activity as well asvariations in the odds for different games of chance.  Casino revenues, room revenues, food andbeverage revenues, and other revenues vary due to general economic conditionsand competition.

 

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

 

Foodand beverage revenues are derived from food and beverage sales in the foodoutlets of the hotel casino, including restaurants, room service andbanquets.  Food and beverage revenue isrecognized at the time food and/or beverage is provided to the guest.  “Covers” are the number of patrons served ina food outlet.  “Average check” is theaverage amount of food and beverage revenue charged to patrons on theirrestaurant checks.

 

Thefollowing table summarizes the results of operations of 155 East Tropicana,LLC, doing business as the Hooters Casino Hotel, for the quarters ended March 31,2010 and 2009 (in thousands, except for percentages):

 

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| ** **                                 | ** ** | **Quarter Ended********March 31,********2010** | ** ** | **Quarter Ended********March 31,********2009** | ** ** | **%********Change********2010 - 2009** | ** ** |
|--------------------------------------------|------------|-----------------------------------------------------|------------|-----------------------------------------------------|------------|----------------------------------------|------------|
|                                       |       | **(in thousands)**                                  |       |                                                |       |
| Casino  revenues                           |       | $                                                   | 4,226      |                                                | $          | 5,565                                  |       | -24.1 | % |
| Casino  expenses                           |       | 2,488                                               |       | 3,130                                               |       | -20.5                                  | %          |
| Profit  margin                             |       | 41.1                                                | %          | 43.7                                                | %          |                                   |       |
|                                       |       |                                                |       |                                                |       |                                   |       |
| Food,  beverage and entertainment revenues |       | $                                                   | 4,486      |                                                | $          | 5,329                                  |       | -15.8 | % |
| Food,  beverage and entertainment expenses |       | 2,614                                               |       | 3,370                                               |       | -22.4                                  | %          |
| Profit  margin                             |       | 41.7                                                | %          | 36.8                                                | %          |                                   |       |
|                                       |       |                                                |       |                                                |       |                                   |       |
| Hotel  and other revenues                  |       | $                                                   | 3,693      |                                                | $          | 4,007                                  |       | -7.8 | % |
| Hotel  and other expenses                  |       | 1,624                                               |       | 1,724                                               |       | -5.8                                   | %          |
| Profit  margin                             |       | 56.0                                                | %          | 57.0                                                | %          |                                   |       |
|                                       |       |                                                |       |                                                |       |                                   |       |
| Promotional  allowances                    |       | $                                                   | 1,120      |                                                | $          | 1,560                                  |       | -28.2 | % |
| Percent  of gross revenues                 |       | 9.0                                                 | %          | 10.5                                                | %          |                                   |       |
|                                       |       |                                                |       |                                                |       |                                   |       |
| General  and administrative expenses       |       | $                                                   | 3,055      |                                                | $          | 3,445                                  |       | -7.9 | % |
| Percent  of net revenues                   |       | 27.1                                                | %          | 25.8                                                | %          |                                   |       |
|                                       |       |                                                |       |                                                |       |                                   |       |
| Restructuring  expense                     |       | $                                                   | 115        |                                                | $          | 455                                    |       | -74.70 | % |
| Percent  of net revenues                   |       | 1.0                                                 | %          | 3.4                                                 | %          |                                   |       |

 

Thefollowing discussion presents an analysis of the hotel casino’s results ofoperations for the quarters ended March 31, 2010 and 2009.

 

***Comparison of Quarter Ended March 31, 2010 with the Quarter Ended March 31,2009***

 

The current state of theeconomy has negatively impacted our results of operations in the first quarterof 2010 and we expect that impact to continue in 2010.  Because we are in the hospitality andrecreation business, which is largely dependent on discretionary spending, webelieve that the weak housing market, increases in unemployment, decreases inair flights to Las Vegas and the general tightening of spending on businesstravel have all affected visitations to Las Vegas and the spending budget ofour customers.

 

A net loss of $3.9 millionwas incurred for the quarter ended March 31, 2010 compared to a net lossof $4.1 million for the same quarter in 2009.

 

We incurred  an operating loss of $0.5 million for thequarter ended March 31, 2010 compared to $0.7 million loss in the firstquarter last year.  The stable operatingloss was achieved in spite of a decrease in net revenue of $2.0 million.  In general, the economy on the Las VegasStrip suffered during the first quarter of 2010 from stagnant visitor counts,declines in gaming revenue (except for baccarat revenue), and declines inoccupancy percentages and room rates as a result of the downturn in the generaleconomy

 

Net operating revenues forthe quarter ended March 31, 2010 were $11.3 million, a decrease of $2.0million or 15.4%, from $13.3 million generated during the same period in theprevious year.  The 

 

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decline in net revenue was largely a result ofdeclines in all revenue categories due principally to the continued weakness inthe national, state and local economies.

 

Promotional allowances(which are subtracted from revenues) decreased from $1.6 million to $1.1million and these decreases were for all categories of room, food, beverage andentertainment.

 

Operating expenses were$11.8 million for the quarter ended March 31, 2010, a decrease of $2.3million or 16.2%, from $14.1 million during the same period in the previousyear.  This decrease in operatingexpenses was the result of an intense program of cost reductions.  Property-wide payroll was analyzed andpayroll, payroll taxes and benefits were reduced by $0.9 million.  Additionally, other operating expenses wereevaluated and trimmed where appropriate. This trend of reduced expense is expected to continue into futurequarters and help us offset the decline in net revenues.

 

*Casino.*  Casino revenues decreased by $1.3 million, or24.1%, to $4.2 million for the quarter ended March 31, 2010, compared to$5.6 million for the quarter ended March 31, 2009, principally due toreduced customer counts to the casino and reduced spending by ourcustomers.    Our decline in Casinorevenue exceeds the 14.4% decline in gaming revenue for the three months ended March 31,2010  for casinos on the Las Vegas Stripwith annual gaming revenue of $12 to $36 million as reported by the NevadaState Gaming Control Board.  Traffic inour casino and spend per customer was affected negatively by the downturn inthe general Las Vegas economy.

 

Table games and pokerrevenue was $1.7 million for the quarter ended March 31, 2010, a decreaseof $0.3 million, or 16.9%, compared to the table games revenue of $2.0 millionfrom the prior year’s quarter.  Tablegame drop decreased by $2.7 million or by 24.1%, to $8.7 million for thequarter ended March 31, 2010 compared to $11.4 million for the quarterended March 31, 2009. The table games generated an average win per tableof $740 per day for the quarter ended March 31, 2010 as compared to $850per day for the quarter ended March 31, 2009.  According to the Gaming Revenue Reportspublished by the Nevada State Gaming Control Board, the average win per tableper day for Las Vegas Strip casinos with annual gaming revenue of $12 to $36million was $878 for the quarter ended March 31, 2010.

 

Slotrevenue of $2.5 million for the quarter ended March 31, 2010 was adecrease of 28.2% compared to $3.5 million in the same period in 2009.  The average win per machine per day was $46for the quarter ended March 31, 2010 as compared to $64 for the quarterended March 31, 2009.      Accordingto the Gaming Revenue Reports published by the Nevada State Gaming ControlBoard, the average win per machine per day for Las Vegas Strip casinos withannual gaming revenue of $12 to $36 million was $76 for the quarter ended March 31,2010 and slot revenue for that group declined 17.7% for the quarter as comparedto the same quarter in the prior year. We continued our marketing efforts to increase slot play throughtargeted slot marketing programs aimed at attracting a flow of customers to thecasino floor, but we were unable to offset the effects of the slowing Las Vegasand global economy.  Casino expenses,which included casino operational expenses and casino marketing decreased by 11.4%or $0.6 million for the quarter ended March 31, 2010 compared to $3.1million for the quarter ended March 31, 2009.  The profit margin for casino operationsdecreased slightly to 41.1% during the quarter ended March 31, 2010 from43.7% during the quarter ended March 31, 2009.

 

*Food, beverage, and entertainment.* Food, beverage andentertainment revenue was $4.5 million for the quarter ended March 31,2010 as compared to $5.3 million for 2009, a decrease of $0.8 million, or15.8%. Food and beverage revenue declined due to a general decline in both thenumber of guests and in 

 

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thespending per guest.  Entertainmentrevenue declined by $0.1 million because of the revenue split with theentertainers.  Our showroom acts werechanged to “four-wall” events in March 2009.  The acts keep most of the revenue in theshowroom, but also cover most of the expenses.

 

Food,beverage and entertainment expenses decreased to $2.6 million during thequarter ended March 31, 2010 from $3.4 million during the quarter ended March 31,2009, a decrease of $0.8 million or 22.4%. We saved $0.2 million in showroom expense because we adopted a “four-wall”format as described above.  The remainingsavings in expenses were facilitated by increased efficiencies in payroll, adecrease in cost of sales related to the decreased volume.

 

Theprofit margin for food, beverage, and entertainment operations increased to41.7% for the quarter ended March 31, 2010 from 36.8% in the same quarterin 2009 due to operational efficiencies.

 

*Hotel and other.*  Hoteland other revenue (which includes hotel room revenue, retail, and othermiscellaneous revenue) decreased by $0.3 million or 7.8% to $3.7 million forthe quarter ended March 31, 2010 from $4.0 million for the quarter March 31,2009.  Room revenue was $2.8 millionfor the quarter ended March 31, 2010 compared to $4.0 million in 2009 andwas negatively affected by the increased competition for customers among hotelcasinos in Las Vegas due to the drop in visitors to Las Vegas.    Average daily room rates decreased by 11.5%from $52 for the quarter ended March 31, 2009 to $46 for the quarter endedMarch 31, 2010, and the occupancy rate increased from 82.8% in the quarterended March 31, 2009 to 85.9% for quarter ended March 31, 2010.

 

Salesfrom our retail outlets decreased by $0.2 million, or 19.7% to $0.8 million forthe quarter ended March 31, 2010.

 

Hotel and other expensesdecreased by 5.8% or $0.1 million to $1.6 million during the quarter ended March 31,2010 from $1.7 million during the quarter ended March 31, 2009, due tosavings in payroll and other room department operating expenses. The profitmargin for hotel and other revenue was 56.0% in the first quarter of 2010compared to 57.0% for that same period in the prior year.

 

*General and administrative.*  General and administrative expense includescosts associated with marketing, information technology, finance, accounting,and property operations. General and administrative expense decreased $0.4million or 11.3% to $3.0 million for the quarter ended March 31, 2010compared to $3.4 million for the quarter ended March 31, 2009.  The decrease in expenses is due to decreasesin payroll, advertising, legal fees and various other administrative costs.

 

*Restructuring expenses.*  Restructuring expenses related to expensesassociated with financial advisory services and related legal expenses for thequarter ended March 31, 2010 were $0.1 million compared to $0.5 million inthe same quarter in 2009.  These costsare expected to continue in future months until a recapitalization,refinancing, restructuring or reorganization of our obligations or a sale ofsome or all of our business assets is completed.  No assurance can be given that we will beable to complete a restructuring of our obligations.

 

*Depreciation and amortization expense.*  Depreciation and amortization expense of $1.7million for the quarter ended March 31, 2010 increased by $0.1 millionfrom $1.6 million for the quarter ended March 31, 2009.

 

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*Related party royalties expense.*  Beginning on February 3, 2006, weincurred related party royalty fees pursuant to agreements with Hooters GamingCorporation, Lags Ventures, Inc., and Las Vegas Wings, Inc.  These related party royalties expense totaled$0.2 million during the quarters ended March 31, 2010 and $0.3 million in2009. The payment of the related party royalties is restricted under the Notesindenture.  The fees can only be paidafter the close of the fiscal year and only if our debt coverage ratio is 1.5to 1 for that fiscal year.  We do notexpect to meet this debt coverage ratio test in the 2009 fiscal year.  The payments of the royalty fees are furtherlimited to the sum of 2% of revenue and 3% of EBITDA, as defined in theindenture.

 

*Interest expense.* Interest expense increased $0.1 to $3.4 million for the quarter ended March 31,2010 from $3.3 million for the quarter ended March 31, 2009 due to theadditional slot equipment financing issued in March 2009.

 

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

 

***Contractual Obligations***

 

Thefollowing table summarizes the contractual commitments of 155 East Tropicana,LLC as of March 31, 2010:

 
| ** **                         | ** ** | **Payments Due By Year**   | ** ** |
|------------------------------------|------------|----------------------------|------------|
| ** **                         | ** ** | **Total**                  | ** ** | **Less than********1 year** | ** ** | **1-3 years** | ** ** | **4-5 years** | ** ** | **Thereafter** | ** ** |
| ** **                         | ** ** | **(dollars in thousands)** | ** ** |
| Long-term  debt (1)                |       | $                          | 161,548    |   | $ | — |   | $ | 161,548 |   | $ | — |   | — |   |
| Equipment  purchase agreements (2) |       | 1,424                      |       | 660 |   | 764 |   | — |   | — |   |
| Operating  contracts (3)           |       | 2,726                      |       | 2,470 |   | 256 |   | — |   | — |   |
| Total                              |       | $                          | 165,698    |   | $ | 3,130 |   | $ | 162,568 |   | $ | — |   | $ | — |   |
|                                    |            |                            |            |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

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(1)   The long-termdebt represents the $14.5 million in outstanding draws against the CreditFacility as of March 31, 2010 due in September 2011, and the $130.0million Notes issued on March 29, 2005 and due in 2012.  The Company is in default on both of thesefacilities and interest of $17.1 million has not been paid on the notes.  The repayment dates have not been adjustedfor potential acceleration under the default provisions of the contracts.  The debt balance includes $17.1 million inaccrued, unpaid interest on the notes.

(2)   We entered intovarious equipment purchase agreements in connection with the renovation andrebranding of the Hooters Casino Hotel. On the first quarter of 2009 we entered into an equipment purchaseagreement for $2.1 million in slot system equipment.

(3)   Operatingcontracts represent various contracts for services in connection with theoperations of the Hooters Casino Hotel.

 

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***Liquidity and Capital Resources***

 

For additional discussion of our liquidity and capitalresources, please see “Liquidity and Financial Position” discussion presentedin the Executive Overview at the beginning of Item 2, “Management Discussionand Analysis of Financial Condition and Results of Operations” and Note 2 tothe accompanying consolidated financial statements.

 

For the quarter ended March 31,2010, $1.8 million of cash was provided by operating activities.

 

Forthe quarter ended March 31, 2010, $0.2 million of cash used to makeprincipal payments on equipment financing and we received $0.3 in refundeddeposits.

 

TheNotes indenture contains certain provisions which restrict or limit our abilityto, among other things, incur more debt, pay dividends, redeem stock or makeother distributions, enter into transactions with affiliates or transfer orsell assets.

 

Our Credit Facility is a revolving credit facility of$15.0 million.   As of March 31,2010, we had outstanding draws of $14.5 million. An additional $0.5 million ofthe Credit Facility is not available due to an outstanding letter of creditpreviously issued.  Currently, the CreditFacility is fully extended and we have no additional availability to borrowagainst the Credit Facility.  Alloutstanding principal and interest under the Credit Facility is due and payableon September 30, 2011, unless accelerated under the defaultprovisions.  Due to the default under theNotes indenture and the Credit Facility, we have classified the amount dueunder the Credit Facility and Notes and some equipment purchase debt, totalling$145.1 million, as a current liability at March 31, 2010.

 

AtMarch 31, 2010, we had cash and cash equivalents of approximately $7.3million.  As discussed earlier in the Executive Overview at the beginning of Item2, “Management Discussion and Analysis of Financial Condition and Results ofOperations” and Note 2 to the accompanying consolidated financial statements,we are in default under both the indenture and the Credit Facility and we haveentered into discussions with the note holders and the Credit Facility lendersto attempt to negotiate forbearance agreements pursuant to which they wouldagree not to exercise, for a specified period of time, their remedies under theindenture or the Credit Facility.  Therecan be no assurance that we will be successful in negotiating a forbearancewith the note holders or Credit Facility lender or in undertaking any financialor strategic alternative in the near term.

 

***Critical AccountingPolicies and Estimates***

 

A description of critical accounting policies and estimates is includedin the management discussion and analysis included in our Annual Report on Form 10-Kfor the year ended December 31, 2009, filed with the Commission on March 31,2010.

 

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

## *** ***

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

 

Marketrisk is risk of loss arising from changes in market rates and prices, such asinterest rates, foreign currency exchange rates and commodity prices.  At March 31, 2010, we had $130.0 million

 

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aggregateprincipal amount of the Notes, slot equipment purchase agreements of $1.4million carrying an interest rate of 7.0%  The Notes carry a fixed interest rate of 8.75 %.  Since the Notes and equipment purchaseagreements have fixed interest rates, there is no market risk associated withthese loans other than fair value market risk, which we believe to beinsignificant.  We have market riskassociated with funds that may be borrowed on the $15.0 million CreditFacility, due to an interest rate that floats with the  prime rate. The term of the Credit Facilitywill mature on September 30,2011 unless there is an acceleration under the default provisions.  At March 31, 2010, $14.5 million wasoutstanding under the variable rate Credit Facility, carrying interest at7.25%.  Assuming a 100 basis-point changein prime at March 31, 2010 and assuming no change in the funds borrowed onthe $15.0 million Credit Facility, our annual interest cost would change byapproximately $145,000.  We received aNotice of Default and Reservation of Rights letter (the “Default Letter”) fromthe lenders under the Credit Facility that states that events of default existand that as a result of such defaults the applicable interest rate wasincreased to the default rate, which equals the Wells Fargo prime rate plusfour percentage points.  At March 31,2010, the default rate based on prime rate was 7.25%.

 

**We do not have any significantforeign currency exchange rate risk or commodity price risk and do notcurrently trade any market sensitive instruments.**

 

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

## *** ***

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

## *** ***

We evaluated the effectiveness of our disclosure controls andprocedures as of three months ended March 31, 2010.  This evaluation was done with theparticipation of our management, including our Chief Executive Officer andChief Financial Officer.

 

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

 

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

## *** ***

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

 

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become inadequate because of changes in conditions, orthe degree of compliance with the policies or procedures may deteriorate.Because of the inherent limitations in a cost-effective control system,misstatements due to error or fraud may occur and may not be detected.

 

## ***Conclusions***

## *** ***

Based on this evaluation, our Chief Executive Officer and ChiefFinancial Officer have evaluated our disclosure controls and procedures (asdefined in the Securities Exchange Act of 1934 Rules 13a-15(e) and15d-15(e)) as of March 31, 2010, and have concluded that they areeffective to timely alert them to material information relating to us requiredto be included in the reports that we file or submit under the SecuritiesExchange Act of 1934.

 

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

## *** ***

Therewere no changes in our internal controls over financial reporting that occurredduring our last fiscal quarter, *i.e.*,the quarter ended March 31, 2010, that have materially affected, or arereasonably likely to materially affect, our internal controls over financialreporting.

 

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# **PART II— OTHER INFORMATION**

# ** **

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

## *** ***

Asof the date of this Form 10-Q, we were in default under our Notesindenture and our Credit Facility.  Wedid not pay the interest due to our noteholders under our Notes indenturewithin 30 days of the interest payment date on April 1, 2009, October 1,2009 or April 1, 2010.  Also, aspreviously disclosed, we did not enter into control agreements for one or moredeposit accounts established and maintained by us for the benefit of thelenders under the Credit Facility.  For amore detailed discussion of our evaluation of financing and strategic alternatives,refer to our discussion under Part 1, Financial Information, Item 2 —Management’s Discussion and Analysis of Financial Conditions and Results ofOperations, “Liquidity and Financial Position” or “Liquidity and CapitalResources”.

 

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

## *** ***

Exhibits:

 

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

 

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

 

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

 

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

 

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*Filedherewith

 

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# **SIGNATURES**

# ** **

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

 

**155 EAST TROPICANA, LLC**

 

 
| By:      | /s/  Deborah J. Pierce                                                            |     | May 14,  2010 |
|----------|-----------------------------------------------------------------------------------|----------|--------------------|
|     |                                                                              |     |               |
|     | Deborah  J. Pierce                                                                |     |               |
| * * | *Chief  Financial Officer   (Principal Financial and Chief   Accounting Officer)* | * * | * *           |

* *

 

**155EAST TROPICANA FINANCE CORP.**

 

 
| By:      | /s/  Deborah J. Pierce                                                            |     | May 14,  2010 |
|----------|-----------------------------------------------------------------------------------|----------|--------------------|
|     |                                                                              |     |               |
|     | Deborah  J. Pierce                                                                |     |               |
| * * | *Chief  Financial Officer   (Principal Financial and Chief   Accounting Officer)* | * * | * *           |

 

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