##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2007
 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 333-110484
 Atlantic Coast Entertainment Holdings, Inc.
  DELAWARE
    
    54-2131349(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)c/o Stratosphere Casino Hotel & Tower2000 Las Vegas Boulevard SouthLas Vegas, NV
    
    89104(Address of registrants principal executive offices)
    
    (Zip Code)
 (702) 380-7777  )
 (Former name, former address and former fiscal year, if changed since last report)
 
 þ o
  o o þ
  o þ
  Registrant
    
    Class
    
    Outstanding at November 7, 2007Atlantic Coast Entertainment Holdings, Inc.
    
    Common stock, $0.01 par value
    
    9,967,087 shares




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##### 



TABLE OF CONTENTS
 PagePart I
    
    Financial InformationItem 1.
    
    Unaudited Condensed Consolidated Financial Statements
    
    
    2Condensed Consolidated Balance Sheets as of September 30, 2007 (unaudited) and December 31, 2006
    
    
    2Condensed Consolidated Statements of Income for the three months ended September 30, 2007 and September 30, 2006 (unaudited)
    
    
    3Condensed Consolidated Statements of Income for the nine months ended September 30, 2007 and September 30, 2006 (unaudited)
    
    
    4Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2007 and September 30, 2006 (unaudited)
    
    
    5Condensed Consolidated Statements of Shareholders Equity as of December 31, 2006 and for the nine months ended September 30, 2007 (unaudited)
    
    
    6Notes to Condensed Consolidated Financial Statements (unaudited)
    
    
    7Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    12Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    16Item 4.
    
    Controls and Procedures
    
    
    16Part II
    
    Other InformationItem 1.
    
    Legal Proceedings
    
    
    17Item 1A.
    
    Risk Factors
    
    
    17Item 6.
    
    Exhibits
    
    
    17EX-31.1: CERTIFICATIONEX-31.2: CERTIFICATIONEX-32.1: CERTIFICATIONEX-32.2: CERTIFICATION
  1




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PART I. FINANCIAL INFORMATION
 
 Item 1. UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 ATLANTIC COAST ENTERTAINMENT HOLDINGS, INC.
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 As ofSeptember 30, 2007
    
    
    December 31, 2006(Unaudited)(in thousands, except share data)ASSETSCurrent Assets:Cash and cash equivalents
    
    $
    8,618
    
    
    $
    1,258Restricted Cash
    
    
    208,653
    
    
    
    200,515Deferred tax asset  current
    
    
    3,641
    
    
    
    3,641Other current assets
    
    
    64
    
    
    
    439Total current assets
    
    
    220,976
    
    
    
    205,853Other assets:Deferred tax asset  non-current
    
    
    7,847
    
    
    
    12,617Total other assets
    
    
    7,847
    
    
    
    12,617Total Assets
    
    $
    228,823
    
    
    $
    218,470LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    289
    
    
    $
    347Accounts payable-related party and accrued expenses
    
    
    355
    
    
    
    352Total current liabilities:
    
    
    644
    
    
    
    699Total Liabilities
    
    
    644
    
    
    
    699Commitments and ContingenciesShareholders Equity:Common stock, $0.01 par value per share; 20,000,000
shares authorized;
9,967,087 and 9,389,860 shares outstanding
    
    
    100
    
    
    
    94Additional paid-in capital
    
    
    236,861
    
    
    
    227,192Warrants outstanding
    
    
    
    
    
    
    9,669Accumulated deficit
    
    
    (8,782
    )
    
    
    (19,184
    )Total shareholders equity
    
    
    228,179
    
    
    
    217,771Total Liabilities and Shareholders Equity
    
    $
    228,823
    
    
    $
    218,470
  2




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ATLANTIC COAST ENTERTAINMENT HOLDINGS, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF INCOME
 Three Months EndedSeptember 30, 2007
    
    
    September 30, 2006(Unaudited)(In thousands, except share data)Revenues:Casino
    
    $
    
    
    
    $
    37,345Hotel
    
    
    
    
    
    
    3,836Food and beverage
    
    
    
    
    
    
    5,500Other income
    
    
    
    
    
    
    547Gross Revenues
    
    
    
    
    
    
    47,228Less promotional allowances
    
    
    
    
    
    
    5,663Net Revenues
    
    
    
    
    
    
    41,565Costs and Expenses (Income):Casino
    
    
    
    
    
    
    11,325Hotel
    
    
    
    
    
    
    1,189Food and beverage
    
    
    
    
    
    
    2,066Other operating expenses
    
    
    
    
    
    
    185Selling, general and administrative
    
    
    511
    
    
    
    34,669Depreciation and amortization
    
    
    
    
    
    
    2,534Provision for obligatory investments
    
    
    
    
    
    
    237Gain on sale of assets
    
    
    
    
    
    
    (2
    )Total Costs and Expenses
    
    
    511
    
    
    
    52,203Loss From Operations
    
    
    (511
    )
    
    
    (10,638
    )Other Income (Expense):Interest income
    
    
    2,743
    
    
    
    308Interest expense
    
    
    
    
    
    
    (471
    )Total other income (expense), net
    
    
    2,743
    
    
    
    (163
    )Income (Loss) Before Income Taxes
    
    
    2,232
    
    
    
    (10,801
    )Provision (benefit) for income taxes
    
    
    577
    
    
    
    (27,900
    )Net Income
    
    $
    1,655
    
    
    $
    17,099Income per common share  basic
    
    $
    0.17
    
    
    $
    2.24Income per common share  diluted
    
    $
    0.17
    
    
    $
    1.74Weighted average common shares outstanding
    
    
    9,967,087
    
    
    
    7,617,676Fully diluted shares outstanding
    
    
    9,967,087
    
    
    
    9,967,087
  3




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ATLANTIC COAST ENTERTAINMENT HOLDINGS, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF INCOME
 Nine Months EndedSeptember 30, 2007
    
    
    September 30, 2006(Unaudited)(In thousands, except share data)Revenues:Casino
    
    $
    
    
    
    $
    112,299Hotel
    
    
    
    
    
    
    10,121Food and beverage
    
    
    
    
    
    
    14,651Other income
    
    
    
    
    
    
    1,685Gross Revenues
    
    
    
    
    
    
    138,756Less promotional allowances
    
    
    
    
    
    
    14,762Net Revenues
    
    
    
    
    
    
    123,994Costs and Expenses (Income):Casino
    
    
    
    
    
    
    34,419Hotel
    
    
    
    
    
    
    3,770Food and beverage
    
    
    
    
    
    
    6,522Other operating expenses
    
    
    
    
    
    
    586Selling, general and administrative
    
    
    (7,463
    )
    
    
    77,446Depreciation and amortization
    
    
    
    
    
    
    10,159Provision for obligatory investments
    
    
    
    
    
    
    870Gain on sale of assets
    
    
    (345
    )
    
    
    (51
    )Total Costs and Expenses
    
    
    (7,808
    )
    
    
    133,721Income (Loss) From Operations
    
    
    7,808
    
    
    
    (9,727
    )Other Income (Expense):Interest income
    
    
    7,934
    
    
    
    776Interest expense
    
    
    
    
    
    
    (1,773
    )Total other income (expense), net
    
    
    7,934
    
    
    
    (997
    )Income (Loss) Before Income Taxes
    
    
    15,742
    
    
    
    (10,724
    )Provision (benefit) for income taxes
    
    
    5,340
    
    
    
    (27,394
    )Net Income
    
    $
    10,402
    
    
    $
    16,670Income per common share  basic
    
    $
    1.07
    
    
    $
    2.33Income per common share  diluted
    
    $
    1.04
    
    
    $
    1.77Weighted average common shares outstanding
    
    
    9,693,201
    
    
    
    7,154,128Fully diluted shares outstanding
    
    
    9,967,087
    
    
    
    9,967,087
  4




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ATLANTIC COAST ENTERTAINMENT HOLDINGS, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 Nine Months EndedSeptember 30, 2007
    
    
    September 30, 2006(Unaudited)(In thousands)Cash Flows From Operating Activities:Net income
    
    $
    10,402
    
    
    $
    16,670Adjustments to reconcile net income to net cash provided
by operating activities:Depreciation and amortization
    
    
    
    
    
    
    10,159Gain on sale of assets held for sale
    
    
    (345
    )
    
    
    (51
    )Provision for obligatory investments
    
    
    
    
    
    
    870Changes in operating assets and liabilities:Accounts receivable, net
    
    
    
    
    
    
    150Deferred income taxes
    
    
    4,770
    
    
    
    (28,077
    )Other assets
    
    
    204
    
    
    
    3,473Accounts payable and accrued expenses
    
    
    58
    
    
    
    10,051Other liabilities
    
    
    
    
    
    
    896Net Cash Provided By Operating Activities
    
    
    15,089
    
    
    
    14,141Cash Flows From Investing Activities:Acquisition of property and equipment
    
    
    
    
    
    
    (3,938
    )Purchase of obligatory investments
    
    
    
    
    
    
    (39
    )Proceeds from sale of obligatory investments
    
    
    
    
    
    
    168Proceeds from sale of property and equipment
    
    
    
    
    
    
    51Proceeds from sale of assets held for sale
    
    
    930
    
    
    
    Purchase price adjustment on sale of The Sands
    
    
    (414
    )
    
    
    Increase in restricted cash
    
    
    (8,138
    )
    
    
    Net Cash Used In Investing Activities
    
    
    (7,622
    )
    
    
    (3,758
    )Cash Flows From Financing Activities:Payments on line of credit
    
    
    
    
    
    
    (1,500
    )Decrease in related party payables
    
    
    (113
    )
    
    
    (371
    )Payments on notes payable
    
    
    
    
    
    
    (2,048
    )Proceeds from sale of stock
    
    
    6
    
    
    
    Payments on capital lease obligation
    
    
    
    
    
    
    (244
    )Net Cash Used In Financing Activities
    
    
    (107
    )
    
    
    (4,163
    )Net increase in cash and cash equivalents
    
    
    7,360
    
    
    
    6,220Cash and cash equivalents  beginning of period
    
    
    1,258
    
    
    
    13,711Cash And Cash Equivalents  end of period
    
    $
    8,618
    
    
    $
    19,931Supplemental Disclosures of Cash Flow Information:Cash paid during the period for interest, net of amounts capitalized
    
    $
    
    
    
    $
    75Cash paid during the period for income taxes
    
    $
    453
    
    
    $
    867Non-cash Investing and Financing Activities:Exercise of warrants
    
    $
    9,147
    
    
    $
    62Cancellation of warrants
    
    $
    522
    
    
    $
    Conversion of notes payable and accrued interest to common stock
    
    $
    
    
    
    $
    39,847
  5




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ATLANTIC COAST ENTERTAINMENT HOLDINGS, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
 Nine Months Ended September 30, 2007(Unaudited)AdditionalCommon
    
    
    
    
    
    
    Paid-in
    
    
    
    
    
    
    AccumulatedShares
    
    
    Amount
    
    
    Capital
    
    
    Warrants
    
    
    Deficit
    
    
    Total(In thousands, except share data)Balance, December 31, 2006
    
    
    9,389,860
    
    
    $
    94
    
    
    $
    227,192
    
    
    $
    9,669
    
    
    $
    (19,184
    )
    
    $
    217,771Exercise of warrants
    
    
    577,227
    
    
    
    6
    
    
    
    9,147
    
    
    
    (9,147
    )
    
    
    
    
    
    
    6Cancellation of warrants
    
    
    
    
    
    
    
    
    
    
    522
    
    
    
    (522
    )
    
    
    
    
    
    
    Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,402
    
    
    
    10,402Balance, September 30,
2007
    
    
    9,967,087
    
    
    $
    100
    
    
    $
    236,861
    
    
    $
    
    
    
    $
    (8,782
    )
    
    $
    228,179
  6




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ATLANTIC COAST ENTERTAINMENT HOLDINGS, INC.
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 Note 1. The Company
  
 Note 2. Sale of ACE Gaming
    Note 3. Basis of Presentation
   7




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Principles of Consolidation
  Recently Issued Accounting Pronouncements
    
 
 Note 4. Related Party Transactions
  8




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Note 5. Commitments and Contingencies
 Legal Proceedings
   Note 6. Income Taxes
 
 9




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Note 7. Earnings (Loss) per Share
   
  10




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Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(Unaudited)
    
    
    (Unaudited)(In thousands, except share data)Basic earnings per share:Net income
    
    $
    1,655
    
    
    $
    17,099
    
    
    $
    10,402
    
    
    $
    16,670Weighted average commmon shares outstanding
    
    
    9,967,087
    
    
    
    7,617,676
    
    
    
    9,693,201
    
    
    
    7,154,128Net income per share
    
    $
    0.17
    
    
    $
    2.24
    
    
    $
    1.07
    
    
    $
    2.33Diluted earnings per share:Net income
    
    $
    1,655
    
    
    $
    17,099
    
    
    $
    10,402
    
    
    $
    16,670Net income adjustment for interest on convertible debt, net of tax
    
    
    
    
    
    
    242
    
    
    
    
    
    
    
    959Net income adjusted
    
    $
    1,655
    
    
    $
    17,341
    
    
    $
    10,402
    
    
    $
    17,629Weighted average commmon shares outstanding
    
    
    9,967,087
    
    
    
    7,617,676
    
    
    
    9,693,201
    
    
    
    7,154,128Dilutive shares resulting from exercise of warrants
    
    
    
    
    
    
    2,349,411
    
    
    
    273,886
    
    
    
    2,812,959Weighted average shares and common stock equivalents outstanding
    
    
    9,967,087
    
    
    
    9,967,087
    
    
    
    9,967,087
    
    
    
    9,967,087Net income per share
    
    $
    0.17
    
    
    $
    1.74
    
    
    $
    1.04
    
    
    $
    1.77
 11




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
  Overview
     12




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Results of Operations
 Three Months Ended September 30, 2007 Compared to Three Months Ended September 30, 2006
 Three Months EndedSeptember 30,2007
    
    2006
    
    % Change(In millions)INCOME STATEMENT DATA:Net revenues
    
    $
    
    
    
    $
    41.6
    
    
    
    -100.0
    %Loss from operations
    
    
    (0.1
    )
    
    
    (10.6
    )
    
    
    -99.1
    %
    Nine months Ended September 30, 2007 Compared to Nine months Ended September 30, 2006
 Nine Months EndedSeptember 30,2007
    
    2006
    
    % Change(In millions)INCOME STATEMENT DATA:Net revenues
    
    $
    
    
    
    $
    124.0
    
    
    
    -100.0
    %Income (loss) from operations
    
    
    7.8
    
    
    
    (9.7
    )
    
    
    -180.4
    %
    13




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Financial Condition
 Liquidity and Capital Resources
  
    
 Off Balance Sheet Arrangements
  Contractual Obligations
  Recently Issued Accounting Pronouncements
  14




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Forward-Looking Statements
  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.
 15




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Item 3. Quantitative and Qualitative Disclosures About Market Risk
   
 Item 4. Controls and Procedures
    16




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Part II. Other Information
 
 Item 1. Legal Proceedings
   
 Item 1A. Risk Factors
  If we are deemed to be an investment company, we may be required to institute burdensome compliance
requirements and our activities may be restricted .
   
    
    Restrictions on the nature of our investments;
    
    Restrictions on the issuance of securities; and
    
    Restrictions on the amount of debt that we may incur.
   
 Item 6. Exhibits
  17




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Signatures
  Atlantic Coast Entertainment
Holdings, Inc./s/ Denise Barton

      Denise BartonChief Financial OfficerDate: November 9, 2007
 18




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Exhibits Index
 ExhibitNo.
    
    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 2002.32.2
    
    Certification of Chief Financial Officer, pursuant to Section
906 of the Sarbanes-Oxley Act 2002.
 19