UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 Washington,
D.C. 20549
 
 Form
10-Q
 
 (Mark
one)
 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
 
  ̈ 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: 000-52975
 
 American
Casino & Entertainment Properties LLC
 (Exact
name of registrant as specified in its charter)
 
 Delaware
                  
                  20-0573058(State
      or other jurisdiction of
                  
                  (I.R.S.
      Employerincorporation
      or organization)
                  
                  Identification
      No.)2000
      Las Vegas Boulevard SouthLas
      Vegas, NV
                  
                  89104(Address
      of principal executive offices)
                  
                  (Zip
      code)(702)
      380-7777
 (Registrant's
telephone number, including area code)
 
 (Former
name, former address and former fiscal year, if changed since last
report)
 
 Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
 Yes x No  ̈
 
 Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).   Yes
 ̈ No x
 
 Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.  See the definitions of “large accelerated filer,”
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.
 Large
      accelerated filer  ̈
                
                Accelerated
      filer  ̈Non-accelerated
      filer x (Do
      not check if a smaller reporting company)
                
                Smaller
      reporting company  ̈
 
 Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
 Yes  ̈ No x
  
  TABLE
OF CONTENTS
 
 PagePart
      I
                          
                          Financial
      InformationItem
      1.
                          Unaudited
      Condensed Consolidated Financial Statements
                          1Condensed
      Consolidated Balance Sheets –March 31, 2010 (unaudited) and
      December 31, 2009
                          1Condensed
      Consolidated Statements of Operations (unaudited) – the three months ended
      March 31, 2010 and March 31, 2009
                          2Condensed
      Consolidated Statements of Cash Flows (unaudited) – the three months ended
      March 31, 2010 and March 31, 2009
                          3Condensed
      Consolidated Statement of Members’ Equity (unaudited) – the three months ended
      March 31, 2010
                          4Notes
      to Condensed Consolidated Financial Statements (unaudited)
                          5Item
      2.
                          Management's
      Discussion and Analysis of Financial Condition and Results of
      Operations
                          11Item
      3.
                          Quantitative
      and Qualitative Disclosures About Market Risk
                          17Item
      4T.
                          Controls
      and Procedures
                          17Part
      II
                          
                          Other
      InformationItem
      6.
                          Exhibits
                          20
  i
  PART
I-FINANCIAL INFORMATION
 
 Item
1. Unaudited Condensed Consolidated Financial Statements.
 
 AMERICAN
CASINO & ENTERTAINMENT PROPERTIES LLC
 CONDENSED
CONSOLIDATED BALANCE SHEETS
 As of
                                
                                
                                As ofMarch 31, 2010
                                
                                
                                December 31, 2009(Unaudited)(In
      thousands)AssetsCurrent
      Assets:Cash
      and cash equivalents
                                
                                $
                                113,811
                                
                                
                                $
                                101,092Investments-restricted
                                
                                
                                1,857
                                
                                
                                
                                1,857Accounts
      receivable, net
                                
                                
                                3,160
                                
                                
                                
                                3,250Other
      current assets
                                
                                
                                12,379
                                
                                
                                
                                10,418Total
      Current Assets
                                
                                
                                131,207
                                
                                
                                
                                116,617Property
      and equipment, net
                                
                                
                                1,141,011
                                
                                
                                
                                1,146,796Debt
      issuance costs, net
                                
                                
                                3,338
                                
                                
                                
                                2,940Intangible
      and other assets
                                
                                
                                23,180
                                
                                
                                
                                22,606Total
      Assets
                                
                                $
                                1,298,736
                                
                                
                                $
                                1,288,959Liabilities
      and Members' EquityCurrent
      Liabilities:Accounts
      payable
                                
                                $
                                4,515
                                
                                
                                $
                                3,236Accrued
      expenses
                                
                                
                                28,844
                                
                                
                                
                                18,646Accounts
      payable and accrued expenses - related party
                                
                                
                                49
                                
                                
                                
                                200Accrued
      payroll and related expenses
                                
                                
                                11,031
                                
                                
                                
                                10,818Current
      portion of capital lease obligations
                                
                                
                                265
                                
                                
                                
                                263Total
      Current Liabilities
                                
                                
                                44,704
                                
                                
                                
                                33,163Long-Term
      Liabilities:Long-term
      debt, net of unamortized discount
                                
                                
                                352,432
                                
                                
                                
                                351,436Capital
      lease obligations, less current portion
                                
                                
                                2,127
                                
                                
                                
                                2,195Total
      Long-Term Liabilities
                                
                                
                                354,559
                                
                                
                                
                                353,631Total
      Liabilities
                                
                                
                                399,263
                                
                                
                                
                                386,794Commitments
      and ContingenciesMembers'
      Equity:Members'
      Equity
                                
                                
                                899,473
                                
                                
                                
                                902,165Total
      Members' Equity
                                
                                
                                899,473
                                
                                
                                
                                902,165Total
      Liabilities and Members' Equity
                                
                                $
                                1,298,736
                                
                                
                                $
                                1,288,959
 
 See notes
to condensed consolidated financial statements.
  1
  AMERICAN
CASINO & ENTERTAINMENT PROPERTIES LLC
 CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
  Three months ended
                      March 31, 2010
                    
                    
                    Three months ended
                      March 31, 2009(Unaudited)(In
      thousands)Revenues:Casino
                    
                    $
                    55,903
                    
                    
                    $
                    59,451Hotel
                    
                    
                    13,845
                    
                    
                    
                    14,981Food
      and beverage
                    
                    
                    17,022
                    
                    
                    
                    18,646Tower,
      retail and other
                    
                    
                    7,291
                    
                    
                    
                    8,192Gross
      revenues
                    
                    
                    94,061
                    
                    
                    
                    101,270Less
      promotional allowances
                    
                    
                    6,288
                    
                    
                    
                    7,580Net
      revenues
                    
                    
                    87,773
                    
                    
                    
                    93,690Costs
      And Expenses:Casino
                    
                    
                    17,168
                    
                    
                    
                    18,927Hotel
                    
                    
                    8,157
                    
                    
                    
                    8,311Food
      and beverage
                    
                    
                    12,858
                    
                    
                    
                    13,254Other
      operating expenses
                    
                    
                    3,030
                    
                    
                    
                    3,449Selling,
      general and administrative
                    
                    
                    26,828
                    
                    
                    
                    28,856Depreciation
      and amortization
                    
                    
                    10,612
                    
                    
                    
                    9,902Pre-opening
      costs
                    
                    
                    154
                    
                    
                    
                    -(Gain)
      loss on sale of assets
                    
                    
                    (19
                    )
                    
                    
                    15Management
      fee - related party
                    
                    
                    375
                    
                    
                    
                    750Total
      costs and expenses
                    
                    
                    79,163
                    
                    
                    
                    83,464Income
      From Operations
                    
                    
                    8,610
                    
                    
                    
                    10,226Other
      Income (Expense):Interest
      income
                    
                    
                    4
                    
                    
                    
                    40Interest
      expense
                    
                    
                    (11,306
                    )
                    
                    
                    (675
                    )Interest
      expense - related party
                    
                    
                    -
                    
                    
                    
                    (11,196
                    )Total
      other expense, net
                    
                    
                    (11,302
                    )
                    
                    
                    (11,831
                    )Net
      Loss
                    
                    $
                    (2,692
                    )
                    
                    $
                    (1,605
                    )
 
 See notes
to condensed consolidated financial statements.
  2
  AMERICAN
CASINO & ENTERTAINMENT PROPERTIES LLC
 CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
 Threemonthsended
                                      March31,2010
                                    
                                    
                                    Threemonthsended
                                      March31,2009(Unaudited)(In
      thousands)Cash
      Flows From Operating Activities:Net
      loss
                                    
                                    $
                                    (2,692
                                    )
                                    
                                    $
                                    (1,605
                                    )Adjustments
      to reconcile net loss to net cash provided by operating
      activities:Depreciation
      and amortization
                                    
                                    
                                    10,612
                                    
                                    
                                    
                                    9,902Amortization
      of debt issuance costs
                                    
                                    
                                    1,179
                                    
                                    
                                    
                                    1,959(Gain)
      loss on sale of assets
                                    
                                    
                                    (19
                                    )
                                    
                                    
                                    15Changes
      in operating assets and liabilities:Restricted
      Cash
                                    
                                    
                                    -
                                    
                                    
                                    
                                    12,496Accounts
      receivable, net
                                    
                                    
                                    90
                                    
                                    
                                    
                                    457Other
      assets
                                    
                                    
                                    (1,945
                                    )
                                    
                                    
                                    (584
                                    )Accounts
      payable and accrued expenses
                                    
                                    
                                    10,511
                                    
                                    
                                    
                                    (5,903
                                    )Related
      party activity, net
                                    
                                    
                                    (151
                                    )
                                    
                                    
                                    39Net
      Cash Provided by Operating Activities
                                    
                                    
                                    17,585
                                    
                                    
                                    
                                    16,776Cash
      Flows From Investing Activities:Acquisition
      of property and equipment
                                    
                                    
                                    (4,423
                                    )
                                    
                                    
                                    (3,625
                                    )Increase
      in intangible assets
                                    
                                    
                                    (338
                                    )
                                    
                                    
                                    -Proceeds
      from sale of property and equipment
                                    
                                    
                                    70
                                    
                                    
                                    
                                    55Net
      Cash Used in Investing Activities
                                    
                                    
                                    (4,691
                                    )
                                    
                                    
                                    (3,570
                                    )Cash
      Flows From Financing Activities:Debt
      issuance costs
                                    
                                    
                                    (109
                                    )
                                    
                                    
                                    -Payments
      on capital lease obligation
                                    
                                    
                                    (66
                                    )
                                    
                                    
                                    (90
                                    )Net
      Cash Used in Financing Activities
                                    
                                    
                                    (175
                                    )
                                    
                                    
                                    (90
                                    )Net
      increase in cash and cash equivalents
                                    
                                    
                                    12,719
                                    
                                    
                                    
                                    13,116Cash
      and cash equivalents - beginning of period
                                    
                                    
                                    101,092
                                    
                                    
                                    
                                    30,366Cash
      and cash equivalents - end of period
                                    
                                    $
                                    113,811
                                    
                                    
                                    $
                                    43,482Supplemental
      Disclosures of Cash Flow Information:Cash
      paid during the period for interest, net of amounts
      capitalized
                                    
                                    $
                                    40
                                    
                                    
                                    $
                                    28Cash
      paid during the period for interest - related party, net of amounts
      capitalized
                                    
                                    $
                                    -
                                    
                                    
                                    $
                                    10,185Supplemental
      Disclosures of Non-Cash Items:Accrued
      intangible assets
                                    
                                    $
                                    707
                                    
                                    
                                    $
                                    -Accrued
      debt issuance costs
                                    
                                    $
                                    472
                                    
                                    
                                    $
                                    -
 
 See notes
to condensed consolidated financial statements.
  3
  AMERICAN
CASINO & ENTERTAINMENT PROPERTIES LLC
 CONDENSED
CONSOLIDATED STATEMENT OF MEMBERS’ EQUITY
 (Unaudited)
 (In
thousands)
 
 Class A
                      Equity
                    
                    
                    Class B
                      Equity
                    
                    
                    TotalEquityBalances
      at December 31, 2009
                    
                    $
                    -
                    
                    
                    $
                    902,165
                    
                    
                    $
                    902,165Net
      loss
                    
                    
                    -
                    
                    
                    
                    (2,692
                    )
                    
                    
                    (2,692
                    )Balances
      at March 31, 2010
                    
                    $
                    -
                    
                    
                    $
                    899,473
                    
                    
                    $
                    899,473
 
 See notes
to condensed consolidated financial statements.
  4
  AMERICAN
CASINO & ENTERTAINMENT PROPERTIES LLC
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
  Note 1.  The
Company
  American
Casino & Entertainment Properties LLC, or ACEP, was formed in Delaware on
December 29, 2003. As used in this Quarterly Report on Form 10-Q, the terms
“ACEP”, “company”, “we”, “our”, “ours”, and “us” refer to American Casino
&Entertainment Properties LLC and its subsidiaries, unless the context
suggests otherwise. ACEP is a holding company that was formed for the purpose of
acquiring the entities that own and operate the Stratosphere Casino Hotel &
Tower, or the Stratosphere, Arizona Charlie’s Decatur and Arizona Charlie’s
Boulder in Las Vegas, Nevada.  We purchased the Aquarius Casino
Resort, or the Aquarius, on May 19, 2006.  The Aquarius operates in
Laughlin, Nevada.
 
 On April
22, 2007, American Entertainment Properties Corp., or AEP, our former direct
parent, entered into a Membership Interest Purchase Agreement, or the Agreement,
with W2007/ACEP Holdings, LLC, or Holdings, an affiliate of Whitehall Street
Real Estate Funds, or Whitehall, a series of real estate investment funds
affiliated with Goldman, Sachs & Co., to sell all of our issued and
outstanding membership interests to Holdings, for approximately $1.3
billion.  Pursuant to the Assignment and Assumption Agreement, dated
December 4, 2007, between Holdings and W2007/ACEP Managers Voteco, LLC, or
Voteco, Holdings assigned all of its rights, obligations and interests under the
Agreement to Voteco. Voteco’s acquisition of ACEP, or the Acquisition, closed at
a purchase price of $1.2 billion on February 20, 2008.
 
 On
February 23, 2010, ACEP and ACEP Finance Corp., or ACEP Finance and, together
with ACEP, the Issuers, completed an exchange offer registered with the
Securities and Exchange Commission, or SEC, in which the Issuers issued
approximately $374.9 million aggregate principal amount of their 11% Senior
Secured Notes due 2014, or SEC-Registered Notes, in exchange for $374.9 million
of their outstanding, 11% Senior Secured Notes due 2014, or the Unregistered
Notes, issued in a transaction pursuant to Rule 144A and Regulation S under the
Securities Act of 1933, as amended the Securities Act. The SEC-Registered Notes
have substantially identical terms to the Unregistered Notes, except that the
SEC-Registered Notes were issued in a transaction registered under the
Securities Act. The SEC-Registered Notes and the Unregistered Notes are
collectively referred to herein as the 11% Senior Secured
Notes.
  Note 2.  Basis of
Presentation
  The
accompanying condensed consolidated financial statements included herein have
been prepared by ACEP, without audit, in accordance with the accounting
policies described in our 2009 audited consolidated financial statements and
pursuant to the rules and regulations of the SEC. Certain information and
footnote disclosures normally included in financial statements, prepared in
accordance with accounting principles generally accepted in the United States,
have been condensed or omitted pursuant to such rules and regulations. We
believe that the disclosures are adequate to make the information presented not
misleading. In the opinion of management, the accompanying condensed
consolidated financial statements include all adjustments (consisting only of
those of a normal recurring nature), which are necessary for a fair presentation
of the results for the interim periods presented. Interim results are not
necessarily indicative of results to be expected for any future interim period
or for the entire fiscal year.
 
 These
condensed consolidated financial statements should be read in conjunction with
the notes to the 2009 consolidated audited financial statements presented in our
annual report on Form 10-K for the year ended December 31, 2009, filed with the
SEC on March 22, 2010 (SEC File No. 000-52975). Our reports are available
electronically by visiting the SEC website at http://www.sec.gov.
You may also visit the investor relations section of the American Casino &
Entertainment Properties LLC website at http://www.acepllc.com.
 
 Principles
of Consolidation
 
 The
condensed consolidated financial statements include the accounts of ACEP and its
wholly-owned subsidiaries. All material intercompany balances and transactions
have been eliminated in consolidation.
  5
 
 Recently
Issued Accounting Pronouncements
 
 In
January 2010, the Financial Accounting Standards Board, or FASB, issued guidance
that clarifies and requires new disclosures about fair value measurements in
Accounting Standards Codification, or ASC 815, Derivatives andHedging,subtopic 10-50-4B
for derivative instruments and ASC 320, Investments – Debts and Equity
Securities, subtopic 10-50-1B for debt and equity securities. The
clarifications and requirement to disclose the amount and reasons for
significant transfers in and out of Level 1 and Level 2, as well as significant
transfers in and out of Level 3 of the fair value hierarchy were adopted by us
in the first quarter of 2010.  The new guidance also requires that
purchases, sales, issuances and settlements be presented gross in the Level 3
reconciliation and that requirement is effective for the fiscal years beginning
after December 15, 2010 and for interim periods within those years, with early
adoption permitted. We early adopted the disaggregation guidance on January 1,
2010. Since this new guidance only amends the disclosures requirements, it did
not impact our consolidated balance sheet, statement of operations or statement
of cash flows.
 
 Reclassifications
 
 Certain
reclassifications have been made to the prior year’s consolidated financial
statements to conform to the current fiscal year presentation. For the three
months ended March 31, 2009 we have reclassified the estimated cost of providing
complimentaries included in casino, hotel, food and beverage, other operating
expenses and selling, general and administrative expenses.  These
reclassifications had no effect on net loss.
 
 Note
3. Related Party Transactions
  On
February 20, 2008, in connection with the closing of the Acquisition,
certain of our wholly owned indirect subsidiaries obtained term loans in an
aggregate amount of approximately $1.1 billion, or the Goldman Term Loans,
from Goldman Sachs Mortgage Company, or GSMC, pursuant to certain mortgage and
mezzanine loan agreements. On June 25, 2009, the Goldman Term Loans were
restructured and, as a result of such restructuring, we became party to a loan
with GSMC in the original principal amount of $350 million, or the 2014 Term
Loans. We paid interest on the Goldman Term Loans of approximately $9.9 million
for the three months ended March 31, 2009.
 
 On August
14, 2009, we issued an aggregate principal amount of $375 million of
Unregistered Notes. Goldman, Sachs & Co., or Goldman Sachs, was the
initial purchaser of the Unregistered Notes. We used the gross proceeds
from the offering of the 11% Senior Secured Notes, approximately $311.3 million,
to repay the 2014 Term Loans, which were held by GSMC, an affiliate of Goldman
Sachs and Whitehall 2007, owners of a majority of our indirect
interests. Upon such payment, the remaining balance of 2014 Term Loans was
forgiven by GSMC.  Due to the related party nature of the transaction, the
difference between the carrying amount of the 2014 Term Loans and the aggregate
principal amount of the Unregistered Notes was credited directly to Members
Equity. Goldman Sachs has advised us that they intend to make a market in
the 11% Senior Secured Notes.
 
 As of
November 29, 2007, the Stratosphere entered into a master room agreement with
Consolidated Resorts, Inc., or CRI, which was effective from January 1, 2008
through December 31, 2008. Even though it had expired, the parties continued to
operate under the agreement in a month-to-month arrangement. CRI was
approximately 75% owned by Whitehall. Whitehall is affiliated with Holdings, the
100% holder of our Class B membership interests, and Goldman Sachs. On July 10,
2009, CRI filed under Chapter 7 of the U.S. Bankruptcy Code in United States
Bankruptcy Court for the District of Nevada, and it is therefore unlikely that
we will be able to collect amounts owed to us by CRI. We no longer have a
relationship with CRI and it is no longer a related party. Under the agreement,
CRI purchased a minimum number, which varied by month, of room nights from the
Stratosphere. In addition, CRI was required to purchase promotional incentives
such as show, restaurant and gaming packages for each guest. Revenues for
promotional incentives are included in Casino revenues, Food and beverage
revenues and Tower, retail and other revenues. There was also a sales incentive
component whereby CRI was to pay us a fee for the resultant of net timeshare
sales generated by CRI guests divided by total monthly tours solicited at the
property when in excess of $2,499 per solicited tour. There were no sales
incentives earned during the three months ended March 31, 2009.  We
received approximately $316,000 in Hotel revenues, $35,000 in Casino revenues,
$51,000 in Food and beverage revenues, and $125,000 in Tower, retail, and other
revenues for the three months ended March 31, 2009. CRI also leased space from
the Stratosphere for three marketing kiosks. The lease agreement was effective
from July 1, 2008 through September 30, 2011. The base rent was $125,000 per
month plus common area maintenance charges. The Stratosphere received additional
rent for tours over 1,250 guests per month that originate from the Stratosphere.
Stratosphere received Tower, retail and other revenues of $375,000 for rent
under the lease agreement for the three months ended March 31, 2009. CRI owed us
$184,000 as of March 31, 2010 and December 31, 2009, which is fully reserved on
the condensed consolidated balance sheets.
  6
 
 On
February 20, 2008, we entered into a consulting agreement with Highgate Hotels,
L.P., or Highgate, pursuant to which Highgate provides asset management
consulting services to us.
Highgate owns a less than 5% membership interest in Holdings.The
agreement was amended to reduce fees payable thereunder on June 25, 2009
and Highgate converted amounts due them from ACEP to contributed capital in
Holdings. The consulting agreement expires on June 20,
2013.  Highgate is entitled to receive a $1.5 million per year base
consulting fee for the periods through February 20, 2011 and a $1.0 million
per year consulting fee for the periods after February 20, 2011, additional
consulting fees up to $500,000 per year for periods after February 20, 2011
based on EBITDA results at the properties and development fees at 4% of the
aggregate costs of any agreed upon development projects. We incurred Highgate
fees of approximately $375,000 and $750,000 for the three months ended March 31,
2010 and March 31, 2009, respectively. We incurred no development fees for both
the three months ended March 31, 2010 and March 31, 2009. As of March 31, 2010
and December 31, 2009, we owed Highgate approximately $0 and $192,000,
respectively.
 
 On June
16, 2008, we entered into an agreement with Travel Tripper LLC, or TTL, to
utilize their technology for online hotel reservations. TTL is owned by an
affiliate of Goldman Sachs (9%), an affiliate of Highgate (9%) and an employee
of Highgate (40%). TTL is paid 4% of room revenues booked utilizing its system.
We expensed fees of approximately $102,000 and $179,000 for the three months
ended March 31, 2010 and March 31, 2009, respectively.  As of March
31, 2010 and December 31, 2009, we owed TTL approximately $41,000 and $6,000,
respectively.
 
 Archon
Group, LP, or Archon, an affiliate of Goldman Sachs, provides various services
to us such as construction management, cash management and insurance
brokers.  We expensed fees of approximately $23,000 and $1,000 for the
three months ended March 31, 2010 and March 31, 2009, respectively. As of March
31, 2010 and December 31, 2009, we owed Archon approximately $4,000 and $1,000,
respectively. Additionally, Archon was the administrative agent under the 2014
Term Loans.
 
 On
October 3, 2008, we entered into a participation agreement with Nor1, Inc., or
Nor1, to utilize their technology to help sell perishable suite and room
inventories. Nor1 gives the guest who books on-line the opportunity to book
a non-guaranteed suite or upgraded rooms at a discounted rate if such is
available at check-in. If the suite or upgraded room is awarded, Nor1 is
paid 25% of the upgrade fee. Goldman Sachs owns less than 5% of Nor1. We
expensed fees of approximately $12,000 and $7,000 for the three months ended
March 31, 2010 and March 31, 2009, respectively. As of March 31, 2010 and
December 31, 2009, we owed Nor1 $4,000 and $1,000, respectively.
 
 We follow
a related party transaction approval policy for reviewing related person
transactions. These procedures are intended to ensure that transactions with
related persons are fair to us and in our best interests. If a proposed
transaction appears to or does involve a related person, the transaction is
presented to our audit committee for review. The audit committee is authorized
to retain and pay such independent advisors as it deems necessary to properly
evaluate the proposed transaction, including, without limitation, outside legal
counsel and financial advisors to determine the fair value of the
transaction.
 
 Note
4. Intangible Assets
 
 We
account for intangible assets in accordance with FASB ASC 350, Goodwill and Intangible
Assets.
 
 Our
finite-lived acquired intangible assets include our player loyalty plan and
a non-compete agreement. Our infinite-lived acquired intangible assets include
trade names.  Acquired assets are recorded at fair value on the date
of acquisition and finite-lived assets are amortized over the estimated period
to be benefited.
 
 As of
March 31, 2010 and December 31, 2009, we had the following intangible
assets.
  7
 
 (in thousands)March 31, 2010
                                    
                                    
                                    December 31, 2009(Unaudited)Gross
                                    
                                    
                                    
                                    
                                    
                                    Net
                                    
                                    
                                    Gross
                                    
                                    
                                    
                                    
                                    
                                    NetAsset
                                    
                                    Carrying
                                    
                                    
                                    Accumulated
                                    
                                    
                                    Carrying
                                    
                                    
                                    Carrying
                                    
                                    
                                    Accumulated
                                    
                                    
                                    CarryingAmortizing intangible assets:
                                    
                                    Life
                                    
                                    Amount
                                    
                                    
                                    Amortization
                                    
                                    
                                    Amount
                                    
                                    
                                    Amount
                                    
                                    
                                    Amortization
                                    
                                    
                                    AmountPlayer
      Loyalty Plan
                                    
                                    5
      Years
                                    
                                    $
                                    7,450
                                    
                                    
                                    $
                                    (3,103
                                    )
                                    
                                    $
                                    4,347
                                    
                                    
                                    $
                                    7,450
                                    
                                    
                                    $
                                    (2,731
                                    )
                                    
                                    $
                                    4,719Non-Compete
      Agreement
                                    
                                    38
      Months
                                    
                                    
                                    1,045
                                    
                                    
                                    
                                    (83
                                    )
                                    
                                    
                                    962
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -$
                                    8,495
                                    
                                    
                                    $
                                    (3,186
                                    )
                                    
                                    $
                                    5,309
                                    
                                    
                                    $
                                    7,450
                                    
                                    
                                    $
                                    (2,731
                                    )
                                    
                                    $
                                    4,719Non-amortizing
      intangible assets:Trade
      Name
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    $
                                    17,797
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    $
                                    17,797Total
      intangible assets
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    $
                                    23,106
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    $
                                    22,516
 
 Note
5. Debt
 
 Long-term
debt and capital lease obligations consist of the following:
 As of
                        
                        
                        As ofMarch 31, 2010
                        
                        
                        December 31, 2009(Unaudited)(In
      thousands)11%
      Senior Secured Notes due June 15, 2014
                        
                        $
                        375,000
                        
                        
                        $
                        375,000Unamortized
      discount
                        
                        
                        (22,568
                        )
                        
                        
                        (23,564
                        )Capital
      lease obligations
                        
                        
                        2,392
                        
                        
                        
                        2,458Total
      long-term debt and capital lease obligations
                        
                        
                        354,824
                        
                        
                        
                        353,894Current
      portion of capital lease obligations
                        
                        
                        265
                        
                        
                        
                        263Total
      long-term debt and capital lease obligations, net
                        
                        $
                        354,559
                        
                        
                        $
                        353,631
 
 11%
Senior Secured Notes
 
 On
August 14, 2009, the Issuers issued the Unregistered Notes pursuant to the
Indenture among the Issuers, certain subsidiary guarantors and The Bank of New
York Mellon, as trustee, or the Indenture.The 11% Senior Secured
Notes mature on June 15, 2014 and bear interest at a rate of 11% per annum.
Interest is computed on the basis of a 360-day year composed of twelve 30-day
months and is payable semi-annually on June 15 and December 15 of each
year, beginning on December 15, 2009. The obligations are jointly,
severally and unconditionally guaranteed by all of the subsidiaries of ACEP
other than ACEP Finance and will be so guaranteed by any future domestic
subsidiaries of ACEP, subject to certain exceptions. The 11% Senior Secured
Notes are collateralized by substantially all fee and leasehold real property
comprising the Stratosphere, the Aquarius, Arizona Charlie’s Decatur and Arizona
Charlie’s Boulder.
 
 On
February 23, 2010, the Issuers completed an exchange offer registered with the
SEC in which the Issuers issued approximately $374.9 million aggregate principal
amount of their SEC-Registered Notes in exchange for $374.9 million of their
Unregistered Notes. The SEC-Registered Notes have substantially identical terms
to the Unregistered Notes, except that the SEC-Registered Notes were issued in a
transaction registered under the Securities Act.
 
 In
accordance with positions established by the SEC, separate financial information
with respect to the parent, co-issuer, guarantor subsidiaries and non-guarantor
subsidiaries is not required as the parent and co-issuer have no independent
assets or operations, the guarantees are full and unconditional and joint and
several, and the total assets, stockholders’ equity, revenues, income from
operations before income taxes and cash flows from operating activities of the
non-guarantor subsidiaries is less than 3% of ACEP’s consolidated
amounts.
  8
 
 The gross
proceeds from the issuance of the Unregistered Notes, approximately $311.3
million, were used to repay a portion of the then outstanding balance of the
2014 Term Loans.  Upon such payment, the remaining balance of the 2014
Term Loans was forgiven by GSMC. We increased Members’ Equity by $215.6 million
for the gain on debt extinguishment.
 
 The fair
value of our debt is estimated based on market prices for the same or similar
issues. We issued the Unregistered Notes on August 14, 2009. The estimated fair
value of the 11% Senior Secured Notes was approximately $328.1 million as of
March 31, 2010.
 
 On or
after June 15, 2012,  the Issuers may redeem all or a part of the
11% Senior Secured Notes at the redemption prices set forth in the Indenture,
plus accrued and unpaid interest to the applicable redemption date. In addition,
at any time prior to June 15, 2012, the Issuers may, on one or more than
one occasion, redeem some or all of the 11% Senior Secured Notes at a redemption
price equal to 100% of the principal amount of the 11% Senior Secured Notes
redeemed, plus a “make-whole” premium, and accrued and unpaid interest to the
applicable redemption date. At any time prior to June 15, 2012, we may also
redeem up to 35% of the aggregate principal amount of the 11% Senior Secured
Notes, using the proceeds of certain qualified equity offerings, at a redemption
price of 111% of the principal amount thereof, plus accrued and unpaid interest
to the applicable redemption date.  We may, not more than once in any
12-month period ending on June 15, 2010, 2011 and 2012, redeem up to 5% of the
original aggregate principal amount of the 11% Senior Secured Notes at a
redemption price equal to 102% of the principal amount of the 11% Senior Secured
Notes redeemed plus accrued and unpaid interest to the applicable redemption
date.
 
 If
certain change of control events occur as specified in the Indenture, we must
offer to repurchase the 11% Senior Secured Notes at a repurchase price equal to
101% of the principal amount of the 11% Senior Secured Notes repurchased, plus
accrued and unpaid interest to the applicable repurchase date.
 
 If ACEP
or its subsidiaries sell assets under certain circumstances or experience
certain events of loss, we must offer to repurchase the 11% Senior Secured Notes
at a repurchase price equal to 100% of the principal amount of the Notes
repurchased, plus accrued and unpaid interest to the date of purchase,
prepayment or redemption, as the case may be.
 
 We are
bound by certain covenants contained and defined in the Indenture that requires
us to file quarterly and annual reports, and among other things, restricts our
ability to:
 
 •
              declare
      or pay dividends and distributions on our equity interests, purchase,
      redeem, or otherwise retire for value any equity interest, make payments
      on debt, or make investments;
 
 •
              incur
      indebtedness or issue preferred
stock;
 
 •
              sell,
      create liens, or otherwise encumber our assets or equity interests;
      and
 
 •
              enter
      into transactions with affiliates.
 
 These
covenants contained in the Indenture are subject to a number of important
limitations and exceptions.
 
 The
Indenture provides for events of default, including, but not limited to, cross
defaults to certain other debt of ACEP and its subsidiaries. In the case of an
event of default arising from specified events of bankruptcy or insolvency, all
outstanding 11% Senior Secured Notes will become due and payable immediately
without further action or notice. Management believes that we are in compliance
with the provisions of the Indenture as of quarter end and the date of this
filing.
  9
 
 Note
6. Legal Proceedings
 
 We are,
from time to time, a party to various legal proceedings arising out of our
businesses.  We believe, however, there are no proceedings pending or
threatened against us, which, if determined adversely, would have a material
adverse effect upon our financial conditions, results of operations or
liquidity.
  10
  Item
2.    Management’s Discussion and Analysis of Financial
Condition and Results of Operations
 
 With the
exception of historical facts, the matters discussed in this quarterly report on
Form 10-Q are forward looking statements. Forward-looking statements may relate
to, among other things, future actions, future performance generally, business
development activities, future capital expenditures, strategies, the outcome of
contingencies such as legal proceedings, future financial results, financing
sources and availability and the effects of regulation and competition. When we
use the words “believe”, “intend”, “expect”, “may”, “will”, “should”,
“anticipate”, “could”, “estimate”, “plan”, “predict”, “project”, or their
negatives, or other similar expressions, the statements which include those
words are usually forward-looking statements. When we describe strategy that
involves risks or uncertainties, we are making forward-looking
statements.
 
 These
forward-looking statements are based on the current plans and expectations of
our management and are subject to certain risks and uncertainties that could
cause actual results to differ materially from historical results or those
anticipated. These factors include, but are not limited to: the size of our
indebtedness, our indebtedness' effect on our business, the adverse effect of
government regulation and other matters affecting the gaming industry, increased
operating costs of our properties, increased competition in the gaming industry,
adverse effects of economic downturns and terrorism, our failure to make
necessary capital expenditures, increased costs associated with our growth
strategy, the loss of key personnel, risks associated with geographical market
concentration, our failure to satisfy our working capital needs from operations
or our indebtedness, our inability to raise additional money, our dependence on
water, energy and technology services, adverse effects of increasing energy
costs, and the availability of and costs associated with potential sources of
financing.
 
 You
should also read, among other things, the risks and uncertainties described in
the section entitled Risk Factors in Item 1A of our annual report on Form 10-K,
filed with the SEC on March 22, 2010 (SEC File No. 000-52975).
 
 We
warn you that forward-looking statements are only predictions. Actual events or
results may differ as a result of risks that we face. Forward-looking statements
speak only as of the date they were made, and we undertake no obligation to
update them.
 
 The
following discussion contains management’s discussion and analysis of financial
condition and results of operations. Management’s discussion and analysis should
be read in conjunction with “Item 1. Financial Statements” of this quarterly
report on Form 10-Q and Management’s Discussion and Analysis of Financial
Condition and Results of Operations presented in our annual report on Form 10-K
for the year ended December 31, 2009.
 
 Overview
 
 We own
and operate four gaming and entertainment properties in Clark County, Nevada.
The four properties are the Stratosphere Casino Hotel & Tower, or the
Stratosphere, which is located on the Las Vegas Strip and caters to visitors to
Las Vegas, two off-Strip casinos, Arizona Charlie's Decatur and Arizona
Charlie's Boulder, which cater primarily to residents of Las Vegas and the
surrounding communities, and the Aquarius Casino Resort, in Laughlin, Nevada, or
the Aquarius, which caters to visitors to Laughlin. The Stratosphere is one of
the most recognized landmarks in Las Vegas, our two Arizona Charlie’s properties
are well-known casinos in their respective marketplaces and the Aquarius has the
largest hotel by number of rooms in Laughlin. Each of our properties offers
customers a value-oriented experience by providing competitive odds in our
casinos, quality rooms in our hotels, award-winning dining facilities and, at
the Stratosphere and Aquarius, an offering of competitive value-oriented
entertainment attractions. We believe the value we offer our patrons, together
with a strong focus on customer service, will enable us to continue to attract
customers to our properties.
 
 Our
operating results are greatly dependent on the volume of customers at our
properties, which in turn affects the price we can charge for our non-gaming
amenities. A substantial portion of our operating income is generated from our
gaming operations, more specifically slot play. The majority of our revenue is
cash based through customers wagering with cash or paying for non-gaming
amenities with cash or credit card.  Because our business is capital
intensive, we rely heavily on the ability of our properties to generate
operating cash flow to repay debt financing, fund maintenance capital
expenditures and provide excess cash for future development.
  11
 
 Las Vegas
is one of the largest entertainment markets in the country. Las Vegas hotel
occupancy rates are among the highest of any major market in the United States.
We believe that the Las Vegas gaming market has two distinct sub-segments: the
tourist market, which tends to be concentrated on the Las Vegas Strip and
Downtown Las Vegas, and the local market, which includes the surrounding Las
Vegas area.
 
 According
to the Las Vegas Convention and Visitors Authority, or LVCVA, the number of
visitors traveling to Las Vegas has increased over the last ten years from 33.8
million visitors in 1999 to 36.4 million visitors in 2009, a compound annual
growth rate of approximately 1.0%. The number of hotel and motel rooms in Las
Vegas has increased from 120,294 at the end of 1999 to 148,941 at the end of
2009, a compound annual growth rate of 2.2%, giving Las Vegas the most hotel and
motel rooms of any metropolitan area in the world. Despite this significant
increase in the supply of rooms, the Las Vegas hotel occupancy rate exceeded 88%
for each of the years from 1999 through 2008, but fell to 85.3% for 2009, its
lowest level since 1991.
 
 Las Vegas
continued to see declines in tourism in 2009 as the continued economic recession
and high level of unemployment dampen business and consumer’s willingness to
spend on travel and entertainment. According to the LVCVA statistical reports,
even with attempts to stimulate demand in the slowed economy with discounted
room rates, the hotel average daily room rate, or ADR, and occupancy decreased
by approximately 22.0% and 4.5%, respectively, from the prior year.
 
 Las Vegas
Strip gaming revenues have grown as Las Vegas visitations and hotel room counts
have grown. Between 1999 and 2009, gaming revenues on the Las Vegas Strip
experienced a compound annual growth of 2.1%. Gaming revenues for 2009 totaled
approximately $6.1 billion, a 9.4% decrease from 2008, due to the combined
economic factors of the housing crisis, frozen credit markets, volatile gas
prices and increased unemployment rate that translated to reduced consumer
confidence and travel spending in Las Vegas and in much of the
country.
 
 According
to the LVCVA, Las Vegas has been the United States’ top-ranked destination for
trade shows for the last ten years. The number of trade show and convention
attendees in Las Vegas increased from approximately 3.8 million in 1999 to 4.5
million in 2009, representing a compound annual growth rate of
6.0%.  However convention attendance fell 23.9% during 2009 compared
to 2008.
 
 We
believe that the growth in the Las Vegas tourist market has been enhanced by a
dedicated program of the LVCVA and major Las Vegas hotels to promote Las Vegas
as an exciting vacation and convention site, the increased capacity of McCarran
International Airport and the introduction of large, themed destination resorts
in Las Vegas.
 
 Nevada
has enjoyed a strong economy and demographics that include an increasing number
of retirees and other active gaming patrons. A majority of Nevada’s growth has
occurred in Las Vegas, which is located in Clark Country. The population of
Clark County has grown from 1,327,145 in 1999 to an estimated 1,952,920 in 2009,
a compound annual growth rate of 4.6%. In comparison, the United States
population increased at a compound annual growth rate of 1.0% during this
period. In 2008, median household income in Clark County was $56,954, compared
with the national median household income of $52,175.
 
 From 2008
to 2009, it is estimated that Las Vegas experienced a 0.8% decrease in
population, likely the result of the combined economic factors of the local
housing crisis and increased foreclosures. Frozen credit markets, volatile gas
prices and increased unemployment contributed to a reduction of consumer
confidence and spending in Las Vegas.
 
 The
Laughlin area economy is primarily dependent on the gaming and tourism industry.
Visitor volume and occupancy rates have declined on an annual basis over the
past several years while the number of hotel rooms has remained fairly constant.
The declining trend in these primary indicators began in 1994 after nearly
10 years of economic growth in the area’s primary industry. The Laughlin
gaming market consists of approximately 10,700 rooms and its gaming revenue for
2009 was $493 million, down 13.7% from 2008.
  12
  We use
certain key measurements to evaluate operating revenue.  Casino
revenue measurements include “table games drop” and “slot coin-in,” which are
measures of the total amounts wagered by patrons. Win or hold percentage
represents the percentage of table games drop or slot coin-in that is retained
by the casino and recorded as casino revenue.  Hotel revenue
measurements include hotel occupancy rate, which is the average percentage of
available hotel rooms occupied during a period, and average daily room rate,
which is the average price of occupied rooms per day.  Food and
beverage revenue measurements include number of covers, which is the number of
guests served, and the average check amount per guest.
 
 Results
of Operations
 
 The following table
sets forth the results of our operations for the periods
indicated.
  Three months
                      ended
                    
                    
                    Three months
                      endedMarch 31, 2010
                    
                    
                    March 31, 2009(in millions)Income
      Statement Data:Revenues:Casino
                    
                    $
                    55.9
                    
                    
                    $
                    59.5Hotel
                    
                    
                    13.9
                    
                    
                    
                    15.0Food
      and beverage
                    
                    
                    17.0
                    
                    
                    
                    18.6Tower,
      retail and other
                    
                    
                    7.3
                    
                    
                    
                    8.2Gross
      revenues
                    
                    
                    94.1
                    
                    
                    
                    101.3Less
      promotional allowances
                    
                    
                    6.3
                    
                    
                    
                    7.6Net
      revenues
                    
                    
                    87.8
                    
                    
                    
                    93.7Costs
      and expenses:Casino
                    
                    
                    17.2
                    
                    
                    
                    18.9Hotel
                    
                    
                    8.2
                    
                    
                    
                    8.3Food
      and beverage
                    
                    
                    12.9
                    
                    
                    
                    13.3Other
      operating expenses
                    
                    
                    3.0
                    
                    
                    
                    3.4Selling,
      general and administrative
                    
                    
                    27.1
                    
                    
                    
                    29.6Pre-opening
      costs
                    
                    
                    0.2
                    
                    
                    
                    -Depreciation
      and amortization
                    
                    
                    10.6
                    
                    
                    
                    9.9Total
      costs and expenses
                    
                    
                    79.2
                    
                    
                    
                    83.4Income
      from operations
                    
                    $
                    8.6
                    
                    
                    $
                    10.3EBITDA
      Reconciliation:Net
      income (loss)
                    
                    $
                    (2.7
                    )
                    
                    $
                    (1.6
                    )Interest
      income
                    
                    
                    -
                    
                    
                    
                    -Interest
      expense
                    
                    
                    11.3
                    
                    
                    
                    11.8Depreciation
      and amortization
                    
                    
                    10.6
                    
                    
                    
                    9.9EBITDA
                    
                    $
                    19.2
                    
                    
                    $
                    20.1
 
 We
believe that our presentation of EBITDA is an important supplemental measure of
our operating performance to investors. EBITDA is a commonly used measure of
performance in our industry which we believe, when considered with measures
calculated in accordance with United States Generally Accepted Accounting
Principles (GAAP), gives investors a more complete understanding of operating
results before the impact of investing and financing transactions and income
taxes and facilitates comparisons between us and our competitors. Although
EBITDA is a non-GAAP measure, we believe this measure will be used by investors
in their assessment of our operating performance and the valuation of our
company.
  13
 
 Three
Months Ended March 31, 2010 Compared to Three Months Ended March 31,
2009
 
 Our
consolidated gross revenues decreased 7.1% to $94.1 million for the three months
ended March 31, 2010 from $101.3 million for the three months ended March 31,
2009. Generally weak economic conditions, increased personal and business
bankruptcies, increased unemployment, difficult consumer credit markets,
reductions in airline capacity and passenger volumes to Las Vegas’ McCarran
International Airport, and declining consumer confidence have all precipitated
an economic slowdown which has negatively impacted our operations. In addition,
the high level of unemployment and declining real estate values in Clark County,
Nevada have had a significant negative impact on our properties which cater to
local customers. In addition, the Las Vegas Strip has experienced a 5.8%
increase in supply of hotel rooms that has negatively impacted room rates and
occupancy throughout Las Vegas, despite the Las Vegas Convention and Visitors
Authority reports of year-over-year increases in visitation. The State of Nevada
has also reported year-over-year increases in gaming revenue in Las Vegas. Much
of that year-over-year increase has occurred in baccarat which is popular with
the high end segment of the gaming market. We do not market to or attract the
high end segment and do not offer baccarat at our casinos.
 
 Our
consolidated income from operations decreased 16.5% to $8.6 million for the
three months ended March 31, 2010 as compared to $10.3 million for the three
months ended March 31, 2009. The decrease is due to a decrease in revenues as a
result of the general economic slowdown and increase in rooms in Las Vegas
discussed above.  As a result, our consolidated operating margin
decreased to 9.6% for the three months ended March 31, 2010 from 11.0% for the
three months ended March 31, 2009. Our EBITDA for the three months ended March
31, 2010 decreased 4.5% to $19.2 million compared to $20.1 million for the three
months ended March 31, 2009. The business environment in Southern Nevada
continues to be difficult. We continue to look at ways to improve our business
and become more efficient. As a result of these efforts, we reported a
consolidated EBITDA margin (EBITDA/Net revenue) of 21.9% for the three months
ended March 31, 2010 compared to an EBITDA margin of 21.5% for the three months
ended March 31, 2009.
 
 Both our
income from operations and EBITDA were affected by our declining revenues;
however, we also incurred expenses that we did not incur in the three months
ended March 31, 2009. During the three months ended March 31, 2010, we incurred
pre-opening expenses of approximately $154,000 related to Sky Jump Las Vegas,
which is a harnessed “controlled free-fall” from the top of the Stratosphere
Tower. We also expensed approximately $252,000 to appeal our property taxes and
we accrued approximately $200,000 to our discretionary bonus pool, which we will
continue to evaluate throughout the year.
 
 Casino
 
 Casino
revenues consist of revenues from slot machines, table games, poker, race and
sports book, bingo and keno. Casino revenues decreased 6.1% to $55.9 million for
the three months ended March 31, 2010, compared to $59.5 million for the three
months ended March 31, 2009.  This decrease was primarily due to a
5.5% decrease in slot coin-in and a 9.9% decrease in table drop.  For
the three months ended March 31, 2010, slot machine revenues were 83.7% of
casino revenues, and table game revenues were 12.2% of casino revenues, compared
to 84.4% and 11.4% of casino revenues, respectively, for the three months ended
March 31, 2009.  Other casino revenues, consisting of race and sports
book, poker, bingo and keno, decreased 8.0% for the three months ended March 31,
2010 compared to the three months ended March 31, 2009.  Higher race
and sports book revenues, driven by a 2.2% higher hold percentage were offset by
lower bingo, poker, and keno revenues.  Casino operating expenses
decreased 9.0% to $17.2 million, for the three months ended March 31, 2010, from
$18.9 million for the three months ended March 31, 2009. This decrease was
primarily due to decreased labor costs, participation expenses and revenue tax
expenses.  Participation expense consists of fees paid to game owners
for use of their games.
 
 Hotel
 
 Hotel
revenues decreased 7.3% to $13.9 million for the three months ended March 31,
2010 from $15.0 million for the three months ended March 31,
2009.  The decrease in revenues is primarily the result of lower
occupancy for the Stratosphere and Arizona Charlie’s properties and a decreased
average daily room rate at the Stratosphere and Arizona Charlie’s
Decatur.  Overall room occupancy fell to 66.0% for the three months
ended March 31, 2010 compared to 68.8% for the three months ended March 31, 2009
and the average daily room rate decreased 3.0% for the three months ended March
31, 2010 compared to the three months ended March 31, 2009. The decrease in
both occupancy and average daily room rate at our Las Vegas properties is
primarily a result of sharp decreases in rates across our markets, an increase
in Las Vegas citywide room inventories, lower numbers of invited casino guests
and an increased reliance on wholesale room sales.  Due to our focus
on profitable promotions, revenue from complimentary room sales has fallen more
sharply than cash room sales. Our comp room sales decreased 25.1% and our cash
room sales decreased 5.2% for the three months ended March 31, 2010 compared to
the three months ended March 31, 2009. Our hotel expenses were down 1.2% to
$8.2 million for the three months ended March 31, 2010, compared to $8.3 million
for the three months ended March 31, 2009. The Stratosphere, which accounts
for approximately 50% of our 4,895 rooms, maintained occupancy of 84.3% for the
three months ended March 31, 2010 compared to 90.2% for the three months ended
March 31, 2009.  Due to the relatively stable occupancy and the need
to maintain guest service, we have not significantly reduced our hotel expenses
year-over-year at the Stratosphere.  In addition, our hotel expenses
were impacted by a 40.8% increase in commissions paid to wholesalers and brokers
for room sales. Due to the decline in revenues, our hotel operating margin
decreased to 40.6% for the three months ended March 31, 2010 as compared to
44.7% for the three months ended March 31, 2009.
  14
 
 Food
& Beverage
 
 Food and
beverage revenues decreased 8.6% to $17.0 million for the three months ended
March 31, 2010 compared to $18.6 million for the three months ended March 31,
2009.  The decline in revenues was driven largely by the reduction in
food and beverage covers at our properties. Food covers and beverage covers
for the three months ended March 31, 2010 decreased 7.3% and 8.5%, respectively,
compared to the three months ended March 31, 2009.  Average revenue
per cover for the three months ended March 31, 2010 declined 1.5% compared to
the three months ended March 31, 2009. Our food and beverage expenses
decreased 3.0% to $12.9 million for the three months ended March 31, 2010
compared to $13.3 million for the three months ended March 31, 2009 due to an
overall decrease in our food and beverage costs and payroll and related
expenses. As a result, our food and beverage operating margin decreased to
24.1% for the three months ended March 31, 2010 as compared to 28.5% for the
three months ended March 31, 2009.
 
 Tower,
Retail and Other
 
 Tower,
retail and other revenues decreased 11.0% to $7.3 million for the three months
ended March 31, 2010 from $8.2 million for the three months ended March 31,
2009. Tower revenues increased 0.7% for the three months ended March 31, 2010,
compared to the three months ended March 31, 2009.  The total number
of admissions decreased 7.6% however average revenue per admitted guest
increased 8.9% for the three months ended March 31, 2010 compared to the three
months ended March 31, 2009. Entertainment revenue declined 25.6% for the three
months ended March 31, 2010, compared to the three months ended March 31, 2009.
The decrease in revenue was due to reduced showroom occupancy at the
Stratosphere and a reduction in the number of events at the Aquarius. Retail
revenue decreased 29.8% for the three months ended March 31, 2010, compared to
the three months ended March 31, 2009.  Retail revenues declined due
to rent concessions and increased tenant vacancies.  Other operating
income increased 4.2% for the three months ended March 31, 2010, compared to the
three months ended March 31, 2009.  The increase in revenue was
primarily due to higher commission revenues.  Other operating expenses
decreased 11.8% to $3.0 million for the three months ended March 31, 2010,
compared to $3.4 million for the three months ended March 31, 2009. This
decrease was primarily due to a decrease in entertainer fees and labor
costs.  Entertainer fees declined due to the decline in entertainment
revenues and the reduction in events at the Aquarius.
 
 Promotional
Allowances
 
 Promotional
allowances are comprised of the retail value of goods and services provided to
casino patrons under various marketing programs. As a percentage of casino
revenues, promotional allowances decreased to 11.3% for the three months ended
March 31, 2010 from 12.8% for the three months ended March 31, 2009. This
decrease was primarily due to reduced marketing promotions, especially at the
Stratosphere and the Aquarius.
 
 Selling,
General and Administrative (‘‘SG&A’’)
 
 Selling,
general and administrative expenses are primarily comprised of payroll,
marketing, advertising, utilities and other administrative expenses. These
expenses decreased 8.4% to $27.1 million, or 28.8% of gross revenues, for the
three months ended March 31, 2010, compared to $29.6 million, or 29.2% of gross
revenues for the three months ended March 31, 2009. This decrease was primarily
due to lower labor costs and marketing related expenses. We also incurred
expenses of $252,000 to appeal our property taxes and we accrued $200,000 to our
discretionary management bonus pool, which we will continue to evaluate
throughout the year.
  15
 
 Pre-opening
Expense
 
 We
incurred $154,000 in pre-opening costs for the three months ended March 31,
2010.  Pre-opening costs were primarily comprised of marketing related
expenses, labor costs and supplies for Sky Jump Las Vegas.  Sky Jump
Las Vegas opened to the public on April 21, 2010.
 
 Interest
Expense
 
 Interest
expense decreased 4.2% to $11.3 million for the three months ended March 31,
2010, compared to $11.8 million for the three months ended March 31, 2009. The
decrease was due primarily to the restructuring of the Goldman Term Loans and
issuance of our 11% Senior Secured Notes.
 
 Financial
Condition
 
 Liquidity
and Capital Resources
 
 The
following liquidity and capital resources discussion contains certain
forward-looking statements with respect to our business, financial condition,
results of operations, dispositions, acquisitions, renovation projects and our
subsidiaries, which involve risks and uncertainties that cannot be predicted or
quantified, and consequently, actual results may differ materially from those
expressed or implied herein. Such risks and uncertainties include, but are not
limited to, financial market risks, the ability to maintain existing management,
competition within the gaming industry, the cyclical nature of the hotel
business and gaming business, economic conditions, regulatory matters and
litigation and other risks described in our filings with the SEC. In addition,
renovation projects entail significant risks, including shortages of materials
or skilled labor, unforeseen regulatory problems, work stoppages, weather
interference, floods, unanticipated cost increases, and disruption to business.
The anticipated costs and construction periods are based on budgets, conceptual
design documents and construction schedule estimates. There can be no assurance
that the budgeted costs or construction period will be met. All forward-looking
statements are based on our current expectations and projections about future
events.
 
 Net cash
provided by operating activities was $17.5 million for the three months ended
March 31, 2010 compared to $16.8 million for the three months ended March 31,
2009.  The primary reason for the increase was the approximate $10.5
million increase in accounts payable and accrued expenses.
 
 During
the three months ended March 31, 2010, our total capital expenditures were
$4.4 million, of which approximately $1.1 million was spent on the Sky Jump
ride, $740,000 on hotel room renovations, $400,000 on slot machine replacements
and conversions, $810,000 for renovations of our food and beverage venues and
public areas and $1.3 million on our facilities, operations and information
technology.  For the three months ended March 31, 2009, our total
capital expenditures were $3.6 million, of which approximately $1.7 million
was used on pool renovations at the Stratosphere, $656,000 for pool renovations
at the Aquarius, $290,000 to replace our phone switches and approximately
$950,000 on our facilities, operations, and information technology.
 
 Our
primary cash requirements for 2010 are expected to include (i) expenses
associated with ongoing day-to-day operations, (ii) interest payments on
indebtedness, (iii) payments for design and development costs of future
projects, and (iv) regular maintenance and other capital expenditures of
approximately $22.3 million, which will be evaluated throughout the year.
In addition, we intend to spend approximately $20.0 million to renovate hotel
rooms, corridors, and the casino floor at the Stratosphere.
 
 On
February 23, 2010, the Issuers completed an exchange offer registered with the
SEC in which the Issuers issued approximately $374.9 million aggregate principal
amount of their SEC-Registered Notes in exchange for $374.9 million of their
Unregistered Notes. The SEC-Registered Notes have substantially identical terms
to the Unregistered Notes, except that the SEC-Registered Notes were issued in a
transaction registered under the Securities Act.
 
 We
believe our cash flow from operations and our cash balances will be sufficient
to fund our operations, interest payments and capital expenditures for the next
12 months. However, our ability to fund our operations, make payments on our
debt and fund planned capital expenditures will depend on our ability to
generate cash in the future. This is subject to general economic, financial,
competitive, legislative, regulatory and other factors that are beyond our
control as well as the factors described in the section entitled Risk Factors in
Item 1A of our annual report on Form 10-K, filed with the SEC on March 22, 2010
(SEC File No. 000-52975).
  16
 
 Off-Balance
Sheet Arrangements
 
 We do not
have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of
Regulation S-K.
 
 Recently
Issued Accounting Pronouncements
 
 In
January 2010, the Financial Accounting Standards Board, or FASB, issued guidance
that clarifies and requires new disclosures about fair value measurements in
Accounting Standards Codification, or ASC 815, Derivatives and Hedging,subtopic 10-50-4B for derivative instruments and ASC 320, Investments – Debts and Equity
Securities, subtopic 10-50-1B for debt and equity
securities.  The clarifications and requirement to disclose the amount
and reasons for significant transfers in and out of Level 1 and Level 2, as well
as significant transfers in and out of Level 3 of the fair value hierarchy were
adopted by us in the first quarter of 2010.  The new guidance also
requires that purchases, sales, issuances and settlements be presented gross in
the Level 3 reconciliation and that requirement is effective for the fiscal
years beginning after December 15, 2010 and for interim periods within those
years, with early adoption permitted.  We early adopted the
disaggregation guidance on January 1, 2010.  Since this new guidance
only amends the disclosures requirements, it did not impact our consolidated
balance sheet, statement of operations or statement of cash flows.
 
 Item
3. Quantitative and Qualitative Disclosures About Market Risk
 
 Market
risk is the risk of loss arising from adverse changes in market rates and
prices, such as interest rates, foreign currency exchange rates and commodity
prices.  Our primary risk exposure relates to interest rate
risk.  All of our long-term debt is subject to fixed rates of interest
at 11% and does not mature until June 15, 2014.
 
 The fair
value of our debt is estimated based on the quoted market prices for the same or
similar issues. ACEP issued the Unregistered Notes on August 14,
2009.  The estimated fair value of the 11% Senior Secured Notes was
approximately $328.1 million as of March 31, 2010.
 
 For the
three months ended March 31, 2010, we incurred approximately $11.3 million in
interest expense.
 
 We do not
invest in derivative financial instruments, interest rate swaps or other
investments that alter interest rate exposure.
 
 Item
4T. Controls and Procedures
 
 Our
principal executive officer and principal financial officer, based on their
evaluation of our disclosure controls and procedures (as such terms are defined
in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended the
Exchange Act) as of the end of the period covered by this quarterly report on
Form 10-Q, have concluded that our disclosure controls and procedures are
effective for ensuring that information required to be disclosed by us in the
reports that we file or submit under the Exchange Act, is recorded, processed,
summarized and reported within the time periods specified in the SEC’s rules and
forms.
 
 There
were no changes in our internal control over financial reporting that occurred
during the first three months of 2010 that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.
 
 It should
be noted that any system of controls, however well designed and operated, can
provide only reasonable and not absolute assurance that the objectives of the
system are met.  In addition, the design of any control system is
based in part upon certain assumptions about the likelihood of certain
events.  Because of these and other inherent limitations of control
systems, there can be no assurance that any design will succeed in achieving its
stated goals under all potential future conditions, regardless of how
remote.
  17
  PART
II-OTHER INFORMATION
 
 You
should also read, among other things, the risks and uncertainties described in
the section entitled Risk Factors in Item 1A of our annual report on Form
10-K, filed with the SEC on March 22, 2010 (SEC File No. 000-52975). There
were no material changes to those risk factors during the three months ended
March 31, 2010.
 
 Item
6.   Exhibits
 
 The list
of exhibits required by Item 601 of Regulation S-K and filed as part of this
report is set forth in the exhibits index.
  18
  SIGNATURES
 
 Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
  
 AMERICAN
      CASINO & ENTERTAINMENT PROPERTIES LLCBy:
                                /s/ EDWARD W. MARTIN,
      IIIEdward
      W. Martin, IIIAuthorized
      Officer, Chief Financial Officer and Treasurer
                                  (Principal
      Financial and Accounting Officer)Date:
                                May
      12,
2010
  19
  EXHIBITS
INDEX
 
 EXHIBIT NO.
                
                DESCRIPTION31.1
                
                Certification
      of Principal Executive Officer pursuant to Section 302(a) of the
      Sarbanes-Oxley Act of 2002.31.2
                
                Certification
      of Principal Financial Officer pursuant to Section 302(a) of the
      Sarbanes-Oxley Act of 2002.32.1
                
                Certification
      of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley
      Act of 2002.32.2
                
                Certification
      of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley
      Act of 2002.
  20