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                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-K
                            ------------------------
(MARK ONE)

[X]   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
       SECURITIES EXCHANGE ACT OF 1934
                  FOR THE FISCAL YEAR ENDED DECEMBER 26, 1999,
                                       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 NO. 1-12030

                            STRATOSPHERE CORPORATION
             (Exact name of registrant as specified in its charter)

                            ------------------------

<TABLE>
<S>                                            <C>
                   DELAWARE                                      88-029318
       (State or other jurisdiction of                        (I.R.S. Employer
        incorporation or organization)                      Identification No.)

        2000 LAS VEGAS BOULEVARD SOUTH                             89104
              LAS VEGAS, NEVADA                                  (Zip Code)
   (Address of principal executive offices)
</TABLE>

       REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (702) 382-4446

                            ------------------------
          SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:

<TABLE>
<S>                                            <C>
                                                          NAME OF EACH EXCHANGE ON
             TITLE OF EACH CLASS                              WHICH REGISTERED
   Common Stock, par value $0.01 per share
</TABLE>

                            ------------------------
 Securities registered pursuant to Section 12(g) of the Act: Common Stock, par
                             value $0.01 per share

     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 if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]

     As of March 13, 2000, 2,030,000 shares of the Registrant's Common Stock
were outstanding. The aggregate market value of the Common Stock held by
non-affiliates of the Registrant on such date, based upon the last sale price of
the Common Stock as reported on the over the counter bulletin board on March 13,
2000, was $4,263,000. For purposes of this computation, affiliates of the
Registrant are deemed to be the Registrant's executive officers and directors
and American Real Estate Partners, L.P.
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ITEM 1.  BUSINESS

     The following discussion contains trend information and other
forward-looking statements that involve a number of risks and uncertainties. The
actual results of Stratosphere Corporation (the "Company") could differ
materially from the Company's historical results of operations and those
discussed in the forward-looking statements. Factors that could cause actual
results to differ materially include, but are not limited to, those identified
in "Certain Factors."

OVERVIEW

     The Company owns and operates the Stratosphere Tower, Casino & Hotel
("Stratosphere") which is centered around the Stratosphere Tower (the "Tower"),
the tallest free-standing observation tower in the United States. Standing 1,149
feet above the Las Vegas Strip, the Tower is visible from all directions,
including to visitors flying into Las Vegas. The Tower's Pod (the "Pod"), a
12-story building that begins at the 771-foot level, features a 360-seat
revolving restaurant, a 220-seat cocktail lounge, indoor and outdoor observation
decks and two amusement rides located over 900 feet in the air, a roller coaster
and a simulated "Big Shot" collectively (the "Thrill Rides").

     The Company operates, among other things, the Tower, a hotel with 1,444
rooms and suites, a 97,000 square foot casino featuring approximately 1,563 slot
machines, 43 table games, 4 poker tables, a race and sports book, a keno lounge,
a 160,000 square foot second level containing a retail center of approximately
46 shops and a 650 seat Broadway Showroom, a 120-seat entertainment lounge and
parking for approximately 4,000 cars (collectively, "Phase I"). Stratosphere
opened for business on April 29, 1996.

     On January 27, 1997 ("Petition Date"), Stratosphere Corporation and its
wholly-owned subsidiary Stratosphere Gaming Corp. ("SGC" and collectively with
Stratosphere Corporation, the "Debtors") filed voluntary petitions for Chapter
11 Reorganization pursuant to the United States Bankruptcy Code. As of that
date, the United States Bankruptcy Court for the District of Nevada ("Bankruptcy
Court") assumed jurisdiction over the assets of Stratosphere Corporation and
SGC. Stratosphere Corporation and SGC were acting as debtors-in-possession on
behalf of their respective bankrupt estates, and were authorized as such to
operate their business subject to Bankruptcy Court supervision. On June 9, 1998,
the Bankruptcy Court entered an order (the "Confirmation Order") confirming the
Restated Second Amended Plan of Reorganization filed by the Debtors (the
"Restated Second Amended Plan"). On October 14, 1998, the Restated Second
Amended Plan became effective. All material conditions precedent to the Restated
Second Amended Plan becoming binding were satisfied on or before September 27,
1998. Accordingly, the Company has reflected the effect of the Restate Second
Amended Plan as of September 27, 1998.

     As a result of the restructuring, the Company implemented the guidance
provided by the American Institute of Certified Public Accountants Statement of
Position 90-7 "Financial Reporting By Entities In Reorganization Under The
Bankruptcy Code" ("AICPA SOP 90-7") and as such, adopted "fresh start reporting"
as of September 27, 1998. The Company's emergence from its Chapter 11
proceedings resulted in a new reporting entity with no retained earnings or
accumulated deficit as of September 27, 1998. Accordingly, the Company's
consolidated financial statements for periods prior to September 27, 1998 are
not comparable to consolidated financial statements presented on or subsequent
to September 27, 1998. Column headings have been included on the accompanying
Consolidated Statements of Operations and Consolidated Statement of Cash Flows
to distinguish between the predecessor and successor entities.

     Pursuant to the Restated Second Amended Plan becoming effective on October
14, 1998, the Company canceled all prior equity interests (including the 58.4
million outstanding shares of Common Stock, options and warrants) and exchanged
2,030,000 shares of New Common Stock for the secured portion of the 14 1/4%
First Mortgage Notes (estimated at $120.6 million). Approximately 89.6% of the
New Common Stock was issued to Carl C. Icahn related entities. The remaining
portion of the 14 1/4% First Mortgage Notes claim (approximately $104 million),
the balance of the note due Grand Casinos, Inc. (approximately $52.4 million)
and all other general unsecured claims will be discharged in exchange of a cash
payment of $6.0 million. Certain priority claims (estimated at $.9 million) were
paid in full. The discharge and settlement of these claims resulted in a gain of
$153.4 million, which was reflected as an extraordinary item on the September
27, 1998, consolidated statements of operations. The amount of the gain was
based on the Company's estimate of the amount of claims that will ultimately be
allowable by the Bankruptcy Court, and was based on the total of actual claims
filed. In the event additional unsecured claims are allowed by the Bankruptcy
Court, it will not increase the Company's cash required for full debt discharge.
A portion of the $6.9 million to be distributed has been reserved for potential
future settlement of unsecured claim disputes (approximately $1.9 million).

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The only significant remaining claim dispute is the rejection claim filed by
Strato-Retail. A hearing date has not yet been scheduled regarding this matter
(see Item 3. Legal Proceedings).

THE TOWER

     At 1,149 feet in height, the Tower is the tallest free-standing observation
tower in the United States and the tallest free-standing structure west of the
Mississippi River. From the indoor and outdoor observation decks, lounge and
restaurant, Tower visitors have dramatic views of the Las Vegas Strip, downtown
and the surrounding Las Vegas Valley. Visitors travel to the observation decks
in four high speed, double-decked elevators, which travel at 1,800 feet per
minute, and which have an aggregate capacity of 128 visitors.

     The Pod is a 12-story 105,000 square foot building that begins at the
771-foot level of the Tower. The Pod, which has a maximum capacity of 2,700
visitors at any one time, has an indoor and outdoor observation deck and is
currently open from 10:00 a.m. to 1:00 a.m. Sunday through Thursday and 10:00
a.m. to 2:00 a.m. on Friday and Saturday.

     The Pod's third and fourth levels contain conference and meeting rooms that
are rented out for business or social occasions. Level six contains a 360-seat
revolving restaurant. Levels seven, eight and nine feature a 220-seat cocktail
lounge and indoor and outdoor observation decks. The indoor observation deck
contains two gift shops, free-standing vending featuring souvenirs and food
products designed to capitalize on the unique nature of the Tower and seven
virtual reality games.

     Level twelve is the staging area for the Thrill Rides. The first ride, the
"Big Shot," propels riders from the 921-foot level of the Pod approximately 180
feet straight up the mast of the Tower, in a harnessed seat, and allows for a
controlled free fall back to the landing platform. The second ride, a roller
coaster, the "High Roller," begins at the 909-foot level and transports up to 36
passengers at a time along tracks wrapped around the top portion of the Pod.

THE CASINO AREA

     Stratosphere's casino contains approximately 97,000 square feet of gaming
space, with approximately 1,563 slot machines, 43 table games, 4 poker tables, a
new race and sports book and keno lounge. The new race and sports book, deli and
entertainment lounge and bar have been constructed and opened August 15, 1999.
These new facilities have been designed for convenient access to the casino.

     Although the Company does not emphasize credit play, credit is available to
high-stakes wagerers on a discretionary basis. Slot and table game customers are
able to join a frequent players club, which awards benefits including cash and
complimentary room, food and beverage based upon the customer's level of play.

RETAIL AND ENTERTAINMENT CENTER

     The Retail Center is located on the second floor of the Base Building,
currently occupies approximately 160,000 square feet, of which 57,000 square
feet remains undeveloped. The retail area offers various "fast food" restaurants
and shops. Adjacent to the retail mall is the 650 seat show room that currently
offers afternoon and evening shows, which are designed to appeal to the wide
spectrum of value minded visitors who come to Las Vegas. An escalator has been
constructed from the showroom to the casino to make exiting the showroom more
convenient. The new escalator became operational December 31, 1999.

HOTEL, FOOD AND BEVERAGE

     The Hotel currently has 1,444 rooms and suites. The Hotel has five themed
restaurants, The Top of The World located in the Pod, the 434-seat "Stratosphere
Buffet," a 200-seat "Montana's Steak House," "Roxy's 50's Diner," and "Tower of
Pasta," a restaurant serving Italian cuisine. The Company plans on adding an
additional restaurant offering Asian cuisine during the spring of 2000. In
addition, a New York style deli has been constructed adjacent to the new race
and sports book.

BUSINESS AND MARKETING STRATEGY

     The Company utilizes the unique characteristics of the Tower to attract
visitors. Hotel rooms, entertainment and food and beverage products are priced
to appeal to the value conscious, mid-market Las Vegas visitor. The Company
offers extremely favorable gambling odds for its slots, table games and sports
book products. Aggressive advertising and promotional campaigns are maintained
to maximize hotel room

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occupancy, visitation to the Tower and retention of guests on property. The
Company employs a direct mail program targeting customers in its database with a
variety of product offerings, including incentives to visit the Company's
facilities on a frequent basis.

COMPETITION

     The casino/hotel industry is highly competitive. The Las Vegas market
includes many world class destination resorts, with numerous other tourist
attractions. Major Las Vegas casino/hotels are themselves tourist attractions,
including Bellagio, Venetian, Paris, Mandalay Bay, Mirage, Caesars Palace, MGM
Grand, Treasure Island, Monte Carlo, New York New York, Luxor and the Rio. Each
of these resorts compete with the Company in its ability to attract visitors to
the Tower.

     The Company's hotel and food and beverage operations compete directly with
the Excalibur, Circus Circus, Stardust, Sahara, Riviera and Palace Station as
each of these properties target the budget-minded, mid-market Las Vegas visitor.
Management believes that its ability to expand its target market is limited due
to the lack of recreational facilities (pool and spa), meeting and convention
facilities. In addition, future visitation to the Tower could be negatively
impacted as more visitors will have previously visited the Tower and do not
intend to repeat the experience.

     On March 8, 2000, California residents voted to expand Native American
gaming operations within that state. The Native American gaming expansion could
result in 43,000 slot machines on 57 tribal reservations. The Company estimates
that approximately 35% of its hotel occupancy is from guests traveling from
southern California. Any proliferation of gaming in southern California could
have a material adverse effect on the Company's business. In addition, any
imposed limitations on college sports betting could adversely impact future
revenues of the Company.

EMPLOYEES

     The Company currently employs approximately 2,150 full and part-time
associates, of which approximately 1,000 are covered by a collective bargaining
agreement.

     On December 10, 1998, the Company and Culinary Workers and Bartenders Union
reached an agreement that became effective on June 1, 1997. Pursuant to the
agreement, future increases will range from 3% to 4% annually. The agreement
expires on May 31, 2002.

     The Company generally enjoys good relations with its employees.

NEVADA GAMING REGULATION

     The ownership and operation of casino gaming facilities in Nevada are
subject to: (i) the Nevada Gaming Control Act and the regulations promulgated
thereunder (collectively, the "Nevada Act"); and (ii) various local ordinances
and regulations. Gaming operations in Nevada are subject to the licensing and
regulatory control of the Nevada Gaming Commission ("Nevada Commission"), the
Nevada State Gaming Control Board ("Nevada Board") and various other county and
city regulatory agencies, including the City of Las Vegas, collectively referred
to as the "Nevada Gaming Authorities."

     The laws, regulations and supervisory procedures of the Nevada Gaming
Authorities are based upon declarations of public policy which are concerned
with, among other things: (i) the prevention of unsavory or unsuitable persons
from having a direct or indirect involvement with gaming at any time or in any
capacity; (ii) the establishment and maintenance of responsible accounting
practices and procedures; (iii) the maintenance of effective controls over the
financial practices of licensees, including the establishment of minimum
procedures for internal fiscal affairs and the safeguarding of assets and
revenues, providing reliable record keeping and requiring the filing of periodic
reports with the Nevada Gaming Authorities; (iv) the prevention of cheating and
fraudulent practices; and (v) providing a source of state and local revenues
through taxation and licensing fees. Change in such laws, regulations and
procedures could have an adverse effect on the Company's gaming operations.

     The Company is registered with the Nevada Commission as a publicly traded
corporation (a "Registered Corporation") and has been found suitable to own the
stock of SGC. SGC is licensed by the Nevada Gaming Authorities to conduct
nonrestricted gaming operations and is a corporate licensee (a "Corporate
Licensee") under the terms of the Nevada Act. The gaming license requires the
periodic payment of fees and taxes and is

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not transferable. The Company and SGC have obtained the various registrations,
approvals, permits, findings of suitability and licenses required in order to
engage in gaming activities in Nevada.

     As a Registered Corporation, the Company is required periodically to submit
detailed financial and operating reports to the Nevada Commission and furnish
any other information that the Nevada Commission may require. In addition, no
person may become a stockholder of, or receive, any percentage of profits from
SGC without first obtaining licenses and approvals from the Nevada Gaming
Authorities.

     The Nevada Gaming Authorities may investigate any individual who has a
material relationship to, or material involvement with, the Company or SGC in
order to determine whether such individual is suitable or should be licensed as
a business associate of SGC. Officers, directors and certain key employees of
SGC must file applications with the Nevada Gaming Authorities and may be
required to be licensed or found suitable by the Nevada Gaming Authorities.
Officers, directors and key employees of the Company who are actively and
directly involved in the activities of SGC may be required to be licensed or
found suitable by the Nevada Gaming Authorities. The Nevada Gaming Authorities
may deny an application for licensing for any cause which they deem reasonable.
A finding of suitability is comparable to licensing, and both require submission
of detailed personal and financial information followed by a thorough
investigation. The applicant for licensing or a finding of suitability must pay
all the costs of the investigation. Changes in licensed positions must be
reported to the Nevada Gaming Authorities and in addition to their authority to
deny an application for a finding of suitability or licensure, the Nevada Gaming
Authorities have jurisdiction to disapprove a change in a corporate position.

     If the Nevada Gaming Authorities were to find an officer, director or key
employee unsuitable for licensing or unsuitable to continue having a
relationship with the Company or SGC, the companies involved would have to sever
all relationships with such person. In addition, the Nevada Commission may
require the Company or SGC to terminate the employment of any person who refuses
to file appropriate applications. Determinations of suitability or of questions
pertaining to licensing are not subject to judicial review in Nevada.

     The Company and SGC are required to submit detailed financial and operating
reports to the Nevada Commission. Substantially all material loans, liens, sales
of securities and similar financing transactions by SGC are required to be
reported to or approved by the Nevada Commission.

     If it were determined that the Nevada Act was violated by SGC, the gaming
licenses it holds could be limited, conditioned, suspended or revoked, subject
to compliance with certain statutory and regulatory procedures. In addition, the
Company, SGC and the persons involved could be subject to substantial fines for
each separate violation of the Nevada Act at the discretion of the Nevada
Commission. Further, a supervisor could be appointed by the Nevada Commission to
operate the Company's gaming property and, under certain circumstances, earnings
generated during the supervisor's appointment (except for reasonable rental
value of the premises) could be forfeited to the state of Nevada. Limitation,
conditioning or suspension of the licenses of SGC could (and revocation of any
gaming license of SGC would) materially adversely affect the Company.

     Any beneficial holder of a Registered Corporation's voting securities,
regardless of the number of shares owned, may be required to file an
application, be investigated and have his suitability as a beneficial holder of
the Registered Corporation's voting securities determined if the Nevada
Commission has reason to believe that such ownership would otherwise be
inconsistent with the declared policies of the state of Nevada. The applicant
must pay all costs of investigation incurred by the Nevada Gaming Authorities in
conducting any such investigation.

     The Nevada Act requires any person who acquires beneficial ownership of
more than 5% of a Registered Corporation's voting securities to report the
acquisition to the Nevada Commission. The Nevada Act requires that beneficial
owners of more than 10% of a Registered Corporation's voting securities apply to
the Nevada Commission for a finding of suitability within thirty days after the
Chairman of the Nevada Board mails the written notice requiring such filing. Mr.
Icahn has been approved as a shareholder and controlling shareholder. Under
certain circumstances, an "institutional investor," as defined in the Nevada
Act, which acquires more than 10%, but not more than 15%, of a Registered
Corporation's voting securities, or more than 10% of a Registered Corporation's
voting securities as a result of a proceeding under the United States Bankruptcy
Code, may apply to the Nevada Commission for a waiver of such finding of
suitability if such institutional investor holds the voting securities for
investment purposes only. An institutional investor shall not be deemed to hold
voting securities for investment purpose unless the voting securities were
acquired and are held in the ordinary course of business as an institutional
investor and not for the purpose of causing, directly or indirectly,

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the election of a majority of the members of the Board of Directors of the
Registered Corporation, any change in the Registered Corporation's corporate
charter, bylaws, management, policies or operations, or any of its gaming
affiliates, or any other action which the Nevada Commission finds to be
inconsistent with holding the Registered Corporation's voting securities for
investment purposes only. Activities which are not deemed to be inconsistent
with holding voting securities for investment purposes only include: (i) voting
on all matters voted on by stockholders; (ii) making financial and other
inquiries of management of the type normally made by securities analysts for
informational purposes and not to cause a change in its management, policies or
operations; and (iii) such other activities as the Nevada Commission may
determine to be consistent with such investment intent. If the beneficial holder
of voting securities who must be found suitable is a corporation, partnership or
trust, it must submit detailed business and financial information including a
list of beneficial owners. The applicant is required to pay all costs of
investigation.

     Any person who fails or refuses to apply for a finding of suitability or a
license within thirty days after being ordered to do so by the Nevada Commission
or the Chairman of the Nevada Board, may be found unsuitable. The same
restrictions apply to a record owner if the record owner, after request, fails
to identify the beneficial owner. Any stockholder found unsuitable and who
holds, directly or indirectly, any beneficial ownership of the voting securities
of the Company beyond such period of time as may be prescribed by the Nevada
Commission may be guilty of a criminal offense. The Company is subject to
disciplinary action if, after it receives notice that a person is unsuitable to
be a stockholder or to have any other relationship with it, it (i) pays that
person any dividend or interest upon voting securities of the Company, (ii)
allows that person to exercise, directly or indirectly, any voting right
conferred through securities held by that person, (iii) pays remuneration in any
form to that person for services rendered or otherwise, or (iv) fails to pursue
all lawful efforts to require such unsuitable person to relinquish his voting
securities including, if necessary, the immediate purchase of said voting
securities for cash at fair market value.

     The Nevada Commission may, in its discretion, require the holder of any
debt security of a Registered Corporation to file applications, be investigated
and be found suitable to own the debt security of a Registered Corporation if it
has reason to believe that such ownership would otherwise be inconsistent with
the declared policies of the state of Nevada. If the Nevada Commission
determines that a person is unsuitable to own such security, then pursuant to
the Nevada Act, the Registered Corporation can be sanctioned, including the cost
of its approvals, if without the prior approval of the Nevada Commission, it:
(i) pays to the unsuitable person any dividend, interest, or any distribution
whatsoever; (ii) recognizes any voting right by such unsuitable person in
connection with such securities; (iii) pays the unsuitable person remuneration
in any form; or (iv) makes any payment to the unsuitable person by way of
principal, redemption, conversion, exchange, liquidation, or similar
transaction.

     The Company is required to maintain a current stock ledger in Nevada which
may be examined by the Nevada Gaming Authorities at any time. If any securities
are held in trust by an agent or by a nominee, the record holder may be required
to disclose the identity of the beneficial owner to the Nevada Gaming
Authorities. A failure to make such disclosure may be grounds for finding the
record holder unsuitable. The Company will also be required to render maximum
assistance in determining the identity of the beneficial owner. The Nevada
Commission has the power to require the stock certificates of the Company to
bear a legend indicating that the securities are subject to the Nevada Act.
However, to date, the Nevada Commission has not imposed such a requirement on
the Company.

     The Company may not make a public offering of its securities without the
prior approval of the Nevada Commission if the securities or proceeds therefrom
are intended to be used to construct, acquire or finance gaming facilities in
Nevada, or to retire or extend obligations incurred for such purposes. Approval
of a public offering does not constitute a finding, recommendation or approval
by the Nevada Commission or the Nevada Board as to the accuracy or adequacy of
the prospectus or the investment merits of the securities offered. Any
representation to the contrary is unlawful.

     Changes in control of a Registered Corporation through merger,
consolidation, stock or asset acquisitions, management or consulting agreements,
or any act or conduct by a person whereby he obtains control, may not occur
without the prior approval of the Nevada Commission. Entities seeking to acquire
control of a Registered Corporation must satisfy the Nevada Board and Nevada
Commission in a variety of stringent standards prior to assuming control of such
Registered Corporation. The Nevada Commission may also require controlling
stockholders, officers, directors and other persons having a material
relationship or involvement with the entity proposing to acquire control, to be
investigated and licensed as part of the approval process relating to the
transaction. The acquisition of control of the Company, as a result of the
Restated

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Second Amended Plan, received the prior approval of the Nevada Commission upon
the recommendation of the Nevada Board.

     The Nevada legislature has declared that some corporate acquisitions
opposed by management, repurchases of voting securities and corporate defense
tactics affecting Nevada corporate gaming licensees, and Registered Corporations
that are affiliated with those operations, may be injurious to stable and
productive corporate gaming. The Nevada Commission has established a regulatory
scheme to ameliorate the potentially adverse effects of these business practices
upon Nevada's gaming industry and to further Nevada's policy to: (i) assure the
financial stability of corporate gaming licensees and their affiliates; (ii)
preserve the beneficial aspects of conducting business in the corporate form;
and (iii) promote a neutral environment for the orderly governance of corporate
affairs. Approvals are, in certain circumstances, required from the Nevada
Commission before the Registered Corporation can make exceptional repurchases of
voting securities above the current market price thereof and before a corporate
acquisition opposed by management can be consummated. The Nevada Act also
requires prior approval of a plan of recapitalization proposed by the Registered
Corporation's Board of Directors in response to a tender offer made directly to
the Registered Corporation's stockholders for the purposes of acquiring control
of the Registered Corporation.

     License fees and taxes, computed in various ways depending on the type of
gaming or activity involved, are payable to the state of Nevada and to the
counties and cities in which the Nevada licensee's respective operations are
conducted. Depending upon the particular fee or tax involved, these fees and
taxes are payable either monthly, quarterly or annually and are based upon
either: (i) a percentage of the gross revenues received; (ii) the number of
gaming devices operated; or (iii) the number of table games operated. A casino
entertainment tax is also paid by casino operations where entertainment is
furnished in connection with the serving or selling of food or refreshments or
the selling of merchandise. Nevada licensees that hold a license to manufacture
or distribute gaming devices also pay certain fees and taxes to the state of
Nevada.

     Any person who is licensed, required to be licensed, registered, required
to be registered, or is under common control with such persons (collectively,
"Licensees"), and who proposes to become involved in a gaming venture outside of
Nevada, is required to deposit with the Nevada Board, and thereafter maintain, a
revolving fund in the amount of $10,000 to pay the expenses of investigation by
the Nevada Board of their participation in such foreign gaming. The revolving
fund is subject to increase or decrease at the discretion of the Nevada
Commission. Thereafter, Licensees are required to comply with certain reporting
requirements imposed by the Nevada Act. Licensees are also subject to
disciplinary action by the Nevada Commission if they knowingly violate any laws
of the foreign jurisdiction pertaining to the foreign gaming operation, fail to
conduct the foreign gaming operation in accordance with the standards of honesty
and integrity required of Nevada gaming operations, engage in activities or
associations that are harmful to the state of Nevada or its ability to collect
gaming taxes and fees, employ, contract with or associate with a person in the
foreign operation who has been denied a license or finding of suitability in
Nevada on the grounds of personal unsuitability.

NEVADA LIQUOR REGULATIONS

     The sale of alcoholic beverages at Stratosphere is subject to licensing and
regulation by the City of Las Vegas. All licenses are revocable and are
transferable only with prior approval of the City of Las Vegas. The City of Las
Vegas has full power to limit, condition, suspend or revoke any such license,
and any such disciplinary action may (and revocation would) have a material
adverse effect on the operations of the Company.

CERTAIN FACTORS

     In addition to factors discussed elsewhere in this Annual Report on Form
10-K, the following are important factors that could cause results or events to
differ materially from those contained in any forward-looking statement made by
or on behalf of the Company.

     BANKRUPTCY.  On January 27, 1997 ("Petition Date"), Stratosphere
Corporation and its wholly-owned subsidiary Stratosphere Gaming Corp. ("SGC" and
collectively with Stratosphere Corporation, the "Debtors") filed voluntary
petitions for Chapter 11 Reorganization pursuant to the United States Bankruptcy
Code. As of that date, the United States Bankruptcy Court for the District of
Nevada ("Bankruptcy Court") assumed jurisdiction over the assets of Stratosphere
Corporation and SGC. Stratosphere Corporation and SGC were acting as
debtors-in-possession on behalf of their respective bankrupt estates, and were
authorized as such to operate their business subject to Bankruptcy Court
supervision. On June 9, 1998, the Bankruptcy

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Court entered an order (the "Confirmation Order") confirming the Restated Second
Amended Plan of Reorganization filed by the Debtors (the "Restated Second
Amended Plan"). On October 14, 1998, the Restated Second Amended Plan became
effective. All material conditions precedent to the Restated Second Amended Plan
becoming binding were satisfied on or before September 27, 1998. Accordingly,
the Company has reflected the effect of the Restated Second Amended Plan as of
September 27, 1998.

     As a result of the restructuring, the Company implemented the guidance
provided by the American Institute of Certified Public Accountants Statement of
Position 90-7 "Financial Reporting By Entities In Reorganization Under The
Bankruptcy Code" ("AICPA SOP 90-7") and as such, adopted "fresh start reporting"
as of September 27, 1998. The Company's emergence from its Chapter 11
proceedings resulted in a new reporting entity with no retained earnings or
accumulated deficit as of September 27, 1998. Accordingly, the Company's
consolidated financial statements for periods prior to September 27, 1998 are
not comparable to consolidated financial statements presented on or subsequent
to September 27, 1998. Column headings have been included on the accompanying
Consolidated Statements of Operations and Consolidated Statement of Cash Flows
to distinguish between the predecessor and successor entities.

     Pursuant to the Restated Second Amended Plan becoming effective on October
14, 1998, the Company canceled all prior equity interests (including the 58.4
million outstanding shares of Common Stock, options and warrants) and exchanged
2,030,000 shares of New Common Stock for the secured portion of the 14  1/4%
First Mortgage Notes (estimated at $120.6 million). Approximately 89.6% of the
New Common Stock was issued to Carl C. Icahn related entities. The remaining
portion of the 14  1/4% First Mortgage Notes claim (approximately $104 million),
the balance of the note due Grand Casinos, Inc. (approximately $52.4 million)
and all other general unsecured claims will be discharged in exchange of a cash
payment of $6.0 million. Certain priority claims (estimated at $.9 million) were
paid in full. The discharge and settlement of these claims resulted in a gain of
$153.4 million, which was reflected as an extraordinary item on the September
27, 1998, consolidated statements of operations. The amount of the gain was
based on the Company's estimate of the amount of claims that will ultimately be
allowable by the Bankruptcy Court, and was based on the total of actual claims
filed. In the event additional unsecured claims are allowed by the Bankruptcy
Court, it will not increase the Company's cash required for full debt discharge.
A portion of the $6.9 million to be distributed has been reserved for potential
future settlement of unsecured claim disputes (approximately $1.8 million). The
only significant remaining claim dispute is the rejection claim filed by
Strato-Retail. A hearing date has not yet been scheduled regarding this matter
(see Item 3. Legal Proceedings).

     NEED FOR ADDITIONAL FINANCING.  Completion of the unfinished 1,000 bay
hotel tower and other amenities including the new pool area and coffee shop
(collectively "Phase II") remains on hold. Completion of Phase II may be
critical for the Company to remain competitive in the long-term. The Company
estimates that the construction to complete Phase II will take approximately
fourteen months and cost approximately $65.0 million. The Company is currently
seeking funding for the completion of Phase II and is considering various
alternatives. There can be no assurance that the Company will ultimately be able
to obtain adequate funding for Phase II or, if available, will be on favorable
terms to the Company. However, in order to begin the construction process the
Company may seek bridge financing from entities controlled by Mr. Icahn at
market rates. There is no assurance that bridge financing, if obtained will be
able to be taken out by the Company and no prediction can now be made of the
effect of failure to take out any bridge financing. The Company has engaged the
services of an investment-banking firm to assist in evaluating the Company.

     RISKS OF NEW CONSTRUCTION.  Major construction projects (and particularly
on the size, complexity and scale of Phase II) entail significant risks,
including shortages of materials or skilled labor, unforeseen engineering,
environmental and/or geological problems, work stoppages, weather interference,
unanticipated cost increases and non-availability of construction equipment.
Construction, equipment or staffing problems or difficulties in obtaining any of
the requisite licenses, permits, allocations and authorizations from regulatory
authorities could increase the total cost, or delay or prevent the construction
or opening of Phase II or otherwise affect the design and features of Phase II.
Delays in completing Phase II may result in increased completion costs.

     COMPETITION.  The casino/hotel industry is highly competitive. Hotels
located on or near the Las Vegas Strip compete primarily with other Las Vegas
strip hotels and with a few major hotels in downtown Las Vegas. The Hotel and
the Casino also competes with a large number of hotels and motels located in and
near Las Vegas. The Tower competes with all other forms of entertainment,
recreational activities and other attractions in and near Las Vegas. Many of the
Company's competitors offer more products than the Company and have

                                        8
<PAGE>   9

greater name recognition and may have greater resources. Lack of completion of
Phase II may put the Company at a competitive disadvantage.

     POSSIBLE CONFLICTS OF INTEREST.  Mr. Icahn (including certain related
entities) is actively involved in the gaming industry and currently owns 89.6%
of Stratosphere Corporation Common Stock. Casinos owned or managed by Mr. Icahn
may directly or indirectly compete with the Company. In addition, the potential
for conflicts of interest exists among the Company and Mr. Icahn for future
business opportunities. Mr. Icahn may intend to pursue other business
opportunities and there is no agreement requiring that such additional business
opportunities be presented to the Company.

ITEM 2.  PROPERTIES

     The Company currently owns approximately 24.5 acres of land on or near the
Las Vegas Strip. The Company entered into an Owner Participation Agreement (the
"Owner Participation Agreement") with the City of Las Vegas Downtown
Redevelopment Agency (the "Redevelopment Agency") in December 1994. In the
reorganization proceedings referred to above, the Owner Participation Agreement
was assumed prior to confirmation of the Restated Second Amended Plan. This
property and the property the Company is seeking to acquire pursuant to the
Owner Participation Agreement (approximately 1 acre) lie within the downtown
redevelopment district, an area designated by the City for economic
redevelopment and urban renewal, and the Company believes that it will be
successful in its acquisition. While the Company believes that through the
City's power of eminent domain or through negotiations with current owners, all
remaining property will be acquired, there can be no assurance that all such
property will be acquired or that such property will be acquired within the
Company's budget. The Company has acquired all but two parcels of property being
sought by the City for the Company. The City is currently taking all steps
necessary to acquire these two parcels but there can be no assurance that it
will succeed in acquiring such parcels. The City's right to acquire these two
properties was determined to be invalid in Nevada District Court and is
currently on appeal to the Nevada Supreme Court. On January 23, 1998, the Nevada
Supreme Court issued an Order of Limited Remand ordering the District Court to
hold an evidentiary hearing within sixty (60) days of the date of the Order on
the issues of the Debtors' intent to accept or reject the Owner Participation
Agreement and, if the Owner Participation Agreement is rejected, whether the
City of Las Vegas Downtown Redevelopment Agency intends to acquire the property
independently of the Company. The Company informed the District Court that it
intended to assume the Owner Participation Agreement and the District Court
concluded its evidentiary hearing. The Company believes that, if necessary, it
can independently acquire the remaining parcels although the asking price may be
more than the Company is willing to pay or, in the alternative, continue
operating with the facility and property it currently owns.

     The Company has also built a park, which was deeded to the City of Las
Vegas. Additionally, as required by the Owner Participation Agreement, the
Company acquired and has conveyed to the City a building known as the Stupak
Center, which is used by the City as a community center. The Company previously
donated $100,000 to the Redevelopment Agency pursuant to the Owner Participation
Agreement to fund renovation of the Stupak Center as a multi-use facility,
including a day care center.

     The Company entered into the Master Lease with Strato-Retail LLC pursuant
to which Strato-Retail LLC was required to develop approximately 160,000 square
feet of the second floor of the building in which the Tower is located into a
retail and entertainment center. The Master Lease provided for base rent plus
percentage rent. Strato-Retail LLC paid the Company approximately $9.9 million
for the construction of the Phase I retail shell and, pursuant to the Master
Lease was obligated to pay $7.9 million for the construction of the Phase II
expansion of the retail shell. Strato-Retail failed to pay any portion of the
Phase II expansion costs and construction of Phase II was halted prior to
completion. The Company, as part of the Restated Second Amended Plan, sought to
assume the Master Lease. Strato-Retail LLC opposed the assumption of the Master
Lease and the Bankruptcy Court allowed confirmation and consummation of the
Restated Second Amended Plan to occur prior to concluding the hearings on the
Company's motion to assume the Master Lease. After evidentiary hearings, in June
1999, the Bankruptcy Court determined that the Company could not assume the
Master Lease because of certain non-curable, prepetition date defaults under the
Master Lease. As a result of the decision of the Bankruptcy Court, Strato-Retail
LLC will not be required to reimburse the Company for the $7.9 million, and
Strato-Retail LLC has asserted both a prepetition unsecured claim for breach of
the Master Lease and a postpetition administrative claim for ongoing damages as
a result of the breach of the Master Lease. The claims are subject to further
proceedings before the Bankruptcy Court, but in the event the Bankruptcy Court
sustains a prepetition unsecured claim for Strato-Retail LLC, such claim will be
paid proportionately from the $6.0 million fund established for payment of
prepetition claims. In

                                        9
<PAGE>   10

the event the Bankruptcy Court approves a claim for postpetition rejection
damages, any such damages will be limited to an offset against rentals accruing
under the Master Lease as a result of the decision by Strato-Retail LLC not to
terminate possession of the leased premises but to remain in possession of the
leased premises. The Company has appealed the decision of the Bankruptcy Court
denying the motion to assume (see Item 3. Legal Proceedings).

     During March 2000, the Company entered into negotiations with Strato-Retail
for the purchase of the master lease property. The outcome of such negotiations
can not be determined at this time nor can there be any assurance that the
Company will be able to adequately fund the potential transaction.

ITEM 3. LEGAL PROCEEDINGS

     The Company's complaint for the avoidance of preferential transfers made to
McDonald's Corporation (the "Complaint") and the Company's objection to the
proof of claim filed by McDonald's Corporation came to trial June 24, 1999. On
September 20, 1999, the Bankruptcy Court entered its Notice of Entry of Findings
of Fact, Conclusions of Law and Judgment Re Debtors' Complaint for Avoidance of
Preferential Transfer Pursuant to 11 U.S.C. sec. 547 and Order Re Objection To
McDonald's Proof of Claim ("Judgment"). The Judgment ordered that payments made
in January 1997, by the Company to McDonald's in the amount of $.7 million
("Judgment Amount"), were preferential payments pursuant to Section 547(b) of
the Bankruptcy Code and were thereby recoverable by the Company. Regarding the
Company's objection to the proof of claim filed by McDonald's, the Bankruptcy
Court held that McDonald's was not entitled to an administrative claim and that
it was not entitled to any claim for damages. On September 29, 1999, McDonald's
Corporation filed its notice of appeal to the Bankruptcy Appellate Panel for the
Ninth Circuit Court of Appeals. The matter is currently being briefed, but a
hearing date has not been set. To date the record on appeal has been designated
but a briefing schedule has not been set.

     RAS Builders ("RAS") filed a Proof of Claim in the Bankruptcy Proceedings
based on a previously recorded mechanic's lien in the amount of $72,524. The
mechanic's lien was recorded against the real property owned by the Debtors
after RAS Builders constructed certain tenant improvements for a subtenant
located in the Phase I retail shopping center master leased to Strato-Retail
LLC. The Company filed an adversary complaint in the Bankruptcy Proceedings
against RAS Builders to avoid the lien, and further sought indemnification from
the Company's tenant, Strato-Retail LLC in the event the Company is required to
satisfy the RAS lien. Pursuant to a stipulation and order by the Bankruptcy
Court, the claim was dismissed on July 27, 1999.

     The Company has filed a complaint for the avoidance of preferential
transfers made to Grand Casinos, Inc. ("Grand"). Included in the complaint are
approximately $5.9 million of payments made to Grand prior to the Company
beginning bankruptcy proceedings. The Company expects counsel to file a motion
for summary judgment in April 2000 at which time the Bankruptcy Court Judge will
set a hearing date.

     On February 26, 1998, the Company filed its Motion for Approval of
Assumption of Unexpired Lease ("Assumption Motion") seeking to assume the
Development and Lease Agreement ("Lease") with Strato-Retail. Strato-Retail
opposed the Assumption Motion claiming that the cessation of Phase II
construction was an incurable breach of the Lease by the Company. Strato-Retail
also has claimed damages due to the Company's alleged failure to timely tender
the Phase II shell. After evidentiary hearing, the Bankruptcy Court entered its
Order Re Motion for Approval of Assumption of Unexpired Lease ("Order") finding
in pertinent part that the Company's failure to complete construction and the
ramifications following therefrom are incurable "historical facts" and that the
Company could not assume the Lease. The Company appealed the Bankruptcy Court's
ruling; the appeal was submitted for decision before the Bankruptcy Appellate
Panel for the Ninth Circuit Court of Appeals following an oral hearing on
February 24, 2000. On July 16, 1999, Strato-Retail filed its protective proof of
claim in excess of $139.5 million. The basis for the amount of the proof of
claim is Strato-Retail's calculation of its alleged cash flow if Phase II had
been completed as contemplated by the Lease. Strato-Retail acknowledged that it
is only entitled to offset its damages against the rent reserved under the Lease
(approximately $1.3 million annually); however, Strato-Retail claims that the
prepetition failure to complete Phase II is an ongoing breach by the Company
because the incompletion of Phase II was found by the Bankruptcy Court to be
incurable. The Bankruptcy Court has not yet set a hearing date regarding this
matter.

     In addition, in the ordinary course of business, the Company is party to
various legal actions. In management's opinion, the ultimate outcome of such
legal actions will not have a material effect on the results of operations or
the financial position of the Company.

                                       10
<PAGE>   11

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     None

                                       11
<PAGE>   12

                                    PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

     Prior to February 24, 1994, there was no established trading market for the
Company's securities. On February 24, 1994, the Company's Common Stock ("Old
Common Stock") commenced trading on the NASDAQ Small Cap Market under the symbol
TOWV and the Pacific Stock Exchange under the symbol TOW. On June 24, 1994, the
Old Common Stock commenced trading on the NASDAQ National Market. The symbol was
changed to TOWVQ to indicate that the Company had begun operating under
Bankruptcy Proceedings on January 27, 1997. The Old Common Stock was delisted
from the Pacific Stock Exchange on December 3, 1996, and was delisted from the
National Market System on March 31, 1997, and began trading on the over the
counter bulletin board. All trading of the Company's Old Common Stock ceased as
of October 14, 1998, when such Old Common Stock was canceled pursuant to the
Restated Second Amended Plan. On October 14, 1998, pursuant to the Restated
Second Amended Plan, the Company issued 2,030,000 shares of New Common Stock
("New Common Stock"). There has been extremely limited trading volume of the New
Common Stock since October 14, 1998. During 1999, prices as reported on the over
the counter bulletin board, have ranged from $20 to $33.

     The Company has never paid any cash dividends with respect to the Old
Common Stock or New Common Stock. The Company had 8 stockholders of record as of
March 10, 2000 for New Common Stock.

ITEM 6.  SELECTED CONSOLIDATED FINANCIAL DATA

<TABLE>
<CAPTION>
                                      SUCCESSOR COMPANY                            PREDECESSOR COMPANY
                                 ----------------------------   ----------------------------------------------------------
                                    FISCAL      SEPTEMBER 28,   DECEMBER 29,       FISCAL         FISCAL
                                  YEAR ENDED    1998 THROUGH    1997 THROUGH     YEAR ENDED     YEAR ENDED     YEAR ENDED
                                 DECEMBER 26,   DECEMBER 27,    SEPTEMBER 27,   DECEMBER 28,   DECEMBER 29,   DECEMBER 31,
STATEMENT OF OPERATIONS DATA         1999           1998            1998            1997           1996           1995
----------------------------     ------------   -------------   -------------   ------------   ------------   ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                              <C>            <C>             <C>             <C>            <C>            <C>
Net revenues (a)...............    $123,227        $30,586        $ 99,386        $137,516       $108,739       $    60
Costs and expenses.............     120,035         30,636          93,802         134,711        439,905(b)        947
                                   --------        -------        --------        --------       --------       -------
Income (loss) from
  operations...................       3,192            (50)          5,584           2,805       (331,166)         (887)
Other expense..................         972            134           2,022          22,120         17,677         3,776
                                   --------        -------        --------        --------       --------       -------
Income (loss) before
  extraordinary item...........       2,220           (184)          3,562         (19,315)      (348,843)       (4,663)
                                   --------        -------        --------        --------       --------       -------
Extraordinary item:
  Gain on pre-petition debt
    discharge..................          --             --         153,437(c)           --             --            --
                                   --------        -------        --------        --------       --------       -------
Net Income (loss)..............    $  2,220        $  (184)       $156,999        $(19,315)      $(348,843)     $(4,663)
                                   ========        =======        ========        ========       ========       =======
Basic income (loss) per
  common share:
  Before extraordinary item....    $   1.09        $ (0.09)              *        $  (0.33)      $  (6.00)      $ (0.12)
  Extraordinary item...........          --             --               *              --             --            --
Net income (loss) per share....    $   1.09        $ (0.09)              *        $  (0.33)      $  (6.00)      $ (0.12)
                                   ========        =======        ========        ========       ========       =======
Weighted average common shares
  outstanding..................       2,030          2,030               *          58,393         58,135        37,583
                                   ========        =======        ========        ========       ========       =======
</TABLE>

---------------

* Earnings per share is not presented for the nine months ended September 27,
  1998 because such presentation would not be meaningful. The Old Common Stock
  was canceled and the New Common Stock was issued pursuant to the Restated
  Second Amended Plan.

<TABLE>
<CAPTION>
                                              SUCCESSOR COMPANY                            PREDECESSOR COMPANY
                                 --------------------------------------------   ------------------------------------------
                                    FISCAL      SEPTEMBER 28,   DECEMBER 29,       FISCAL         FISCAL
                                  YEAR ENDED    1998 THROUGH    1997 THROUGH     YEAR ENDED     YEAR ENDED     YEAR ENDED
                                 DECEMBER 26,   DECEMBER 27,    SEPTEMBER 27,   DECEMBER 28,   DECEMBER 29,   DECEMBER 31,
BALANCE SHEET DATA                   1999           1998            1998            1997           1996           1995
------------------               ------------   -------------   -------------   ------------   ------------   ------------
(IN THOUSANDS)
<S>                              <C>            <C>             <C>             <C>            <C>            <C>
Total Assets...................    $157,488       $155,546        $165,109        $155,976       $181,080(b)    $433,906
Long-term capital lease
  obligations..................       8,445          8,979          11,150              --(d)      19,540             --
Long-term debt.................          87            242             288             444(d)     253,000        203,000
</TABLE>

                                       12
<PAGE>   13

---------------

(a) The Company began operations on April 29, 1996.

(b) The reduction of total assets and increase in costs and expenses is the
    result of a $295.9 million write-down of fixed assets recorded pursuant to
    adoption of Statement of Financial Accounting Standards No. 121, "Accounting
    for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
    Disposed Of," for the year ended December 29, 1996.

(c) Represents gain on the discharge of pre-petition debt pursuant to the
    Restated Second Amended Plan becoming effective.

(d) As a result of the restructuring and implementation of the guidance provided
    by the AICPA Statement of Position 90-7 "Financial Reporting by Entities in
    Reorganization Under the Bankruptcy Code," all pre-petition liabilities
    including long-term debt and obligations under capital leases have been
    included in liabilities subject to compromise from the Petition Date to the
    Effective Date. Liabilities subject to compromise totaled $299,208,988 on
    December 28, 1997.

                                       13
<PAGE>   14

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

     The following discussion contains trend information and other
forward-looking statements that involve a number of risks and uncertainties. The
actual results of the Company could differ materially from the Company's
historical results of operations and those discussed in the forward-looking
statements.

OVERVIEW

     The Company operates an integrated casino, hotel and entertainment facility
and a 1,149 foot, free-standing observation tower in Las Vegas, Nevada. As of
March 9, 2000, the operations included approximately 1,563 slot machines, 43
table games, 4 poker tables, a race and sports book, keno lounge, 1,444 hotel
rooms and five themed restaurants.

RESTRUCTURING

     On January 27, 1997 ("Petition Date"), Stratosphere Corporation and its
wholly-owned subsidiary Stratosphere Gaming Corp. ("SGC" and collectively with
Stratosphere Corporation, the "Debtors") filed voluntary petitions for Chapter
11 Reorganization pursuant to the United States Bankruptcy Code. As of that
date, the United States Bankruptcy Court for the District of Nevada ("Bankruptcy
Court") assumed jurisdiction over the assets of Stratosphere Corporation and
SGC. Stratosphere Corporation and SGC were acting as debtors-in-possession on
behalf of their respective bankrupt estates, and were authorized as such to
operate their business subject to Bankruptcy Court supervision. On June 9, 1998,
the Bankruptcy Court entered an order (the "Confirmation Order") confirming the
Restated Second Amended Plan of Reorganization filed by the Debtors (the
"Restated Second Amended Plan"). On October 14, 1998, the Restated Second
Amended Plan became effective. All material conditions precedent to the Restated
Second Amended Plan becoming binding were satisfied on or before September 27,
1998. Accordingly, the Company has reflected the effect of the Restated Second
Amended Plan as of September 27, 1998.

     As a result of the restructuring, the Company implemented the guidance
provided by the American Institute of Certified Public Accountants Statement of
Position 90-7 "Financial Reporting By Entities In Reorganization Under The
Bankruptcy Code" ("AICPA SOP 90-7") and as such, adopted "fresh start reporting"
as of September 27, 1998. The Company's emergence from its Chapter 11
proceedings resulted in a new reporting entity with no retained earnings or
accumulated deficit as of September 27, 1998. Accordingly, the Company's
consolidated financial statements for periods prior to September 27, 1998 are
not comparable to consolidated financial statements presented on or subsequent
to September 27, 1998. Column headings have been included on the accompanying
Consolidated Statements of Operations and Consolidated Statement of Cash Flows
to distinguish between the predecessor and successor entities.

     Pursuant to the Restated Second Amended Plan becoming effective on October
14, 1998, the Company canceled all prior equity interests (including the 58.4
million outstanding shares of Common Stock, options and warrants) and exchanged
2,030,000 shares of New Common Stock for the secured portion of the 14 1/4%
First Mortgage Notes (estimated at $120.6 million). Approximately 89.6% of the
New Common Stock was issued to Carl C. Icahn related entities. The remaining
portion of the 14 1/4% First Mortgage Notes claim (approximately $104 million),
the balance of the note due Grand Casinos, Inc. (approximately $52.4 million)
and all other general unsecured claims will be discharged in exchange of a cash
payment of $6.0 million. Certain priority claims (estimated at $.9 million) were
paid in full. The discharge and settlement of these claims resulted in a gain of
$153.4 million, which was reflected as an extraordinary item on the September
27, 1998, consolidated statements of operations. The amount of the gain was
based on the Company's estimate of the amount of claims that will ultimately be
allowable by the Bankruptcy Court, and was based on the total of actual claims
filed. In the event additional unsecured claims are allowed by the Bankruptcy
Court, it will not increase the Company's cash required for full debt discharge.
A portion of the $6.9 million to be distributed has been reserved for potential
future settlement of unsecured claim disputes (approximately $1.8 million). The
only significant remaining claim dispute is the rejection claim filed by
Strato-Retail (see Item 3. Legal Proceedings).

RESULTS OF OPERATIONS

     The following discussion regarding the operating results of the Company
will be a comparison of fiscal years 1999 to 1998 and 1998 to 1997. The
comparison of operating results for fiscal year 1998 and 1997 is performed by
comparing the operating results for the 1998 combined pre and
post-reorganization periods to

                                       14
<PAGE>   15

the actual results of fiscal year 1997 since operations have remained similar
and such comparison would not be misleading (in thousands).

<TABLE>
<CAPTION>
                                                                         COMBINED
                                                      SUCCESSOR          POST AND         PREDECESSOR
                                                       COMPANY      PRE-REORGANIZATION      COMPANY
                                                     ------------   -------------------   ------------
                                                     FISCAL YEAR        FISCAL YEAR       FISCAL YEAR
                                                        ENDED              ENDED             ENDED
                                                     DECEMBER 26,      DECEMBER 27,       DECEMBER 28,
                                                         1999              1998               1997
                                                     ------------   -------------------   ------------
                                                                        (UNAUDITED)
<S>                                                  <C>            <C>                   <C>
REVENUES:
  Casino..........................................     $ 48,491          $ 55,534           $ 62,981
  Hotel...........................................       24,640            23,998             24,007
  Food and beverage...............................       33,230            33,760             33,143
  Tower, retail and other income..................       26,893            29,296             30,340
                                                       --------          --------           --------
GROSS REVENUES....................................      133,254           142,588            150,471
  Less: Promotional allowances....................       10,027            12,616             12,955
                                                       --------          --------           --------
NET REVENUES......................................      123,227           129,972            137,516
                                                       --------          --------           --------
COSTS AND EXPENSES:
  Casino..........................................       28,088            30,506             32,625
  Hotel...........................................       13,844            12,255             13,898
  Food and beverage...............................       25,880            25,527             28,101
  Other operating expenses........................       11,382            13,300             13,475
  Depreciation and amortization...................        8,337             8,108              7,843
  Selling, general and administrative.............       32,504            34,742             38,769
                                                       --------          --------           --------
     Total Costs and Expenses.....................      120,035           124,438            134,711
                                                       ========          ========           ========
INCOME FROM OPERATIONS............................        3,192             5,534              2,805
                                                       --------          --------           --------
OTHER INCOME (EXPENSE)
  Interest income.................................          741               203                 48
  Interest expense................................         (867)           (1,532)            (5,492)
  Gain (Loss) on sale of assets...................          (71)              (72)                14
                                                       --------          --------           --------
     Total Other Expense, net.....................         (197)           (1,401)            (5,430)
                                                       --------          --------           --------
INCOME (LOSS) BEFORE REORGANIZATION ITEMS,
  INCOME TAXES AND EXTRAORDINARY ITEM.............        2,995             4,133             (2,625)
REORGANIZATION ITEMS:.............................           --              (754)           (16,690)
                                                       --------          --------           --------
INCOME (LOSS) BEFORE INCOME TAXES AND
  EXTRAORDINARY ITEM..............................        2,995             3,379            (19,315)
PROVISION (BENEFIT) FOR INCOME TAXES..............          775                --                 --
                                                       --------          --------           --------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM...........        2,220             3,379            (19,315)
EXTRAORDINARY GAIN ON PREPETITION DEBT
  DISCHARGE.......................................           --           153,437                 --
                                                       --------          --------           --------
NET INCOME (LOSS).................................     $  2,220          $156,816           $(19,315)
                                                       ========          ========           ========
</TABLE>

COMPARISON OF OPERATING RESULTS FOR THE FISCAL YEARS 1999 AND 1998

REVENUES

     Casino revenues of $48.5 million for fiscal year 1999 were $7.0 million
(13%) less than fiscal year 1998. Management attributes the continued decline in
casino revenues to increased competition with the opening of four new mega
resorts on the Las Vegas Strip (Bellagio, Mandalay Bay, Venetian and Paris),
which resulted in a decline in overall visitation to the property. The casino
product was enhanced with the addition of the new 5,000 square foot race and
sports book, deli and entertainment lounge and bar on August 15, 1999. Casino
marketing efforts have been directed toward the development of several new table
games, slots and race and sports book promotions targeting value conscious
casino customers. Promotional events and direct mail programs targeting casino
guest visits during lower occupancy periods have been planned for fiscal year
2000.

                                       15
<PAGE>   16

     Tower, retail and other revenues of $26.9 million for fiscal year 1999 were
$2.4 million (8%) less than the same period in 1998. Tower visitation (including
the Top of The World dinning) totaled 2.2 million during fiscal year 1999, as
compared to 2.4 million for the same period in 1998. The decline in Tower
visitation (10%) is attributable to the increase in new attractions on the Las
Vegas Strip. In addition, the Tower revenues and visitation was negatively
impacted with the closure of the "High Roller" roller coaster for maintenance
during April 1999.

COSTS AND EXPENSES

     Promotional allowances decreased from $12.6 million during fiscal year 1998
to $10.0 million for the same period in 1999. The reduction in promotional
allowances was the result of less direct mail promotions that include room, food
and beverage being offered to guests on a complimentary basis. Management
anticipates that promotional allowances will increase during fiscal year 2000
with the increase in direct marketing efforts and special events offered to
casino guests during low occupancy periods.

     Casino operating costs declined approximately 8% from $30.5 million for the
fiscal year 1998 to $28.1 million for the same period in 1999. The majority of
the decline in casino operating expenses resulted from a $2.0 million reduction
in the cost of providing complimentary room, food and beverage to casino guests
and a $.4 million reduction in bad debt expense. Management anticipates future
increases in complimentary costs resulting from the implementation of additional
promotional events and direct mail programs.

     Hotel operating costs increased 13% from $12.3 million for fiscal year 1998
to $13.8 million for 1999. Approximately $1.2 million of the increase is due to
fewer room nights being provided to casino guests on a complimentary basis, the
cost of which is charged to casino operations.

     Other operating expenses decreased 14% from $13.3 million for fiscal year
1998 to $11.4 million for 1999. The majority of this reduction is due to reduced
entertainer fees and payroll costs associated with the showroom and Tower
operations. These costs are anticipated to stabilize during fiscal year 2000.

     Selling, general and administrative expenses decreased 6% from $34.7
million for fiscal year 1998 to $32.5 million for 1999. The reduction was the
result of the implementation of a lower cost advertising campaign and a
reduction in other fixed expenses. These costs are expected to stabilize during
fiscal year 2000.

OTHER FACTORS IMPACTING EARNINGS

     Interest income was approximately $.7 million for fiscal year 1999.
Interest income earned during the same period in 1998 was approximately $1.0
million. $.8 million was classified as a Reorganization item.

     Interest expense decreased 43% from $1.5 million for fiscal year 1998 to
$.9 million for 1999. The decrease was due to a reduction in interest associated
with the Company's capital lease obligations. The Company refinanced its capital
lease obligations in the amount of $10.0 million on May 28, 1999. The current
rate of interest is 8.5%.

     The Company recorded expense from Reorganization items totaling $.8 million
during fiscal year 1998. Since the Effective Date, any unaccrued professional
fees related to the reorganization will be classified as a selling, general and
administrative expense. There were no such items incurred during fiscal year
1999.

     The Company recorded a provision for income taxes of $.8 million for fiscal
year 1999. In the event the Company is able to utilize any of its deferred tax
assets in future periods, any such tax benefit will be reported as a direct
addition to contributed capital.

     The Company recorded a $153.4 million extraordinary gain on the discharge
of debt associated with the Company's emergence from Chapter 11 bankruptcy
proceedings in fiscal year 1998. There were no extraordinary gains or losses
recorded during fiscal year 1999.

COMPARISON OF OPERATING RESULTS FOR THE FISCAL YEARS 1998 AND 1997

REVENUES

     Casino revenues of $55.5 million for fiscal year 1998 were $7.4 million
(12%) less than the same period in 1997. Management attributes the decline to an
increased number of casinos implementing similar favorable gaming odds
promotions offered by the Company and a decline in Tower visitation. Casino
revenues represented 39% and 42% of total gross revenues for the 1998 and 1997
fiscal years, respectively.

                                       16
<PAGE>   17

     Hotel revenues of $24.0 million for fiscal year 1998 were consistent with
the same period in 1997. Hotel occupancy was 91% during 1998 as compared to 88%
in 1997. The hotel occupancy mix shifted during 1998 to more rooms being
occupied by casino customers on a complimentary basis. Casino complimentaries
increased from 10% of total rooms occupied in 1997 to 15% in 1998. Casino
occupancy has subsequently decreased to approximately 12% during fiscal year
1999. The average rate per guest room was $49.91 during 1998 as compared to
$51.31 in 1997. Hotel revenues averaged 17% and 16% of total gross revenues
during 1998 and 1997, respectively.

     Tower visitations (including the Top of The World dining) totaled 2.4
million during the 1998 fiscal year as compared to 2.7 million for the same
period in 1997. The revenue impact of the decline in visitations was partially
offset by an increase in ride admissions from 1.0 million for 1997 to 1.2
million during 1998. The increase in ride revenues was due primarily to the
implementation programs to increase the number of multiple rides per visitor.

COST AND EXPENSES

     Casino operating costs declined approximately 7% from $32.6 million for
fiscal year 1997 to $30.5 million for 1998. The majority of this expense
reduction was due to reduced labor costs associated with reducing the table
games offered from 53 to 37 during April 1998, which was partially offset with
the opening of the 6 game poker room.

     Hotel operating costs declined approximately 12% from $13.9 million for
fiscal year 1997 to $12.2 million for 1998. The reduction in hotel operating
costs is due to more room nights being provided to casino customers on a
complimentary basis in 1998, the cost of which is included in promotional
allowances. A $.6 million reduction in labor costs also contributed
significantly to the decline in hotel operating costs.

     Food and beverage operating costs declined approximately 9% from $28.1
million for fiscal year 1997 to $25.5 million for 1998. The majority of the
expense reduction was the result of reduced labor costs and the implementation
of several purchasing programs aimed at reducing the cost of sales.

     Selling, general and administrative expenses declined approximately 10%
from $38.8 million for fiscal year 1997 to $34.7 million for 1998. The majority
of cost savings during 1998 were realized through a $2.1 million reduction in
labor expenses, $.8 million reduction in advertising expenses and $.4 million
reduction in bad debt expense. In addition, the 1997 amounts included
approximately $1.2 million of non-recurring charges related to tax audits,
assessments and pre-petition restructuring costs.

OTHER FACTORS AFFECTING EARNINGS

     Interest expense was $1.5 million for fiscal year 1998 as compared to $5.5
million for 1997. The reduction in interest expense is due to the $2.4 million
of interest related to the 14 1/4% First Mortgage Notes for the pre-petition
period in 1997, $.5 million of interest related to the Grand Note and a $.9
million reduction in interest associated with the capital lease obligations. The
Company ceased accruing interest on the Grand Note and the 14 1/4% First
Mortgage Notes as of the Petition Date. Pursuant to the Restated Second Amended
Plan, principal and interest payments associated with the capital lease
obligations continued. The capital lease obligation was refinanced on May 28,
1999, as the Company entered into a new capital lease obligation of $10.0
million ("New Capital Lease Obligation"). The Grand Note and the 14 1/4% First
Mortgage Notes were cancelled. Future period interest has been limited to the
new capital lease obligation interest.

     The Company recorded expenses from reorganization items of $.8 million for
fiscal year 1998 as compared to $16.7 million for 1997 (see Note 3 to the
consolidated financial statements included in this Form 10-K). Since the
Effective Date, professional fees incurred have been classified as selling,
general and administrative expenses. Management estimates that current
reorganization expense accruals will be sufficient to cover the post-Effective
Date reorganization related efforts.

     The Company recorded a $153.4 million extraordinary gain on the discharge
of debt associated with the Company's emergence from Chapter 11 bankruptcy
proceedings.

LIQUIDITY AND CAPITAL RESOURCES

DEBT

     On April 30, 1999, the Company made a final payment of approximately $6.9
million on its capital lease obligations.

                                       17
<PAGE>   18

     On May 28, 1999, the Company entered into the $10.0 million New Capital
Lease Obligation in which certain existing gaming and other equipment was
financed over a thirty-six month period. Interest will be calculated based on
the LIBO rate for each period plus 2.5%. The current rate of interest for the
period ended December 26, 1999, was 8.5%. A $2.0 million balloon payment will be
due upon conclusion of the thirty-six month term. The New Capital Lease
Obligation contains certain covenants that effectively would create an event of
default if the current controlling stockholder of the Company were to cease to
be the beneficial owner of at least 51% of the Company's Common Stock. The
covenants also restrict the Company from incurring more than $5.0 million in
additional debt without the consent of the creditors of the New Capital Lease
Obligation.

SHAREHOLDERS' EQUITY

     On October 4, 1999, American Real Estate Holdings Limited Partnership
("AREH") repurchased 985,286 shares of the Company from entities owned or
controlled by Carl C. Icahn. AREH is the subsidiary limited partnership of
American Real Estate Partners, L.P. ("AREP") a master limited partnership whose
units are traded on the New York Stock Exchange. Mr. Icahn currently owns
approximately 85% of the outstanding depositary units of AREP. Upon completion
of the transaction, Mr. Icahn continues to control approximately 89.6% of the
Company's 2,030,000 Common Stock shares outstanding.

     The Company has not implemented a stock option plan and has not paid any
dividends.

CASH FLOW, WORKING CAPITAL AND CAPITAL EXPENDITURES

     The Company had unrestricted cash balances of $16.4 million as of December
26, 1999. The Company has relied on unrestricted cash balances and its ability
to generate cash flow from operations to fund its working capital needs.

     The Company generated $13.0 million from operating activities for fiscal
year 1999. The cash generated of $13.0 million and the $10.0 million of proceeds
from the New Capital Lease Obligations were used to fund payments on the
original capital lease obligations of $9.0 million, $6.6 million of capital
expenditures and $1.6 million for payments on the New Capital Lease Obligations.

     Capital expenditures during 1999 included a casino enhancement program
consisting of a new race and sports book, deli, entertainment lounge and bar and
an escalator from the showroom to the casino. The total cost of these
enhancements were approximately $3.8 million. The Company purchased
casino-related equipment for $1.0 million at the conclusion of an operating
lease obligation in April 1999.

     Management anticipates that recurring capital expenditures during fiscal
year 2000 will be approximately $2.0 million and will be funded from operating
activities.

     The Company has completed preliminary design plans and has obtained an
estimate regarding the completion of Phase II, which includes 1,000 additional
hotel rooms, a main casino coffee shop and new pool facilities. The estimated
cost to complete Phase II is approximately $65.0 million and is expected to be
constructed during a fourteen-month period. The Company is currently seeking
funding for the completion of Phase II and is considering various alternatives.
There can be no assurance that the Company will ultimately be able to obtain
adequate funding for Phase II or, if available, will be on favorable terms to
the Company. However, in order to begin the construction process the Company may
seek bridge financing from entities controlled by Mr. Icahn at market rates.
There is no assurance that bridge financing, if obtained will be able to be
taken out by the Company and no prediction can now be made of the effect of
failure to take out any bridge financing. The Company has engaged the services
of an investment-banking firm to assist in evaluating the Company.

     During March 2000, the Company entered negotiations with Strato-Retail for
the purchase of the master lease property. The outcome of such negotiations can
not be determined at this time nor can there be any assurance that the Company
will be able to adequately fund the potential transaction.

YEAR 2000

     The Company has completed an extensive program to ensure that our computer
systems are Year 2000 compliant and have experienced no significant problems to
date associated with the Year 2000 issue. Additionally, there are no claims
pending or, to our knowledge, threatened against us arising out of the Year 2000
issue.

                                       18
<PAGE>   19

     Management currently estimates that the combined upgrades and purchases of
new systems have totaled approximately $2.2 million.

OTHER

     On March 8, 2000, California residents voted to expand Native American
gaming operations within that state. The Native American gaming expansion could
result in 43,000 slot machines on 57 tribal reservations. The Company estimates
that approximately 35% of its hotel occupancy is from guests traveling from
southern California. Any proliferation of gaming in southern California could
have a material adverse effect on the Company's business. In addition, any
imposed limitations on college sports betting could adversely impact future
revenues of the Company.

PRIVATE SECURITIES LITIGATION REFORM ACT

     The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements. Certain information included in this
Form 10-K and other materials filed or to be filed by the Company with the
Securities and Exchange Commission (as well as information included in oral
statements or other written statements made or to be made by the Company)
contains statements that are forward-looking, such as statements relating to
plans for future expansion, future construction costs and other business
development activities as well as other capital spending, financing sources and
the effects of regulation (including gaming and tax regulation) and competition.
Such forward-looking information involves important risks and uncertainties that
could significantly affect anticipated results in the future and, accordingly,
such results may differ from those expressed in any forward-looking statements
made by or on behalf of the Company. These risks and uncertainties include, but
are not limited to, those relating to development and construction activities,
dependence on existing management, leverage and debt service (including
sensitivity to fluctuations in interest rates), domestic or global economic
conditions, changes in federal or state tax laws or the administration of such
laws and changes in gaming laws or regulations (including the legalization of
gaming in certain jurisdictions).

                                       19
<PAGE>   20

ITEM 8.  FINANCIAL STATEMENTS

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                              PAGE
                                                              ----
<S>                                                           <C>

Report of Independent Public Accountants....................   21

Consolidated Balance Sheets at December 26, 1999
  and December 27, 1998.....................................   22

Consolidated Statements of Operations for fiscal year ended
  December 26, 1999 (Successor Company), for the period
  September 28, 1998 through December 27, 1998 (Successor
  Company), December 29, 1997 through September 27, 1998
  (Predecessor Company) and fiscal year ended December 28,
  1997 (Predecessor Company)................................   23

Consolidated Statements of Shareholders' Equity (Deficit)
  for the period from December 30, 1996 through September
  27, 1998 (Predecessor Company) and September 28, 1998
  through December 26, 1999 (Successor Company).............   24

Consolidated Statements of Cash Flows for fiscal year ended
  December 26, 1999 (Successor Company), for the period
  September 28, 1998 through December 27, 1998 (Successor
  Company), December 29, 1997 through September 27, 1998
  (Predecessor Company) and fiscal year ended December 28,
  1997 (Predecessor Company)................................   25

Notes to Consolidated Financial Statements..................   27
</TABLE>

                                       20
<PAGE>   21

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors and Shareholders
  of Stratosphere Corporation:

     We have audited the accompanying consolidated balance sheets of
Stratosphere Corporation (a Delaware corporation) and subsidiaries as of
December 26, 1999 and December 27, 1998 (the "Successor Company" see Note 2),
and the related consolidated statements of operations, shareholders' equity
(deficit) and cash flows for the years ended December 26, 1999 and the three
months ended December 27, 1998 (Successor Company) and the nine months ended
September 27, 1998, and the year ended December 28, 1997 (Predecessor Company).
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.

     We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

     As more fully described in Note 2 to the consolidated financial statements,
effective October 14, 1998, the Company emerged from protection under Chapter 11
of the U.S. Bankruptcy Code pursuant to a Reorganization Plan which was
confirmed by the Bankruptcy Court on June 9, 1998. In accordance with AICPA
Statement of Position 90-7, the Company adopted "Fresh Start Reporting" whereby
its assets, liabilities and new capital structure were adjusted to reflect
estimated fair values as of September 27, 1998. As a result, the consolidated
financial statements for the periods subsequent to September 27, 1998 reflect
the Successor Company's new basis of accounting and are not comparable to the
Predecessor Company's pre-reorganization consolidated financial statements.

     In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Stratosphere
Corporation and subsidiaries as of December 26, 1999 and December 27, 1998
(Successor Company), and the results of their operations and their cash flows
for the year ended December 26, 1999 and the three months ended December 27,
1998 (Successor Company), and the nine months ended September 27, 1998, and the
year ended December 28, 1997 (Predecessor Company), in conformity with
accounting principles generally accepted in the United States.

                                          ARTHUR ANDERSEN LLP

Las Vegas, Nevada
February 11, 2000

                                       21
<PAGE>   22

                   STRATOSPHERE CORPORATION AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS

                     (In thousands, except per share data)

<TABLE>
<CAPTION>
                                                                    SUCCESSOR COMPANY
                                                               ---------------------------
                                                               DECEMBER 26,   DECEMBER 27,
                                                                   1999           1998
                                                               ------------   ------------
<S>                                                            <C>            <C>
ASSETS
Current Assets:
  Cash and cash equivalents.................................     $ 16,422       $ 12,624
  Cash and cash equivalents-restricted......................        1,926          2,218
  Marketable securities.....................................        3,459             --
  Investments-restricted....................................        2,278          3,291
  Accounts receivable, net..................................        1,414          2,619
  Other current assets......................................        5,284          5,427
                                                                 --------       --------
Total Current Assets........................................       30,783         26,179
                                                                 --------       --------
Property and Equipment, Net.................................      123,461        126,173
                                                                 --------       --------
Other Assets:
  Deferred financing costs-net..............................          244            194
  Other receivable..........................................        3,000          3,000
                                                                 --------       --------
Total Other Assets..........................................        3,244          3,194
                                                                 --------       --------
TOTAL ASSETS................................................     $157,488       $155,546
                                                                 ========       ========

LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
  Accounts payable-trade....................................     $  1,203       $  1,407
  Current portion of long-term note payable.................           87            148
  Current portion of capital lease obligations..............        2,667          8,979
  Accrued payroll and related expenses......................        5,212          5,146
  Income taxes payable......................................          400             --
  Other accrued expenses....................................       13,027         12,878
                                                                 --------       --------
Total Current Liabilities...................................       22,596         28,558
                                                                 --------       --------
Long-Term Liabilities:
  Long-term note payable-less current portion...............           --             94
  Capital lease obligations-less current portion............        5,778             --
                                                                 --------       --------
TOTAL LONG-TERM LIABILITIES.................................        5,778             94
                                                                 --------       --------
TOTAL LIABILITIES...........................................       28,374         28,652
                                                                 --------       --------

Commitments and Contingencies (Notes 15 and 16)

Shareholders' Equity:
  Preferred stock, $.01 par value; authorized 3,000,000 and
     3,000,000 shares; no shares issued and outstanding at
     December 26, 1999 and December 27, 1998,
     respectively...........................................           --             --
  Common stock, $.01 par value; authorized 10,000,000
     shares;
     issued and outstanding 2,030,000.......................           20             20
  Additional paid-in-capital................................      127,058        127,058
  Retained earnings (accumulated deficit)...................        2,036           (184)
                                                                 --------       --------
Total Shareholders' Equity..................................      129,114        126,894
                                                                 --------       --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY..................     $157,488       $155,546
                                                                 ========       ========
</TABLE>

                See notes to consolidated financial statements.

                                       22
<PAGE>   23

                   STRATOSPHERE CORPORATION AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                      (In thousands except per share data)

<TABLE>
<CAPTION>
                                                SUCCESSOR COMPANY               PREDECESSOR COMPANY
                                          -----------------------------    -----------------------------
                                          FISCAL YEAR     SEPTEMBER 28,    DECEMBER 29,     FISCAL YEAR
                                             ENDED        1998 THROUGH     1997 THROUGH        ENDED
                                          DECEMBER 26,    DECEMBER 27,     SEPTEMBER 27,    DECEMBER 28,
                                              1999            1998             1998             1997
                                          ------------    -------------    -------------    ------------
<S>                                       <C>             <C>              <C>              <C>
REVENUES:
  Casino..............................      $ 48,491         $13,147         $ 42,387         $ 62,981
  Hotel...............................        24,640           5,929           18,069           24,007
  Food and beverage...................        33,230           8,328           25,433           33,143
  Tower, retail and other income......        26,893           6,397           22,899           30,340
                                            --------         -------         --------         --------
GROSS REVENUES........................       133,254          33,801          108,788          150,471
  Less: Promotional allowances........        10,027           3,215            9,401           12,955
                                            --------         -------         --------         --------
NET REVENUES..........................       123,227          30,586           99,387          137,516
                                            --------         -------         --------         --------
COSTS AND EXPENSES:
  Casino..............................        28,088           7,357           23,149           32,625
  Hotel...............................        13,844           2,887            9,368           13,898
  Food and beverage...................        25,880           6,504           19,023           28,101
  Other operating expenses............        11,382           3,085           10,215           13,475
  Depreciation and amortization.......         8,337           2,116            5,993            7,843
  Pre-opening costs amortization......            --              --               --               --
  Impairment of long-lived assets.....            --              --               --               --
  Selling, general and
     administrative...................        32,504           8,687           26,055           38,769
                                            --------         -------         --------         --------
     Total Costs and Expenses.........       120,035          30,636           93,803          134,711
                                            --------         -------         --------         --------
INCOME (LOSS) FROM OPERATIONS.........         3,192             (50)           5,584            2,805
                                            --------         -------         --------         --------
OTHER INCOME (EXPENSE):
  Interest income.....................           741             203               --               48
  Interest expense....................          (867)           (307)          (1,226)          (5,492)
  Gain (Loss) on sale of assets.......           (71)            (30)             (42)              14
                                            --------         -------         --------         --------
     Total Other Expense, net.........          (197)           (134)          (1,268)          (5,430)
                                            --------         -------         --------         --------
INCOME (LOSS) BEFORE REORGANIZATION
  ITEMS, INCOME TAXES AND
  EXTRAORDINARY ITEM..................         2,995            (184)           4,316           (2,625)
REORGANIZATION ITEMS:.................            --              --             (754)         (16,690)
                                            --------         -------         --------         --------
INCOME (LOSS) BEFORE INCOME TAXES AND
  EXTRAORDINARY ITEM..................         2,995            (184)           3,562          (19,315)
PROVISION FOR INCOME TAXES............           775              --               --               --
                                            --------         -------         --------         --------
INCOME (LOSS) BEFORE EXTRAORDINARY
  ITEM................................         2,220            (184)           3,562          (19,315)
                                            ========         =======         ========         ========
EXTRAORDINARY GAIN ON PREPETITION DEBT
  DISCHARGE...........................            --              --          153,437               --
                                            --------         -------         --------         --------
NET INCOME (LOSS).....................      $  2,220         $  (184)        $156,999         $(19,315)
                                            ========         =======         ========         ========
BASIC INCOME (LOSS) PER COMMON SHARE
  Before extraordinary item...........      $   1.09         $ (0.09)               *         $  (0.33)
  Extraordinary item..................            --              --                *               --
                                            --------         -------         --------         --------
  Net.................................      $   1.09         $ (0.09)               *         $  (0.33)
                                            ========         =======         ========         ========
Weighted Average Common Shares
  Outstanding.........................         2,030           2,030                *           58,393
                                            ========         =======         ========         ========
</TABLE>

---------------

* Earnings per share is not presented for the nine months ended September 27,
  1998 because such presentation would not be meaningful. The Old Common Stock
  was cancelled and the New Common Stock was issued pursuant to the Restated
  Second Amended Plan.

                See notes to consolidated financial statements.

                                       23
<PAGE>   24

                   STRATOSPHERE CORPORATION AND SUBSIDIARIES
           CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
                                 (In thousands)

<TABLE>
<CAPTION>
                                                                                             RETAINED
                                                                              ADDITIONAL     EARNINGS          TOTAL
                                              COMMON   TREASURY   PREFERRED    PAID-IN     (ACCUMULATED    SHAREHOLDERS'
                                              STOCK     STOCK       STOCK      CAPITAL       DEFICIT)     EQUITY (DEFICIT)
                                              ------   --------   ---------   ----------   ------------   ----------------
<S>                                           <C>      <C>        <C>         <C>          <C>            <C>
Balances at December 29, 1996 (Predecessor
  Company)..................................   $584      $ --       $ --       $218,787     $(356,814)       $(137,443)
Net loss....................................     --        --         --             --       (19,315)         (19,315)
Vegas World acquisition (leasehold
  settlement) cost..........................     --        --         --           (240)           --             (240)
Unrealized holding loss on investment.......     --        --         --             (1)           --               (1)
                                               ----      ----       ----       --------     ---------        ---------
Balances at December 28, 1997 (Predecessor
  Company)..................................    584        --         --        218,546      (376,129)        (156,999)
Purchase of treasury stock resulting from
  Vegas World Vacation Package settlement...     --       (30)        --             30            --               --
                                               ----      ----       ----       --------     ---------        ---------
Balances at September 27, 1998 (Predecessor
  Company)..................................   $584      $(30)      $ --       $218,576     $(376,129)       $(156,999)
                                               ====      ====       ====       ========     =========        =========
Balances at September 27, 1998 (Predecessor
  Company)..................................   $584      $(30)      $ --       $218,576     $(376,129)       $(156,999)
Cancellation of old common stock pursuant to
  the plan of reorganization................   (584)       30         --            554            --               --
Issuance of new common stock pursuant to the
  plan of reorganization....................     20        --         --             --            --               20
Elimination of accumulated deficit pursuant
  to the plan of reorganization.............     --        --         --       (219,130)      219,130               --
Additional paid-in-capital pursuant to the
  plan of reorganization....................     --        --         --        127,058            --          127,058
Net income..................................     --        --         --             --       156,999          156,999
                                               ----      ----       ----       --------     ---------        ---------
Balances at September 27, 1998 (Successor
  Company)..................................     20        --         --        127,058            --          127,078
Net loss....................................     --        --         --             --          (184)            (184)
                                               ----      ----       ----       --------     ---------        ---------
Balances at December 27, 1998 (Successor
  Company)..................................     20        --         --        127,058          (184)         126,894
Net income..................................     --        --         --             --         2,220            2,220
                                               ----      ----       ----       --------     ---------        ---------
Balances at December 26, 1999 (Successor
  Company)..................................   $ 20      $ --       $ --       $127,058     $   2,036        $ 129,114
                                               ====      ====       ====       ========     =========        =========
</TABLE>

                See notes to consolidated financial statements.

                                       24
<PAGE>   25

                   STRATOSPHERE CORPORATION AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In thousands)

<TABLE>
<CAPTION>
                                                                   SUCCESSOR COMPANY             PREDECESSOR COMPANY
                                                              ----------------------------   ----------------------------
                                                              FISCAL YEAR    SEPTEMBER 28,   DECEMBER 29,    FISCAL YEAR
                                                                 ENDED       1998 THROUGH    1997 THROUGH       ENDED
                                                              DECEMBER 26,   DECEMBER 27,    SEPTEMBER 27,   DECEMBER 28,
                                                                  1999           1998            1998            1997
                                                              ------------   -------------   -------------   ------------
<S>                                                           <C>            <C>             <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
 Net income (loss)..........................................    $ 2,220         $  (184)       $ 156,999       $(19,315)
 Adjustments to reconcile net income (loss) to net cash
   provided by (used in) operating activities:
   Depreciation and amortization............................      8,559           2,216            6,299          8,405
   Extraordinary gain on prepetition debt discharge.........         --              --         (153,437)            --
   Reorganization Items :
     Write-off of debt issuance costs.......................         --              --               --         11,210
     Professional Fees......................................         --              --            3,492          5,500
     Management Retention Expense...........................         --              --              233            820
     Vegas World Vacation Package Settlement................         --              --            3,347             --
     Adjust accounts to fair value..........................         --              --           (8,598)            --
     Increase in allowed claims.............................         --              --            3,708             --
     Interest Earned on Accumulated Cash During Chapter 11
       Proceedings..........................................         --              --             (814)          (840)
   Provision (recoveries) for doubtful accounts.............       (240)             24              139            272
   Impairment of long-lived assets..........................         --              --               --             --
   Loss (gain) on sale or disposal of assets................         71              30               42            (14)
   Changes in operating assets and liabilities:
     Accounts and other receivable..........................      1,444             136           (2,638)         1,992
     Other current assets...................................        142           1,388           (1,061)           374
     Accounts payable-trade (pre-petition)..................         --              --               --           (903)
     Accounts payable-trade (post-petition).................       (204)           (127)             410          1,124
     Accrued expenses (pre-petition)........................         --              --               --         (7,716)
     Accrued expenses (post-petition).......................      1,033          (1,865)          12,363          8,341
                                                                -------         -------        ---------       --------
 Net Cash Provided by Operating Activities Before
   Reorganization Items.....................................     13,025           1,618           20,484          9,251
                                                                -------         -------        ---------       --------
 Increases (decreases) to Cash Resulting from Reorganization
   Items:
     Pre-petition claims payable pursuant to amended plan...         --              --           (7,383)            --
     Professional fees paid.................................         --              --           (2,783)        (2,680)
     Management Retention Disbursements.....................         --              --             (836)           217
     Interest Earned on Accumulated Cash During Chapter 11
       Proceedings..........................................         --              --              814            840
                                                                -------         -------        ---------       --------
   Net Cash Used in Reorganization Items....................         --              --          (10,188)        (1,623)
                                                                -------         -------        ---------       --------
NET CASH PROVIDED BY OPERATING ACTIVITIES...................     13,025           1,618           10,296          7,628
                                                                -------         -------        ---------       --------
CASH FLOWS FROM INVESTING ACTIVITIES:
 Decrease (increase) in cash and cash
   equivalents-restricted...................................        292           5,165           (6,912)          (473)
 Purchase of marketable securities..........................     (4,459)             --               --             --
 Proceeds from the sale of marketable securities............      1,000              --               --             --
 Decrease (increase) in investments-restricted..............      1,013             (38)            (114)          (461)
 Change in securities available for sale....................         --              --               --          2,001
 Payments for property and equipment........................     (6,596)         (2,658)          (1,062)        (1,404)
 Change in construction payables............................         --              --               --           (544)
 Increase in related party receivable and other.............         --              --               --           (169)
 Cash proceeds from sale of property and equipment..........        551              40              308          1,586
                                                                -------         -------        ---------       --------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES.........     (8,199)          2,509           (7,780)           536
                                                                -------         -------        ---------       --------
CASH FLOWS FROM FINANCING ACTIVITIES:
 Payments to creditors pursuant to plan of reorganization...        (67)         (5,165)              --             --
 Debt issuance and deferred financing costs.................         --              --               --             (6)
 Payments on long-term debt.................................       (155)            (46)            (156)          (429)
 Final payments on capital lease obligations -- original....     (8,979)         (2,171)          (6,807)       (10,267)
 Payments on capital lease obligations -- new...............     (1,556)             --               --             --
 Proceeds from capital lease obligations....................     10,000              --               --             --
 Increase in affiliate payable..............................         --              --               --            545
 Increase in deferred financing costs.......................       (272)             --               --             --
 Vegas World acquisition (leasehold settlement) costs.......         --              --               --           (240)
                                                                -------         -------        ---------       --------
NET CASH USED IN FINANCING ACTIVITIES.......................     (1,029)         (7,382)          (6,963)       (10,397)
                                                                -------         -------        ---------       --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........      3,797          (3,255)          (4,447)        (2,233)
CASH AND CASH EQUIVALENTS -- BEGINNING OF PERIOD............     12,624          15,879           20,326         22,559
                                                                -------         -------        ---------       --------
CASH AND CASH EQUIVALENTS -- END OF PERIOD..................    $16,422         $12,624        $  15,879       $ 20,326
                                                                =======         =======        =========       ========
</TABLE>

                See notes to consolidated financial statements.

                                       25
<PAGE>   26

                   STRATOSPHERE CORPORATION AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In thousands)

<TABLE>
<CAPTION>
                                                                   SUCCESSOR COMPANY             PREDECESSOR COMPANY
                                                              ----------------------------   ----------------------------
                                                              FISCAL YEAR    SEPTEMBER 28,   DECEMBER 29,    FISCAL YEAR
                                                                 ENDED       1998 THROUGH    1997 THROUGH       ENDED
                                                              DECEMBER 26,   DECEMBER 27,    SEPTEMBER 27,   DECEMBER 28,
                                                                  1999           1998            1998            1997
                                                              ------------   -------------   -------------   ------------
<S>                                                           <C>            <C>             <C>             <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
 Interest -- net of capitalized interest....................    $   750         $   240        $   1,005       $  2,098
 Income taxes...............................................    $   400         $    --        $      --       $     --
Non-Cash Investing and Financing Activities:
 Decrease in land and building from donation of Bob Stupak
   Center...................................................    $  (350)        $    --        $      --       $     --
 Increase in land and building from reduction in notes
   receivable from stockholder..............................    $    --         $    --        $     350       $     --
 Cancellation of old common stock pursuant to the plan of
   reorganization...........................................    $    --         $    --        $    (584)      $     --
 Issuance of new common stock pursuant to the plan of
   reorganization...........................................    $    --         $    --        $      20       $     --
 Discharge of first mortgage notes..........................    $    --         $    --        $(203,000)      $     --
 Discharge of note payable -- affiliate.....................    $    --         $    --        $ (50,000)      $     --
 Purchase of equipment through capital lease................    $    --         $    --        $      --       $    444
 Preferential distribution to stockholder...................    $    --         $    --        $      --       $   (240)
</TABLE>

                See notes to consolidated financial statements.

                                       26
<PAGE>   27

                   STRATOSPHERE CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

THE COMPANY

     The accompanying consolidated financial statements present the financial
position, results of operations and cash flows of Stratosphere Corporation and
its wholly-owned subsidiaries, Stratosphere Gaming Corp., Stratosphere Land
Corporation, Stratosphere Advertising Agency and 2000 Las Vegas Boulevard Retail
Corporation (collectively the "Company"). The Company operates an integrated
casino, hotel and entertainment facility and a 1,149 foot, free-standing
observation tower located in Las Vegas, Nevada.

     On January 27, 1997 ("Petition Date"), Stratosphere Corporation and its
wholly-owned subsidiary Stratosphere Gaming Corp. ("SGC" and collectively with
Stratosphere Corporation, the "Debtors") filed voluntary petitions for Chapter
11 Reorganization pursuant to the United States Bankruptcy Code. As of that
date, the United States Bankruptcy Court for the District of Nevada ("Bankruptcy
Court") assumed jurisdiction over the assets of Stratosphere Corporation and
SGC. Stratosphere Corporation and SGC had been acting as debtors-in-possession
on behalf of their respective estates, and have been authorized as such to
operate their business subject to Bankruptcy Court supervision. On June 9, 1998,
the Bankruptcy Court entered an order (the "Confirmation Order") confirming the
Restated Second Amended Plan of Reorganization filed by the Debtors (the
"Restated Second Amended Plan"). On October 14, 1998, the Restated Second
Amended Plan became effective ("Effective Date"). All material conditions
precedent to the Restated Second Amended Plan becoming binding were satisfied on
or before September 27, 1998. Accordingly, the Company has reflected the effect
of the Restated Second Amended Plan as of September 27, 1998, in the
accompanying consolidated financial statements.

BASIS OF PRESENTATION

     The Company has implemented the guidance provided by the American Institute
of Certified Public Accountants Statement of Position 90-7 "Financial Reporting
By Entities In Reorganization Under The Bankruptcy Code" ("AICPA SOP 90-7") and
as such, adopted "fresh start reporting" as of September 27, 1998, in the
preparation of the accompanying consolidated financial statements. The Company's
emergence from Chapter 11 proceedings resulted in a new reporting entity with no
retained earnings or accumulated deficit as of September 27, 1998. Accordingly,
the Company's consolidated financial statements for periods prior to September
27, 1998 are not comparable to consolidated financial statements presented on or
subsequent to September 27, 1998. Column headings have been included on the
accompanying Consolidated Statement of Operations and Consolidated Statement of
Cash Flows to distinguish between the predecessor and successor entities.

PRINCIPLES OF CONSOLIDATION

     The consolidated financial statements include the accounts of Stratosphere
Corporation and all subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation.

CASINO REVENUES AND PROMOTIONAL ALLOWANCES

     The Company recognizes revenues in accordance with industry practice.
Casino revenue is the net win from gaming activities (the difference between
gaming wins and losses). Casino revenues are net of accruals for anticipated
payouts of progressive and certain other slot machine jackpots. Revenues include
the retail value of rooms, food and beverage and other items that are provided
to customers on a complimentary basis. A corresponding amount is deducted as
promotional allowances. The cost of such complimentaries included as casino
expenses is as follows (in thousands):

                                       27
<PAGE>   28

<TABLE>
<CAPTION>
                                                SUCCESSOR COMPANY               PREDECESSOR COMPANY
                                          -----------------------------    -----------------------------
                                          FISCAL YEAR     SEPTEMBER 28,    DECEMBER 29,     FISCAL YEAR
                                             ENDED        1998 THROUGH     1997 THROUGH        ENDED
                                          DECEMBER 26,    DECEMBER 27,     SEPTEMBER 27,    DECEMBER 28,
                                              1999            1998             1998             1997
                                          ------------    -------------    -------------    ------------
<S>                                       <C>             <C>              <C>              <C>
Food and Beverage.....................       $4,075          $1,011           $3,316           $4,795
Rooms.................................        1,456             465            1,276            1,220
Other.................................           85              20              155              358
                                             ------          ------           ------           ------
                                             $5,616          $1,496           $4,747           $6,373
                                             ======          ======           ======           ======
</TABLE>

CASH AND CASH EQUIVALENTS

     Cash and cash equivalents include cash on hand and in banks, interest
bearing deposits, money market funds and investments purchased with an original
maturity of 90 days or less. Cash and cash equivalents restricted as of December
26, 1999 consist primarily of funds reserved for final settlement of unsecured
claims pursuant to the Restated Second Amended Plan.

INVESTMENTS RESTRICTED

     Investments restricted at December 26, 1999 and December 27, 1998, consists
primarily of funds pledged for unpaid sports book tickets and workers'
compensation benefits, respectively.

INVENTORIES

     Inventories, consisting primarily of food and beverage, retail and
operating supplies are stated at the lower of cost or market. Cost is determined
using the first-in, first-out method.

PROPERTY AND EQUIPMENT

     Property and equipment are stated at cost (see Note 6), except in the case
of capitalized lease assets, which are stated at the lower of the present value
of the future minimum lease payments or fair market value at the inception of
the lease. Expenditures for additions, renewals and improvements are capitalized
and depreciated over their useful lives. Costs of repairs and maintenance are
expensed when incurred. Leasehold acquisition costs are amortized over the
shorter of their estimated useful lives or the term of the respective leases
once the assets are placed in service.

     Depreciation and amortization of property and equipment is computed using
the straight-line method over the following useful lives:

<TABLE>
<S>                                                            <C>
Buildings and improvements..................................      39 years
Furniture, fixtures and equipment...........................    3-15 years
Land improvements...........................................      15 years
</TABLE>

     The Company's policy is to capitalize interest incurred on debt during the
course of qualifying construction projects. Such costs are amortized over the
related assets' estimated useful lives. There was no capitalized interest during
fiscal years 1997, 1998 and 1999.

RECOVERABILITY OF LONG-LIVED ASSETS TO BE HELD AND USED IN THE BUSINESS

     In 1996 the Company adopted Statement of Financial Accounting Standards No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of" ("SFAS 121"). Pursuant to SFAS 121, the Company
reviews its long-lived assets for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset or a group of assets
may not be recoverable. Assets are grouped and evaluated for impairment at the
lowest level for which there are identifiable cash flows that are largely
independent of the cash flows of other groups of assets. The Company deems an
asset to be impaired if a forecast of undiscounted future operating cash flows
directly related to the asset, including disposal value if any, is less than its
carrying amount. If an asset is determined to be impaired, the loss is measured
as the amount by which the carrying amount of the asset exceeds fair value. The
Company generally measures value by discounting estimated cash flows.
Considerable management judgment is necessary to estimate discounted future cash
flows. Accordingly, actual results could vary significantly from such estimates.

                                       28
<PAGE>   29

DEBT ISSUANCE COSTS

     Deferred debt issuance costs represent direct costs and expenses of
$15,205,738 that were incurred in connection with the Company's offering of
$203,000,000 14 1/4% First Mortgage Notes. Prior to the Petition Date such
amount was amortized using the effective interest method or a method which
approximates the effective interest method. On the Petition Date the Company
expensed unamortized deferred debt issuance costs. The Consolidated Statement of
Operations for fiscal year ended December 28, 1997, included $11.2 million of
debt issuance costs write-offs classified as "Reorganization Items." There was
no amortization of debt issuance cost for the three months ended December 27,
1998, nine months ended September 27, 1998 and twelve months ended December 26,
1999.

SALES, ADVERTISING AND PROMOTION

     Sales, advertising and promotion costs are expensed as incurred and totaled
$6,438,065, $1,823,198, $5,826,080 and $8,126,094 for the twelve months ended
December 26, 1999, three months ended December 27, 1998, nine months ended
September 27, 1998 and the twelve months ended December 28, 1997, respectively.

USE OF ESTIMATES

     The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Based on the application of significant judgment, actual
results could differ from those estimates.

EARNINGS (LOSS) PER SHARE

     The Company adopted Statement of Financial Accounting Standards No. 128
("SFAS 128") in 1997. However, there is no effect on the EPS calculation as all
Common Stock and equivalents have been canceled as of the Effective Date.
Pursuant to the Restated Second Amended Plan 2,030,000 New Common Stock shares
were issued on the Effective Date. There were no other Common Stock equivalents
as of December 26, 1999.

RECLASSIFICATIONS

     Certain reclassifications, having no effect on net losses, have been made
to the prior years consolidated financial statements to conform with the current
fiscal year presentation.

FISCAL YEAR-END

     The Company has adopted a 52- or 53-week accounting period. The Company's
fiscal year is the 52 weeks ending on the last Sunday in December. The fiscal
years ended December 26, 1999, December 27, 1998 and December 28, 1997 all
comprised 52-week years.

(2) RESTRUCTURING

     On January 27, 1997 ("Petition Date"), Stratosphere Corporation and its
wholly-owned subsidiary Stratosphere Gaming Corp. ("SGC" and collectively with
Stratosphere Corporation, the "Debtors") filed voluntary petitions for Chapter
11 Reorganization pursuant to the United States Bankruptcy Code. As of that
date, the United States Bankruptcy Court for the District of Nevada ("Bankruptcy
Court") assumed jurisdiction over the assets of Stratosphere Corporation and
SGC. Stratosphere Corporation and SGC were acting as debtors-in-possession on
behalf of their respective bankrupt estates, and were authorized as such to
operate their business subject to Bankruptcy Court supervision. On June 9, 1998,
the Bankruptcy Court entered an order (the "Confirmation Order") confirming the
Restated Second Amended Plan of Reorganization filed by the Debtors (the
"Restated Second Amended Plan"). On October 14, 1998, the Restated Second
Amended Plan became effective. All material conditions precedent to the Restated
Second Amended Plan becoming binding were satisfied on or before September 27,
1998. Accordingly, the Company has reflected the effect of the Restated Second
Amended Plan as of September 27, 1998.

     As a result of the restructuring, the Company implemented the guidance
provided by the American Institute of Certified Public Accountants Statement of
Position 90-7 "Financial Reporting By Entities In

                                       29
<PAGE>   30

Reorganization Under The Bankruptcy Code" ("AICPA SOP 90-7") and as such,
adopted "fresh start reporting" as of September 27, 1998. The Company's
emergence from its Chapter 11 proceedings resulted in a new reporting entity
with no retained earnings or accumulated deficit as of September 27, 1998.
Accordingly, the Company's consolidated financial statements for periods prior
to September 27, 1998 are not comparable to consolidated financial statements
presented on or subsequent to September 27, 1998. Column headings have been
included on the accompanying Consolidated Statements of Operations and
Consolidated Statement of Cash Flows to distinguish between the predecessor and
successor entities.

     Pursuant to the Restated Second Amended Plan becoming effective on October
14, 1998, the Company canceled all prior equity interests (including the 58.4
million outstanding shares of Common Stock, options and warrants) and exchanged
2,030,000 shares of New Common Stock for the secured portion of the 14 1/4%
First Mortgage Notes (estimated at $120.6 million). Approximately 89.6% of the
New Common Stock was issued to Carl C. Icahn related entities. The remaining
portion of the 14 1/4% First Mortgage Notes claim (approximately $104 million),
the balance of the note due Grand Casinos, Inc. (approximately $52.4 million)
and all other general unsecured claims will be discharged in exchange of a cash
payment of $6.0 million. Certain priority claims (estimated at $.9 million) were
paid in full. The discharge and settlement of these claims resulted in a gain of
$153.4 million, which was reflected as an extraordinary item on the September
27, 1998, consolidated statements of operations. The amount of the gain was
based on the Company's estimate of the amount of claims that will ultimately be
allowable by the Bankruptcy Court, and was based on the total of actual claims
filed. In the event additional unsecured claims are allowed by the Bankruptcy
Court, it will not increase the Company's cash required for full debt discharge.
A portion of the $6.9 million to be distributed has been reserved for potential
future settlement of unsecured claim disputes (approximately $1.9 million). The
only significant remaining claim dispute is the rejection claim filed by
Strato-Retail.

FRESH START REPORTING

     Pursuant to the guidance of AICPA SOP 90-7, "fresh start reporting" has
been reflected as of September 27, 1998, in the accompanying consolidated
financial statements, since: i) the sum of the allowed claims, plus
post-petition liabilities, exceeded the reorganization value of the
pre-confirmation assets of the emerging entity; ii) the Company experienced a
change of control as defined in AICPA SOP 90-7. AICPA SOP 90-7 requires that
under these circumstances a new reporting entity be created (referred to as the
"Successor Company" in the Consolidated Financial Statements) and the assets and
liabilities be recorded at their fair values.

     In support of the restructuring process, the Debtors retained an
independent valuation advisor (the "Valuation Advisor") to appraise the
Stratosphere Hotel & Casino Complex (the "Resort"). On March 24, 1997, Valuation
Advisor issued an appraisal report (hereinafter, the "Appraisal Report") to the
Company's bankruptcy counsel. The Appraisal Report estimates the "as is" market
value range of the fee simple interest in the real and personal property (of the
Resort) to be $105 million to $130 million with the final point estimate of
value being $120 million (as of March 24, 1997). The Appraisal Report assumes a
marketing exposure period of 12 to 18 months would be required in order to
realize a sales price at or about the level of the concluded value estimate.

     In preparing the Appraisal Report, standard appraisal techniques were used
in conformity with the guidelines of the Uniform Standards of Appraisal Practice
as promulgated by the Appraisal Foundation. The Appraisal Report utilizes two of
the typical appraisal approaches to value; the "Income Approach" and the "Sales
Comparison Approach." The "Cost Approach" was omitted from the Appraisal Report
because it was viewed that, in this instance, it did not provide a reliable
indication of value. The ultimate valuation conclusions contained in the
Appraisal Report were based primarily on the Income Approach, with only limited
weight given to the Sales Comparison Approach. The value estimate included in
the Appraisal Report was relied upon by management in determining the
reorganization value and relates solely to the assets that are directly relevant
to the operation of the Resort (exclusive of the working capital account
balances) and does not include, or relate to, "peripheral" or "extraneous"
assets owned by the Company. The primary examples of such assets are the parcels
of land (which total approximately 5 acres) located on and near Las Vegas
Boulevard South, directly across the street from the Resort (collectively, the
"Sulinda Parcels"). Accordingly, management has separately analyzed the assets
that are not covered by the Appraisal Report and have estimated the value
thereof for the purpose of determining the reorganization value of the emerging
entity ($45.1 million). Underlying management's estimate of reorganization value
are a number of assumptions (including those contained in the Appraisal Report)
that, although considered reasonable by manage-

                                       30
<PAGE>   31

ment, are inherently subject to significant economic and competitive
uncertainties beyond the control of management, and are based upon business
decisions which could be subject to change.

     The discharge of debt and "fresh start reporting" have been reflected in
the accompanying September 27, 1998, consolidated financial statements. The
Company's post-reorganization consolidated balance sheet as of September 27,
1998 reflects the adoption of "fresh start reporting" and becomes the opening
balance sheet for "reorganized" Stratosphere Corporation. The effect on the
consolidated balance sheet as of September 27, 1998, is reflected in the
following table (in thousands):

<TABLE>
<CAPTION>
                                                     ADJUSTMENTS TO RECORD THE PLAN OF REORGANIZATION
                                                    --------------------------------------------------
                                                     PREDECESSOR                           SUCCESSOR
                                                       COMPANY        DEBT      FRESH       COMPANY
                                                    BALANCE SHEET   DISCHARGE   START    BALANCE SHEET
                                                    -------------   ---------   ------   -------------
<S>                                                 <C>             <C>         <C>      <C>
Assets
Current Assets:
  Cash & cash equivalents.........................    $ 26,516      $      --   $   --     $ 26,516
  Accounts Receivable, net........................       2,779             --       --        2,779
  Other current assets............................       6,814             --       --        6,814
                                                      --------      ---------   ------     --------
Total Current Assets..............................      36,109             --       --       36,109
                                                      --------      ---------   ------     --------
Property & Equipment, Net.........................     117,102             --    8,598      125,700
                                                      --------      ---------   ------     --------
Other Assets (includes Other Receivables).........         300          3,000       --        3,300
                                                      --------      ---------   ------     --------
Total Assets......................................    $153,511      $   3,000   $8,598     $165,109
                                                      ========      =========   ======     ========
Liabilities & Shareholders' Equity (Deficit)
Current Liabilities:
  Accounts payable-trade..........................    $  1,534      $      --   $   --     $  1,534
  Current installments of long-term debt..........         148             --       --          148
  Current installments of capital lease...........          --          8,979       --        8,979
  Accrued interest................................          --            163       --          163
  Accrued payroll & related.......................       6,958             --       --        6,958
  Other accrued expenses..........................      10,554          7,383       --       17,937
                                                      --------      ---------   ------     --------
Total Current Liabilities.........................      19,194         16,525       --       35,719
                                                      --------      ---------   ------     --------
Long-Term Liabilities:
  Long-term note payable-less current.............         141             --       --          141
  Capital lease obligations-less current..........          --          2,171       --        2,171
                                                      --------      ---------   ------     --------
Total Long-Term Liabilities.......................         141          2,171       --        2,312
                                                      --------      ---------   ------     --------
Liabilities Subject to Compromise:
  Accounts payable-trade..........................         348           (348)      --           --
  Accrued payroll & related exp...................          58            (58)      --           --
  Affiliate payable...............................       4,708         (4,708)      --           --
  Other accrued expenses..........................       5,688         (5,688)      --           --
  Capital lease obligations.......................      11,313        (11,313)      --           --
  14 1/4% First Mortgage Notes....................     224,096       (224,096)      --           --
  Note payable to affiliate.......................      50,000        (50,000)      --           --
                                                      --------      ---------   ------     --------
Total Liabilities Subject to Compromise...........     296,211       (296,211)      --           --
                                                      --------      ---------   ------     --------
Total Liabilities.................................     315,546       (277,515)      --       38,031
                                                      ========      =========   ======     ========
</TABLE>

                                       31
<PAGE>   32

<TABLE>
<CAPTION>
                                                    ADJUSTMENTS TO RECORD THE PLAN OF REORGANIZATION
                                                  -----------------------------------------------------
                                                   PREDECESSOR                              SUCCESSOR
                                                     COMPANY        DEBT        FRESH        COMPANY
                                                  BALANCE SHEET   DISCHARGE     START     BALANCE SHEET
                                                  -------------   ---------   ---------   -------------
<S>                                               <C>             <C>         <C>         <C>
Shareholders' Equity (Deficit):
  Common Stock -- old...........................          584         (584)          --           --
  Common Stock -- new (2,030,000 shares)........           --           20           --           20
  Treasury Stock................................          (30)          30           --           --
  Additional Paid in Capital....................      218,576      127,612     (219,130)     127,058
  Accumulated earnings (deficit)................     (381,165)     153,437      227,728           --
                                                    ---------     --------    ---------     --------
Total Shareholders' Equity (Deficit)............     (162,035)     280,515        8,598      127,078
                                                    ---------     --------    ---------     --------
Total Liabilities & Shareholders' Equity
  (Deficit).....................................    $ 153,511     $  3,000    $   8,598     $165,109
                                                    =========     ========    =========     ========
</TABLE>

     The following proforma consolidated statements of operations reflect the
results of operations as if the reorganization had been effective December 29,
1997 (the beginning of the 1998 fiscal year, in thousands):

<TABLE>
<CAPTION>
                                                        CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS
                                                       ------------------------------------------------
                                                         FOR THE FISCAL YEAR ENDED DECEMBER 27, 1998
                                                       ------------------------------------------------
                                                        AS REPORTED        ADJUSTMENTS        PROFORMA
                                                       -------------      -------------      ----------
<S>                                                    <C>                <C>                <C>
Net Revenues.........................................     $129,972          $      --         $129,972
Costs and Expenses:
  Other expenses.....................................       68,400                 --           68,400
  Depreciation and amortization......................        8,108                228(1)         8,336
  Selling, general and administrative................       47,930                 --           47,930
                                                          --------          ---------         --------
Total costs and expenses.............................      124,438                228          124,666
                                                          --------          ---------         --------
Income From Operations...............................        5,534               (228)           5,306
                                                          --------          ---------         --------
Other income (expense):
  Interest expense...................................       (1,532)                --           (1,532)
  Other income (expense).............................          131                 --              131
                                                          --------          ---------         --------
Total other expense, net.............................       (1,401)                --           (1,401)
                                                          --------          ---------         --------
Reorganization Items.................................         (754)               754(2)            --
Income (Loss) Before Income Taxes and
  Extraordinary Item.................................        3,379                526            3,905
                                                          --------          ---------         --------
Provision (Benefit) for Income Taxes.................           --                 --               --
Extraordinary gain on discharge of Pre-petition
  liabilities........................................      153,437           (153,437)(3)           --
Net Income (Loss)....................................     $156,816          $(152,911)        $  3,905
                                                          ========          =========         ========
Basic Income (Loss) per Common Share (2,030,000 new
  common shares).....................................           --                 --         $   1.92
                                                          ========          =========         ========
</TABLE>

---------------

(1) Estimated depreciation effect of adjustments to asset fair values for the
    fiscal year ended December 27, 1998.

(2) Elimination of effect of reorganization items.

(3) Elimination of the gain on pre-petition debt discharge.

                                       32
<PAGE>   33

(3) REORGANIZATION ITEMS

     Reorganization Items consisted of the following for the nine month period
ended September 27, 1998 and fiscal year ended December 28, 1997 (in thousands):

<TABLE>
<CAPTION>
                                                                     PREDECESSOR COMPANY
                                                                -----------------------------
                                                                SEPTEMBER 27,    DECEMBER 28,
                                                                    1998             1997
                                                                -------------    ------------
<S>                                                             <C>              <C>
Adjust accounts to fair value...............................       $(8,598)        $    --
Settlement of vacation package claims.......................         3,347              --
Write-off of debt issuance costs............................            --          11,210
Professional fees...........................................         2,916           5,500
Interest earned on accumulated cash during Chapter 11
  proceedings...............................................          (814)           (840)
Increase in allowed claims..................................         3,708              --
Management retention compensation...........................           195             820
                                                                   -------         -------
                                                                   $   754         $16,690
                                                                   =======         =======
</TABLE>

     Cash interest earned since the Petition Date, January 27, 1997 through
September 27, 1998, totals $1,665,711.

     Costs and expenses related to the reorganization of the Company have been
separately classified as Reorganization Items in the consolidated statements of
operations since the Petition Date. Prior to the Petition Date, such costs and
expenses (to the extent incurred) were classified as selling, general and
administrative in the consolidated statement of operations. Future unreserved
professional fees, if any, have again been classified as selling, general and
administrative expense beginning September 28, 1998 (the post-effective date
period).

(4) ACCOUNTS RECEIVABLE

     Accounts receivable consists of the following as of December 26, 1999 and
December 27, 1998 (in thousands):

<TABLE>
<CAPTION>
                                                                     SUCCESSOR COMPANY
                                                                ----------------------------
                                                                DECEMBER 26,    DECEMBER 27,
                                                                    1999            1998
                                                                ------------    ------------
<S>                                                             <C>             <C>
Hotel and related...........................................       $  712          $1,004
Gaming......................................................          317             874
Other.......................................................          602           1,197
                                                                   ------          ------
                                                                    1,631           3,075
Less allowance for doubtful accounts........................         (217)           (456)
                                                                   ------          ------
                                                                   $1,414          $2,619
                                                                   ======          ======
</TABLE>

(5) OTHER CURRENT ASSETS

     Other current assets consists of the following as of December 26, 1999 and
December 27, 1998 (in thousands):

<TABLE>
<CAPTION>
                                                                     SUCCESSOR COMPANY
                                                                ----------------------------
                                                                DECEMBER 26,    DECEMBER 27,
                                                                    1999            1998
                                                                ------------    ------------
<S>                                                             <C>             <C>
Inventory...................................................       $2,938          $2,868
Prepaid expenses............................................        2,346           2,559
                                                                   ------          ------
                                                                   $5,284          $5,427
                                                                   ======          ======
</TABLE>

                                       33
<PAGE>   34

(6) PROPERTY AND EQUIPMENT -- NET

     Property and equipment consist of the following as of December 26, 1999 and
December 27, 1998 (in thousands):

<TABLE>
<CAPTION>
                                                                     SUCCESSOR COMPANY
                                                                ----------------------------
                                                                DECEMBER 26,    DECEMBER 27,
                                                                    1999            1998
                                                                ------------    ------------
<S>                                                             <C>             <C>
Land and improvement, including land held for development...      $ 21,510        $ 21,811
Building and improvements...................................        69,037          66,374
Furniture, fixtures and equipment...........................        25,699          23,840
Construction in progress....................................        17,442          16,259
                                                                  --------        --------
                                                                   133,688         128,284
Less accumulated deprecation and amortization...............       (10,227)         (2,111)
                                                                  --------        --------
                                                                  $123,461        $126,173
                                                                  ========        ========
</TABLE>

     Included in property and equipment at December 26, 1999 and December 27,
1998, are assets recorded under capital leases of $17.2 million and $30.7
million, respectively. Accumulated depreciation and amortization at December 26,
1999 and December 27, 1998, includes amounts recorded for capital leases of
$2,594,131 and $948,051, respectively.

     The Company has completed preliminary design plans and has obtained an
estimate regarding the completion of Phase II, which includes 1,000 additional
hotel rooms, a main casino coffee shop and new pool facilities. The estimated
cost to complete Phase II is approximately $65.0 million and is expected to be
constructed during a fourteen-month period. The Company is currently seeking
funding for the completion of Phase II and is considering various alternatives.
There can be no assurance that the Company will ultimately be able to obtain
adequate funding for Phase II or, if available, will be on favorable terms to
the Company. However, in order to begin the construction process the Company may
seek bridge financing from entities controlled by Mr. Icahn at market rates.
There is no assurance that bridge financing, if obtained will be able to be
taken out by the Company and no prediction can now be made of the effect of
failure to take out any bridge financing. The Company has engaged the services
of an investment-banking firm to assist in evaluating the Company.

(7) OTHER ACCRUED EXPENSES

     Other accrued expenses consist of the following as of December 26, 1999 and
December 27, 1998 (in thousands):

<TABLE>
<CAPTION>
                                                                     SUCCESSOR COMPANY
                                                                ----------------------------
                                                                DECEMBER 26,    DECEMBER 27,
                                                                    1999            1998
                                                                ------------    ------------
<S>                                                             <C>             <C>
Vacation packages...........................................      $ 2,973         $ 3,201
Accrued liabilities.........................................        3,220           2,780
Accrued restructuring costs.................................        1,244           2,448
Cash reserved for unpaid bankruptcy claims..................        1,926           2,218
Accrued taxes (other than federal income tax)...............          727             507
Accrued/unclaimed sports tickets/prizes.....................        1,465              --
Other.......................................................        1,472           1,724
                                                                  -------         -------
                                                                  $13,027         $12,878
                                                                  =======         =======
</TABLE>

                                       34
<PAGE>   35

(8) LONG TERM DEBT

     Long term debt consists of the following as of December 26, 1999 and
December 27, 1998 (in thousands):

<TABLE>
<CAPTION>
                                                                     SUCCESSOR COMPANY
                                                                ----------------------------
                                                                DECEMBER 26,    DECEMBER 27,
                                                                    1999            1998
                                                                ------------    ------------
<S>                                                             <C>             <C>
Other.......................................................        $ 87           $ 242
                                                                    ----           -----
                                                                      87             242
Less current portion........................................         (87)           (148)
                                                                    ----           -----
Long-term debt-less current portion.........................        $ --           $  94
                                                                    ====           =====
</TABLE>

     The future aggregate annual maturities of non-affiliate long-term debt at
December 26, 1999 are as follows (in thousands):

<TABLE>
<S>                                                             <C>
2000........................................................    $87
2001........................................................     --
2002........................................................     --
2003........................................................     --
2004........................................................     --
Thereafter..................................................     --
                                                                ---
Total.......................................................    $87
                                                                ===
</TABLE>

(9) LEASES AND CAPITAL LEASE OBLIGATIONS

     Future minimum lease payments, excluding contingent rentals, due under a
non-cancelable capital lease for the five years subsequent to December 26, 1999,
are as follows (in thousands):

<TABLE>
<S>                                                             <C>
2000........................................................    $ 3,291
2001........................................................      3,059
2002........................................................      3,206
2003........................................................         --
2004........................................................         --
Thereafter..................................................         --
                                                                -------
Total minimum lease payments................................    $ 9,556
Less: amounts representing interest at 8.50%................     (1,111)
                                                                -------
Present value of minimum capital lease payments.............      8,445
Less: current installment...................................     (2,667)
                                                                -------
Obligations under capital lease.............................    $ 5,778
                                                                =======
</TABLE>

     Rent expense from the operating leases was $593,847, $310,171, $1,148,761
and $2,131,440 for the twelve months ended December 26, 1999, three months ended
December 27, 1998, nine months ended September 27, 1998 and the twelve months
ended December 28, 1997, respectively.

     The prime rate of interest was 8.50%, 7.75% and 8.50% at December 26, 1999,
December 27, 1998 and December 28, 1997, respectively.

                                       35
<PAGE>   36

(10) MINIMUM LEASE INCOME

     The Company has entered into a number of operating leases in relation to
food and beverage and retail outlets. The future minimum lease income receivable
under these leases for the five years subsequent to December 26, 1999, consisted
of the following (in thousands):

<TABLE>
<S>                                                             <C>
2000........................................................    $ 1,000
2001........................................................      1,000
2002........................................................      1,000
2003........................................................      1,000
2004........................................................      1,000
Thereafter..................................................     11,333
                                                                -------
                                                                $16,333
                                                                =======
</TABLE>

(11) SHAREHOLDERS' EQUITY

     Pursuant to the Restated Second Amended Plan becoming effective, all equity
interests issued prior to October 14, 1998, were canceled including the Old
Common Stock, options and warrants. New Common Stock of 2,030,000 shares,
representing 100% of the Company's equity, was issued to the holders of the
Company's 14 1/4% First Mortgage Notes (see Note 2).

     On October 4, 1999, American Real Estate Holdings Limited Partnership
("AREH") repurchased 985,286 shares from entities owned or controlled by Carl C.
Icahn. AREH is the subsidiary limited partnership of American Real Estate
Partners. L.P. ("AREP") a master limited partnership whose units are traded on
the New York Stock Exchange. Mr. Icahn currently owns approximately 85% of the
outstanding depositary units of AREP. Upon completion of the transaction, Mr.
Icahn continues to control approximately 89.6% of the Company's Common Stock.

     The Company has not implemented a stock option plan.

(12) INCOME TAXES

     The income tax provision (benefit) attributable to income (losses) from
operations for the fiscal year ended December 26, 1999, the three month period
ended December 27, 1998, nine month period ended September 27, 1998 and the
fiscal year ended December 28, 1997, differed from the amounts computed by
applying the federal income tax rate of 35% as a result of the following (in
thousands):

<TABLE>
<CAPTION>
                                                     SUCCESSOR COMPANY             PREDECESSOR COMPANY
                                                ----------------------------   ----------------------------
                                                               SEPTEMBER 28,   DECEMBER 29,
                                                FISCAL YEAR        1998            1997        FISCAL YEAR
                                                   ENDED          THROUGH         THROUGH         ENDED
                                                DECEMBER 26,   DECEMBER 27,    SEPTEMBER 27,   DECEMBER 28,
                                                    1999           1998            1998            1997
                                                ------------   -------------   -------------   ------------
<S>                                             <C>            <C>             <C>             <C>
Current provision.............................      $775           $ --           $ 1,351       $      --
Deferred (benefit)............................        --            (15)           (1,351)       (122,095)
Increase in deferred tax asset Valuation
  allowance...................................        --             15                --         122,095
                                                    ----           ----           -------       ---------
                                                    $775           $ --           $    --       $      --
                                                    ====           ====           =======       =========
</TABLE>

                                       36
<PAGE>   37

DEFERRED TAX ASSETS AND LIABILITIES

     The tax effect of significant temporary differences and carryforwards
representing deferred tax assets and liabilities (the difference between
financial statement carrying values and the tax basis of assets and liabilities)
for the Company is as follows at December 26, 1999 and December 27, 1998 (in
thousands):

<TABLE>
<CAPTION>
                                                                    SUCCESSOR COMPANY
                                                               ---------------------------
                                                               DECEMBER 26,   DECEMBER 27,
TEMPORARY DIFFERENCES                                              1999           1998
---------------------                                          ------------   ------------
<S>                                                            <C>            <C>
Current:
  Allowance for doubtful accounts...........................     $ 1,177        $   160
  Progressive jackpots......................................         261            189
  Accrued vacation and employee related.....................         858            757
  Outstanding chip and token liability......................         (68)           (42)
  Other.....................................................        (899)          (903)
                                                                 -------        -------
                                                                   1,329            161
                                                                 -------        -------
Long-term:
  Pre-opening costs.........................................       2,500          3,995
  Allowance for doubtful accounts...........................          --             --
  Debt issuance costs.......................................         (10)            --
  Excess of tax over book basis of assets acquired in
     connection with Vegas World Asset Purchase.............          --             --
  Excess of tax over book basis of assets due primarily to
     write down of assets...................................      75,987         75,312
                                                                 -------        -------
                                                                  78,477         79,307
                                                                 -------        -------
Total Temporary Differences.................................     $79,806        $79,468
                                                                 -------        -------
  Net operating loss carryforward...........................       3,986             --
  Alternative minimum tax credit............................         727             --
                                                                 -------        -------
Total Carryforwards.........................................       4,713             --
                                                                 -------        -------
Total temporary differences and carryforwards...............      84,519         79,468
Valuation allowance.........................................     (84,519)       (79,468)
                                                                 -------        -------
Total deferred tax assets (liabilities).....................     $    --        $    --
                                                                 =======        =======
</TABLE>

     The Company recorded a valuation allowance at December 26, 1999 and
December 27, 1998, relating to recorded tax benefits because of the significant
uncertainty as to whether such benefits will ever be realized.

     The provision (benefit) for income taxes differs from the amount computed
at the federal statutory rate as a result of the following:

<TABLE>
<CAPTION>
                                                                      SUCCESSOR COMPANY
                                                                -----------------------------
                                                                FISCAL YEAR     SEPTEMBER 28,
                                                                   ENDED        1998 THROUGH
                                                                DECEMBER 26,    DECEMBER 27,
                                                                    1999            1998
                                                                ------------    -------------
<S>                                                             <C>             <C>
Federal statutory rate......................................         35%             (35)%
Permanent differences.......................................          2%              27%
Increase (decrease) in deferred tax asset valuation
  allowance.................................................        (11)%              8%
                                                                    ---              ---
                                                                     26%              --%
                                                                    ===              ===
</TABLE>

     SFAS 109 requires a "more likely than not" criterion be applied when
evaluating the realizability of a deferred tax asset. Given the Company's
history of losses for income tax purposes, the volatility of the industry within
which the Company operates, and certain other factors, the Company has
established a valuation allowance principally for the deductible temporary
differences, including the excess of the tax basis of the Company's assets over
the basis of such assets for financial purposes, which may not be realizable in
future periods. After application of the valuation allowance, the Company's net
deferred tax assets and liabilities are zero. In the event that the Company
recognizes, in subsequent years, the tax benefit of any deferred tax asset that
existed on the date the reorganization became effective, such tax benefit will
be reported as a direct addition to contributed capital.

                                       37
<PAGE>   38

DISCHARGE OF INDEBTEDNESS INCOME AND TAX ATTRIBUTE REDUCTION

     For financial reporting purposes, the Company reported an extraordinary
gain in the amount of $153,436,882 resulting from the cancellation of
indebtedness that occurred from the bankruptcy discharge on the Effective Date.
Pursuant to Section 108 of the Internal Revenue Code, this extraordinary gain is
excluded from income taxation and certain tax attributes of the Company are
eliminated or reduced, up to the amount of such income excluded from taxation.
As a result, the Company's net operating loss carryforwards in the amount of
$115,257,309 ($40,340,058 tax effected) were eliminated and the tax basis in the
Company's assets was reduced by $38,179,573 ($13,362,956 tax effected). The net
operating loss elimination and basis reduction significantly contributed to the
reduction of the deferred tax asset from the Predecessor Company to the
Successor Company.

Debt Issuance Costs

     Prior to the Effective Date, the Company had recorded a deferred tax asset
for debt issuance costs that was being amortized for tax purposes over the term
of the 14 1/4% First Mortgage Notes. On the Effective Date, the deferred tax
asset for debt issuance costs in the amount of $2,628,007 (tax effected) was
eliminated when the 14 1/4% First Mortgage Notes were exchanged for the New
Common Stock.

SECTION 382 LIMITATION

     As of December 26, 1999, the Company has a tax basis in its assets in
excess of its basis for financial reporting purposes that will generate
substantial tax deductions in future periods. As a result of a "change in
ownership" under Internal Revenue Code Section 382, the Company's ability to
utilize depreciation and other tax attributes will be limited to approximately
$6,400,000 per year for the five subsequent years. This limitation is applied to
all built-in losses which exist on the "change of ownership" date, including all
items giving rise to a deferred tax asset.

     For the year ended December 26, 1999, a portion of the Company's
depreciation and other tax attributes in the amount of approximately $4.0
million that existed on the "change of ownership" date were limited under
Section 382. Pursuant to Section 382, the limited depreciation and other tax
attributes are treated as a net operating loss, which the Company may utilize in
subsequent years.

     The application of Section 382 also resulted in a reduction in the basis of
the Company's assets for purposes of the Alternative Minimum Tax ("AMT"). As a
result, the Company was subject to AMT for the year ended December 26, 1999 of
approximately $.7 million. This AMT will be carried forward as a credit against
any regular tax generated in future periods.

(13) RELATED PARTY TRANSACTIONS

     Carl C. Icahn related entities own approximately 89.6% of the Company's
Common Stock as of December 26, 1999. Since January 1999, Mr. Daniel Cassella
and Mr. Thomas A. Lettero (Chief Executive Officer and Chief Financial Officer)
respectively, provided management services to Arizona Charlie's, Inc. (an entity
owned 100% by Carl C. Icahn). The Company has recorded a $60,000 receivable that
was reimbursed on January 19, 2000, for payroll and other expenses related to
the services performed from September 27, 1999 to December 26, 1999.

     On January 1, 1999, the Company employed Albo Antenucci for construction
management services at an annual salary of $75,000. Mr. Antenucci is the
Executive Vice President of Bayswater Realty and Capital Corp., a company owned
and controlled by Mr. Icahn. Mr. Antenucci received approximately $72,000 of
compensation for the fiscal year ended December 26, 1999.

     Pursuant to a wholesale tour and travel agreement with Lowestfare.com (a
company owned by Mr. Icahn), the Company received hotel revenues of $.5 million
during 1999.

     On October 4, 1999, American Real Estate Holdings Limited Partnership
("AREH") repurchased 985,286 shares from entities owned or controlled by Carl C.
Icahn. AREH is the subsidiary limited partnership of American Real Estate
Partners, L.P. ("AREP") a master limited partnership whose units are traded on
the New York Stock Exchange. Mr. Icahn currently owns approximately 85% of the
outstanding depositary units of AREP. Upon completion of the transaction, Mr.
Icahn continues to control approximately 89.6% of the Company's Common Stock.

                                       38
<PAGE>   39

(14) EMPLOYEE BENEFIT PLAN

     Employees of the Company who are members of various unions are covered by
union-sponsored, collectively bargained, multi-employer health and welfare and
defined benefit pension plans. The Company recorded expenses for such plans of
$4,293,974, $1,158,570, $3,254,482 and $4,894,922 for the twelve months ended
December 26, 1999, three months ended December 27, 1998, nine months ended
September 27, 1998 and twelve months ended December 28, 1997, respectively.
Sufficient information is not available from the plans' sponsors to permit the
Company to determine its share of unfunded vested benefits, if any.

     The Company has a retirement savings plan under Section 401(k) of the
Internal Revenue Code covering its non-union employees. The plan allows
employees to defer, within prescribed limits, up to 15% of their income on a
pre-tax basis through contributions to the plan. The Company currently matches,
within prescribed limits, 50% of eligible employees' contributions up to 4% of
their individual earnings. The Company recorded charges for matching
contributions of $191,114, $55,818, $109,967 and $45,707 for the twelve months
ended December 26, 1999, three months ended December 27, 1998, nine months ended
September 27, 1998 and twelve months ended December 28, 1997, respectively.

(15) COMMITMENTS

     The Company and Mr. Lettero entered into a two-year employment agreement
effective as of May 1, 1998 (the "Lettero Agreement"). The Lettero Agreement
provides that Mr. Lettero will serve as Chief Financial Officer for the Company
and be paid base annual compensation of $300,000. The Lettero Agreement further
provides that if Mr. Lettero is terminated without "Cause" (as defined in the
Lettero Agreement) or there is a "Change of Control" (as defined in the Lettero
Agreement), then Mr. Lettero will receive an immediate severance payment of
$200,000. The Lettero Agreement is terminable by Mr. Lettero at any time by
providing the Company 90 days prior written notice.

(16) CONTINGENCIES

     The Company's complaint for the avoidance of preferential transfers made to
McDonald's Corporation (the "Complaint") and the Company's objection to the
proof of claim filed by McDonald's Corporation came to trial June 24, 1999. On
September 20, 1999, the Bankruptcy Court entered its Notice of Entry of Findings
of Fact, Conclusions of Law and Judgment Re Debtors' Complaint for Avoidance of
Preferential Transfer Pursuant to 11 U.S.C. sec. 547 and Order Re Objection To
McDonald's Proof of Claim ("Judgment"). The Judgment ordered that payments made
in January 1997, by the Company to McDonald's in the amount of $.7 million
("Judgment Amount"), were preferential payments pursuant to Section 547(b) of
the Bankruptcy Code and were thereby recoverable by the Company. Regarding the
Company's objection to the proof of claim filed by McDonald's, the Bankruptcy
Court held that McDonald's was not entitled to an administrative claim and that
it was not entitled to any claim for damages. On September 29, 1999, McDonald's
Corporation filed its notice of appeal to the Bankruptcy Appellate Panel for the
Ninth Circuit Court of Appeals. The matter is currently being briefed, but a
hearing date has not been set. To date the record on appeal has been designated
but a briefing schedule has not been set.

     RAS Builders ("RAS") filed a Proof of Claim in the Bankruptcy Proceedings
based on a previously recorded mechanic's lien in the amount of $72,524. The
mechanic's lien was recorded against the real property owned by the Debtors
after RAS Builders constructed certain tenant improvements for a subtenant
located in the Phase I retail shopping center master leased to Strato-Retail
LLC. The Company filed an adversary complaint in the Bankruptcy Proceedings
against RAS Builders to avoid the lien, and further sought indemnification from
the Company's tenant, Strato-Retail LLC in the event the Company is required to
satisfy the RAS lien. Pursuant to a stipulation and order by the Bankruptcy
Court, the claim was dismissed on July 27, 1999.

     The Company has filed a complaint for the avoidance of preferential
transfers made to Grand Casinos, Inc. ("Grand"). Included in the complaint are
approximately $5.9 million of payments made to Grand prior to the Company
beginning bankruptcy proceedings. The Company expects counsel to file a motion
for summary judgment in April 2000 at which time the Bankruptcy Court Judge will
set a hearing date.

     On February 26, 1998, the Company filed its Motion for Approval of
Assumption of Unexpired Lease ("Assumption Motion") seeking to assume the
Development and Lease Agreement ("Lease") with Strato-Retail. Strato-Retail
opposed the Assumption Motion claiming that the cessation of Phase II
construction was an incurable breach of the Lease by the Company. Strato-Retail
also has claimed damages due to the

                                       39
<PAGE>   40

Company's alleged failure to timely tender the Phase II shell. After evidentiary
hearing, the Bankruptcy Court entered its Order Re Motion for Approval of
Assumption of Unexpired Lease ("Order") finding in pertinent part that the
Company's failure to complete construction and the ramifications following
therefrom are incurable "historical facts" and that the Company could not assume
the Lease. The Company appealed the Bankruptcy Court's ruling; the appeal was
submitted for decision before the Bankruptcy Appellate Panel for the Ninth
Circuit Court of Appeals following an oral hearing on February 24, 2000. On July
16, 1999, Strato-Retail filed its protective proof of claim in excess of $139.5
million. The basis for the amount of the proof of claim is Strato-Retail's
calculation of its alleged cash flow if Phase II had been completed as
contemplated by the Lease. Strato-Retail acknowledged that it is only entitled
to offset its damages against the rent reserved under the Lease (approximately
$1.3 million annually); however, Strato-Retail claims that the prepetition
failure to complete Phase II is an ongoing breach by the Company because the
incompletion of Phase II was found by the Bankruptcy Court to be incurable. The
Bankruptcy Court has not yet set a hearing date regarding this matter.

     In addition, in the ordinary course of business, the Company is party to
various legal actions. In management's opinion, the ultimate outcome of such
legal actions will not have a material effect on the results of operations or
the financial position of the Company.

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE

     On March 1, 2000, the Company dismissed Arthur Andersen LLP as its
independent accountants effective May 31, 2000. The Company engaged KPMG LLP as
its new independent accountants as of March 1, 2000. The Form 8-K filed on March
1, 2000, by the Company regarding the change in accountants is incorporated by
reference in this Form 10-K.

                                       40
<PAGE>   41

                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     The following table sets forth the executive officers and directors of the
Company:

<TABLE>
<CAPTION>
NAME                                               AGE    POSITION
----                                               ---    --------
<S>                                                <C>    <C>
Carl C. Icahn...................................   64     Chairman of the Board
John P. Saldarelli..............................   58     Director
Robert J. Mitchell..............................   53     Director
Martin Hirsch...................................   45...  Director
Judge Jerome M. Becker..........................   64     Director
Daniel A. Cassella..............................   53     Chief Executive Officer
Thomas A. Lettero...............................   43     Executive Vice President, Chief Financial
                                                          Officer,
                                                          Treasurer and Secretary
</TABLE>

     CARL C. ICAHN has served as Chairman of the Board and a Director of
Starfire Holding Corporation (formerly Icahn Holding Corporation), a
privately-held holding company, and Chairman of the Board and a Director of
various Starfire's subsidiaries, including ACF Industries, Incorporated, a
privately-held railcar leasing and manufacturing company, since 1982 and ACF
Industries Holdings Corp., a privately-held holding company for ACF, since
August 1993. He has also been Chairman of the Board and President of Icahn &
Co., Inc., a registered broker-dealer and a member of the National Association
of Securities Dealers, since 1968. Since November 1990, Mr. Icahn has been
Chairman of the Board of American Property Investors, Inc., the general partner
of American Real Estate Partners, L.P., a public limited partnership that
invests in real estate. In 1979, Mr. Icahn acquired control and presently serves
as Chairman of the Board of Bayswater Realty & Capital Corp., a real estate
investment and development company. Mr. Icahn has been a Director of Cadus
Pharmaceutical Corporation, a public company involved in genetic pharmaceutical
research. Mr. Icahn has served as the Company's Chairman of the Board since
October 14, 1998.

     JOHN P. SALDARELLI has served as Vice President, Secretary and Treasurer of
American Property Investors, Inc. (general partner of American Real Estate
Partners) since March 18, 1991. Mr. Saldarelli was also President of Bayswater
Realty Brokerage Corp. from June 1987 until November 19, 1993, and Vice
President of Bayswater Realty & Capital Corp. from September 1979 until April
15, 1993. Mr. Saldarelli has served as a Director of the Company since October
14, 1998.

     ROBERT J. MITCHELL has been Senior Vice President-Finance of ACF
Industries, Inc. since March 1995 and was Treasurer of ACF from December 1984 to
March 1995. Mr. Mitchell has also served as President and Treasurer of ACF
Holdings since August 1993 and as Vice President, Liaison Officer of Icahn &
Co., Inc. since November 1984. Mr. Mitchell has been a director of Cadus
Pharmaceutical Corporation since May 1996 and National Energy Group, Inc., a
public company involved in the exploration of oil and gas reserves, since August
1996. Mr. Mitchell was a director of both Marvel and Toy Biz from June 1997 to
April 1998. From 1987 to January 1993, Mr. Mitchell served as Treasurer of Trans
World Airlines, Inc. and was its Treasurer when it filed for reorganization
under Chapter 11 of the United States Bankruptcy Code, as amended, in January
1992. Mr. Mitchell received his BS Degree in Business Administration from St.
Francis College. Mr. Mitchell has served as a Director of the Company since
October 14, 1998.

     MARTIN HIRSCH has served as a Vice President of American Property
Investors, Inc. since March 18, 1991, where he is involved in investing,
managing and disposing of real estate properties and securities. From January
1986 to January 1991, he was at Integrated Resources, Inc. as a Vice President
where he was involved in the acquisition of commercial real estate properties
and asset management. From 1985-1986, he was a Vice President of Hall Financial
Group where he acquired and financed commercial and residential properties. Mr.
Hirsch received his MBA from The Emory University Graduate School of Business.
Mr. Hirsch has served as a Director of the Company since October 14, 1998.

     JUDGE JEROME M. BECKER serves as Chairman of the New York State Housing
Finance Agency, the New York State Affordable Housing Corporation, the New York
State Project Finance Agency and the New York State Municipal Bond Bank. Judge
Becker also serves as Vice-Chairman of the State of New York Mortgage Agency.
Judge Becker is a Director of the New York State Mortgage Loan Enforcement and
Administration Corporation, Director of the New York State Housing Trust Fund
Corporation and Member of the Homeless

                                       41
<PAGE>   42

Housing Assistance Corporation. He is also a Brigadier General in the New York
Guard. Judge Becker has formerly served as a Family Court Judge of the State of
New York and as an Acting Criminal Court Judge of the New York City Criminal
Court. He also served as Special District Attorney of Kings County (Brooklyn),
Chairman of the New York City Conditional Release Commission (Parole), Chairman
of the New York City Youth Board, Commissioner of the New York City Human Rights
Commission and Member of the New York City Board of Correction. Judge Becker is
a member of the New York State Bar having been admitted in 1962 and since has
become a member of the Washington DC, Colorado and Pennsylvania Bars. He is also
admitted to various federal courts including the United States Supreme Court.
Judge Becker has also practiced law privately having represented domestic and
international real estate interests.

     DANIEL A. CASSELLA has been Chief Executive Officer of the Company since
August 1998 and has been a Director of the Company since March of 1998. Mr.
Cassella also served as President and Chief Executive Officer of Resorts
International in Atlantic City, New Jersey, during 1997. From 1993 to 1997, Mr.
Cassella worked as an Independent Gaming Consultant and Certified Public
Accountant. From September 1992 until November 1993, he served as President and
Chief Operating Officer of The Star's Desert Inn in Las Vegas, Nevada. Mr.
Cassella also served as Executive Vice President of The Mirage Hotel and Casino,
in Las Vegas, Nevada, from January 1989 to September 1992. Mr. Cassella was
employed with Caesars Palace in Las Vegas, Nevada, in January 1980 as
Treasurer/Controller until January 1989 when he was promoted to Chief Financial
Officer and eventually served as Executive Vice President. On January 18, 2000,
Mr. Cassella resigned as an officer and director to the Company.

     THOMAS A. LETTERO became Executive Vice President and Chief Financial
Officer of the Company assuming Mr. Cassella's responsibilities, effective
February 29, 2000. Mr. Lettero was Sr. Vice President Administration and Chief
Financial Officer of the Company since December 1994. From March 1994 until
December 1994, Mr. Lettero was the Vice President and Chief Financial Officer at
Palace Casinos, Inc. ("Palace") in Las Vegas, Nevada. Palace filed for Chapter
11 Bankruptcy in December 1994. From February 1993 until March 1994, Mr. Lettero
served as Vice President of Casino Marketing Administration of MGM Grand Hotel
Casino in Las Vegas, Nevada. From March 1992 until February 1993, Mr. Lettero
served as Executive Vice President and Chief Financial Officer of HP Casino
Management L.P. ("HP") in Golden, Colorado, the owner and operator of three
Bullwacker casinos in Central City and Blackhawk, Colorado. At HP, as a licensed
operator, Mr. Lettero was responsible for opening the properties, all marketing
efforts and daily operations. From September 1990 until March 1992, Mr. Lettero
served as Chief Financial Officer of Main Street Station in Las Vegas, Nevada.
Main Street Station filed for Chapter 11 Bankruptcy in December 1991, which was
converted into a Chapter 7 liquidation in September 1992. From May 1989 until
September 1990, Mr. Lettero served as Director of Operational Accounting of
Mirage Hotel and Casino in Las Vegas, Nevada. Stratosphere Corporation and its
wholly-owned subsidiary, Stratosphere Gaming Corp., filed for reorganization
under Chapter 11 of the Bankruptcy Code on January 27, 1997, and the effective
date for its Restated Second Amended Plan of Reorganization was October 14,
1998. On March 7, 2000, Mr. Lettero resigned as an officer of the Company and
its subsidiaries. Mr. Lettero agreed to continue his services for a period not
longer than ninety days from March 7, 2000.

                                       42
<PAGE>   43

ITEM 11.  EXECUTIVE COMPENSATION

     The following table sets forth certain information concerning the
compensation for services rendered by the Chief Executive Officer of the Company
and for each executive officer of the Company.

                           SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                                                                       LONG-TERM
                                                                                      COMPENSATION
                                                             ANNUAL COMPENSATION         AWARDS
                                                           ------------------------   ------------
                                                                                       SECURITIES
                                                                                       UNDERLYING
NAME AND PRINCIPAL POSITION                                YEAR   SALARY     BONUS     OPTIONS(#)
---------------------------                                ----   -------   -------   ------------
<S>                                                        <C>    <C>       <C>       <C>
Daniel A. Cassella (a)...................................  1999   500,000        --          --
Chief Executive Officer                                    1998   158,582        --          --
                                                           1997        --        --          --

Andrew S. Blumen (b).....................................  1999    67,920        --(c)        --
General Counsel                                            1998   265,769   225,000          --
                                                           1997   225,000        --          --

Thomas A. Lettero (d)....................................  1999   302,553        --(c)        --
Executive Vice President/Chief Financial Officer,          1998   307,334   200,000          --
Treasurer and Secretary                                    1997   200,000        --          --

Thomas Willer............................................  1999   180,000        --(c)        --
Vice President Marketing                                   1998   180,000    83,125          --
                                                           1997   178,961    26,250          --
</TABLE>

---------------

(a) Effective January 18, 2000, Mr. Cassella resigned as an officer and director
    to the Company.

(b) Effective July 2, 1999, Mr. Blumen resigned as general counsel to the
    Company.

(c) Represents amounts paid pursuant to Senior Executive Retention Agreements.

(d) On March 7, 2000, Mr. Lettero resigned as an officer of the Company and its
    subsidiaries. Mr. Lettero agreed to continue his services for a period not
    longer than ninety days from March 7, 2000.

                                       43
<PAGE>   44

                       OPTION GRANTS IN LAST FISCAL YEAR

     The Company has not implemented a stock option plan as of March 23, 2000.

EMPLOYMENT AGREEMENTS, SEPARATION AGREEMENT AND SEVERANCE AGREEMENTS

     The Company and Mr. Lettero entered into an employment agreement effective
as of May 15, 1998 (the "Lettero Agreement") continuing until June 9, 2000. The
Lettero Agreement provides that Mr. Lettero will serve as Chief Financial
Officer for the Company and be paid base annual compensation of $300,000. The
Lettero Agreement further provides that if Mr. Lettero is terminated without
"Cause" (as defined in the Lettero Agreement) or there is a "Change of Control"
(as defined in the Lettero Agreement), then Mr. Lettero will receive an
immediate severance payment of $200,000. The Lettero Agreement is terminable by
Mr. Lettero at any time by providing the Company 90 days prior written notice.
The Lettero Agreement also provides that if Mr. Lettero is not retained as Chief
Financial Officer of the Company at the end of the term, then Mr. Lettero will
receive an immediate severance payment of $75,000.

     On March 7, 2000, Mr. Lettero resigned as an officer of Stratosphere
Corporation and subsidiaries. Mr. Lettero has agreed to continue his duties and
responsibilities as Chief Financial Officer and assist in a succession plan for
a period not longer than ninety days.

DIRECTOR COMPENSATION

     Each current director of the Company who is not an employee of the Company
or any of their affiliates receives $1,000 for any board meeting or committee
meeting attended. Employees of the Company or any of their affiliates will
receive no additional compensation for service as a director or committee
member. All directors will be reimbursed for expenses incurred in attending
board or committee meetings.

     On November 14, 1999, Jerome M. Becker was elected as the sole independent
member to the Stratosphere Corporation Board of Directors. Mr. Becker was
compensated $40,000 in advance for his services.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

     The Compensation Committee consisted of Mr. Icahn and Mr. Cassella until
January 18, 2000. Since that date, the Compensation Committee consisted of Mr.
Mitchell and Mr. Icahn.

     Mr. Icahn (including certain related entities) is actively involved in the
gaming industry and currently owns 89.6% of the Company's New Common Stock.
Casinos owned or managed by Mr. Icahn may directly or indirectly compete with
the Company. In addition, the potential for conflicts of interest exists among
the Company and Mr. Icahn for future business opportunities. Mr. Icahn may
intend to pursue other business opportunities and there is no agreement
requiring that such additional business opportunities be presented to the
Company.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The following table sets forth as of March 13, 2000, certain information
regarding the beneficial ownership of shares of New Common Stock by each
director of the Company, each of the executive officers listed in the Summary
Compensation Table, each person known to the Company to be the beneficial owner
of more than 5% of the outstanding shares and all directors and executive
officers as a group. Except as otherwise indicated, each stockholder has sole
voting and investment power with respect to the shares beneficially owned.

<TABLE>
<CAPTION>
                                                                NUMBER OF
NAME                                                             SHARES      PERCENT
----                                                            ---------    -------
<S>                                                             <C>          <C>
Carl C. Icahn...............................................    1,818,600(a)  89.6
John P. Saldarelli..........................................           --       --
Robert J. Mitchell..........................................           --       --
Martin Hirsch...............................................           --       --
Jerome M. Becker............................................           --       --
Thomas A. Lettero...........................................           --       --
All directors and executive officers (as a group four
  persons)..................................................    1,818,600     89.6
</TABLE>

                                       44
<PAGE>   45

---------------

(a) Includes 985,286 shares held by American Real Estate Holdings Limited
    Partnership ("AREH") that were repurchased from entities owned or controlled
    by Carl C. Icahn. AREH is the subsidiary limited partnership of American
    Real Estate Partners, L.P. ("AREP") a master limited partnership whose units
    are traded on the New York Stock Exchange. Mr. Icahn currently owns
    approximately 85% of the outstanding depository units of AREP.

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

     Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission
(the "SEC") and the Nasdaq National Market System. Officers, directors and
greater than ten percent shareholders are required by SEC regulation to furnish
the Company with copies of all Section 16(a) forms they file. Based solely on
review of the copies of such forms furnished by the Company, or written
representations that no Forms 5 were required, the Company believes that during
the fiscal year ended December 26, 1999, all Section 16(a) filing requirements
applicable to its officers, directors and greater than ten-percent beneficial
owners were satisfied.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     Mr. Icahn (including certain related entities) is actively involved in the
gaming industry and currently owns 89.6% of the Company's New Common Stock.
Casinos owned or managed by Mr. Icahn may directly or indirectly compete with
the Company. In addition, the potential for conflicts of interest exists among
the Company and Mr. Icahn for future business opportunities. Mr. Icahn may
intend to pursue other business opportunities and there is no agreement
requiring that such additional business opportunities be presented to the
Company.

     The Company has entered into a wholesale tour and travel agreement with
Lowestfare.com (a company owned by Mr. Icahn). The Company received hotel
revenues of $.5 million during fiscal year 1999 from Lowestfare.com.

     On January 1, 1999, the Company employed Albo Antenucci for construction
management services at a base annual salary of $75,000. Mr. Antenucci is the
Executive Vice President of Bayswater Realty and Capital Corp., a company owned
and controlled by Mr. Icahn. Mr. Antenucci received approximately $72,000 of
compensation for the fiscal year ended December 26, 1999.

     Since January 1999, Mr. Cassella and Mr. Lettero provided "over sight"
management services to Arizona Charlie's, an entity owned and controlled by Carl
C. Icahn. The Company was reimbursed $240,000 for the cost of all such services
provided.

                                       45
<PAGE>   46

                                    PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a)(1) Consolidated Financial Statements:

     Included in Part II:

<TABLE>
<S>                                                             <C>

Report of Independent Public Accountants....................     21

Consolidated Balance Sheets at December 26, 1999
  and December 27, 1998.....................................     22

Consolidated Statements of Operations for fiscal year ended
  December 26, 1999 (Successor Company), for the period
  September 28, 1998 through December 27, 1998 (Successor
  Company), December 29, 1997 through September 27, 1998
  (Predecessor Company) and fiscal year ended December 28,
  1997 (Predecessor Company)................................     23

Consolidated Statements of Shareholders' Equity (Deficit)
  for the period from December 30, 1996 through September
  27, 1998 (Predecessor Company) and September 28, 1998
  through December 26, 1999 (Successor Company).............     24

Consolidated Statements of Cash Flows for fiscal year ended
  December 26, 1999 (Successor Company), for the period
  September 28, 1998 through December 27, 1998 (Successor
  Company), December 29, 1997 through September 27, 1998
  (Predecessor Company) and fiscal year ended December 28,
  1997 (Predecessor Company)................................     25

Notes to Consolidated Financial Statements..................     27
</TABLE>

(a)(2)  Supplemental Financial Statement Schedules

     All financial statement schedules have been omitted because either they are
not required or the information required to be set forth therein is included in
the Consolidated Financial Statements or in the Notes thereto.

(a)(3)  Exhibits

<TABLE>
<CAPTION>
EXHIBIT    DESCRIPTION OF DOCUMENT
-------    -----------------------
<S>        <C>
2(1)       Disclosure Statement to accompany the Company's Second
           Amended Plan of Reorganization.(d)
2(2)       The Company's Restated Second Amended Plan of
           Reorganization, dated February 26, 1998.(e)
3(1)       Certificate of Incorporation of the Company, as amended.(f)
3(2)       Bylaws of the Company, as amended and restated.(f)
3(3)       Articles of Incorporation of the Operating Subsidiary.(f)
3(4)       Bylaws of the Operating Subsidiary.(f)
10(1)      Owner Participation Agreement between the City of Las Vegas
           Downtown Redevelopment Agency and the Company.(b)
10(2)      Development and Lease Agreement, dated March 11, 1996 by and
           between Strato-Retail, LLC and the Company.(a)
10(3)      Participation Agreement, dated as of April 29, 1996 by and
           among Stratosphere Gaming Corp., First Security Trust
           Company of Nevada, The Persons Listed on Schedule II, Bank
           of Scotland, First Interstate Bank of Nevada, Societe
           Generale, Credit Lyonnais, Los Angeles Branch, BA Leasing &
           Capital Corporation and the Company.(b)
10(4)      Lease Agreement, dated as of April 29, 1996 by and between
           First Security Trust Company of Nevada and Stratosphere
           Gaming Corp.(b)
</TABLE>

                                       46
<PAGE>   47

<TABLE>
<CAPTION>
EXHIBIT    DESCRIPTION OF DOCUMENT
-------    -----------------------
<S>        <C>
10(5)      Loan Agreement, dated as of April 29, 1996 by and among
           First Security Trust Company of Nevada, BA Leasing & Capital
           Corporation, Bank of Scotland, First Interstate Bank of
           Nevada, Societe Generale, Credit Lyonnais, Los Angeles
           Branch, and the Persons Listed on Schedule I.(b)
10(6)      Promissory Notes from the Borrower to the Various
           Lenders.(b)
10(7)      Trust Agreement, dated as of April 29, 1996 between
           Stratosphere Gaming Corp., as Grantor, and First Security
           Trust Company of Nevada, as Trustee.(b)
10(8)      Security Agreement and Assignment of Lease, dated as of
           April 29, 1996 between First Security Trust Company of
           Nevada and BA Leasing & Capital Corporation.(b)
10(9)      Guaranty, dated as of April 29, 1996 by the Company in favor
           of the Beneficiaries named therein.(b)
10(10)     Subordination Agreement, entered into as of April 29, 1996
           by and among Stratosphere Gaming Corp., the Company, Grand
           Casinos, Inc., First Security Trust Company of Nevada, and
           BA Leasing & Capital Corporation.(b)
10(11)     Standstill and Amendment Agreement, dated as of October 30,
           1996 by and among Stratosphere Gaming Corp., First Security
           Trust Company of Nevada, Bank of Scotland, Wells Fargo Bank,
           National Association, Societe Generale, Credit Lyonnais, Los
           Angeles Branch, BA Leasing & Capital Corporation and the
           Company.(c)
10(12)     Senior Executive Retention Agreement, dated as of January
           23, 1998 by and between Thomas Lettero and the Company.(e)
10(13)     Senior Executive Retention Agreement, dated as of January
           23, 1998 by and between Andrew S. Blumen and the Company.(e)
10(14)     Executive Employment Agreement dated effective as of May 15,
           1998 by and between Thomas A. Lettero and Stratosphere
           Corporation and Stratosphere Gaming Corporation.(f)
10(15)     Participation Agreement, dated as of May 28, 1999, among
           Stratosphere Gaming Corp., as Lessee, Stratosphere
           Corporation, as Guarantor, First Security Trust Company of
           Nevada, as Lessor and Trustee, The Persons Listed on
           Schedule II, as Lenders and Heller Financial Leasing, Inc.,
           as Agent.(g)
10(16)     Exhibit A to Participation Agreement Form of Lease
           Agreement, dated as of May 28, 1999, between First Security
           Trust Company of Nevada, not in its individual capacity,
           except as expressly stated herein, but solely as Trustee, as
           Lessor, and Stratosphere Gaming Corp., as Lessee.(g)
10(17)     Exhibit B to Participation Agreement Form of Loan Agreement,
           dated as of May 28, 1999, among First Security Trust Company
           of Nevada, not in its individual capacity, except as
           expressly stated herein, but solely as Trustee, as Borrower,
           Heller Financial Leasing, Inc., as Agent, and The Persons
           Listed on Schedule I, as Lenders.(g)
10(18)     Exhibit C to Participation Agreement Form of Trust
           Agreement, dated as of May 28, 1999, between Stratosphere
           Gaming Corp., as Grantor, and First Security Trust Company
           of Nevada, as Trustee.(g)
10(19)     Exhibit D to Participation Agreement Form of Security
           Agreement and Assignment of Lease, dated as of May 28, 1999,
           between First Security Trust Company of Nevada, not in its
           individual capacity but solely as Trustee, and Heller
           Financial Leasing, Inc. as Agent.(g)
10(20)     Exhibit E to Participation Agreement Form of Guaranty, dated
           as of May 28, 1999, of Stratosphere Corporation in favor of
           The Beneficiaries Named Herein.(g)
10(21)     Exhibit G to Participation Agreement Landlord Waiver and
           Consent.(g)
10(22)     Exhibit H to Participation Agreement Form of Advance
           Request.(g)
10(23)     Exhibit I to Participation Agreement Form of Bill of
           Sale.(g)
10(24)     Exhibit J to Participation Agreement Form of Certificate of
           Acceptance of Lessee.(g)
10(25)     Exhibit K to Participation Agreement Form of Investor's
           Letter.(g)
10(26)     Exhibit M to Participation Agreement Form of Opinion of
           Counsel To Parent and Lessee.(g)
21         Subsidiaries.(f)
</TABLE>

                                       47
<PAGE>   48

<TABLE>
<CAPTION>
EXHIBIT    DESCRIPTION OF DOCUMENT
-------    -----------------------
<S>        <C>
27         Financial Data Schedule
</TABLE>

---------------

(a) Incorporated herein by reference to the Company's Quarterly Report on Form
    10-Q for the quarterly period ended March 31, 1996.

(b) Incorporated herein by reference to the Company's Quarterly Report on Form
    10-Q for the quarterly period ended June 30, 1996.

(c) Incorporated herein by reference to the Company's Quarterly Report on Form
    10-Q for the quarterly period ended September 29, 1996.

(d) Incorporated herein by reference to the Company's Quarterly Report on Form
    10-Q for the quarterly period ended September 28, 1997.

(e) Incorporated herein by reference to the Company's Annual Report on Form 10-K
    for the year ended December 28, 1997.

(f) Incorporated herein by reference to the Company's Annual Report on Form 10-K
    for the year ended December 27, 1998.

(g) Incorporated herein by reference to the Company's Quarterly Report on Form
    10-Q for the quarterly period ended June 27, 1999.

(h) Incorporated herein by reference to the Company's Form 8-K filed March 1,
    2000.

  + Relates to Executive Compensation.

(b) Reports on Form 8-K.

     The Company filed no Reports on Form 8-K during the fiscal quarter ended
December 26, 1999.

                                       48
<PAGE>   49

                                   SIGNATURES

     In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
                                          STRATOSPHERE CORPORATION
                                          Registrant

                                          By:    /s/ THOMAS A. LETTERO
                                          --------------------------------------
                                          Name: Thomas A. Lettero
                                          Title: Chief Financial Officer
Date: March 23, 2000

     In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities
indicated on March 23, 2000.

<TABLE>
<CAPTION>
NAME                                                                  TITLE
----                                                                  -----
<C>                                                <S>
             /s/ CARL C. ICAHN                     Chairman of the Board
--------------------------------------------
               Carl C. Icahn

           /s/ JOHN P. SALDARELLI                  Director
--------------------------------------------
             John P. Saldarelli

           /s/ ROBERT J. MITCHELL                  Director
--------------------------------------------
             Robert J. Mitchell

             /s/ MARTIN HIRSCH                     Director
--------------------------------------------
               Martin Hirsch

            /s/ JEROME M. BECKER                   Director
--------------------------------------------
              Jerome M. Becker

           /s/ THOMAS A. LETTERO                   Chief Financial Officer, Treasurer and
--------------------------------------------       Secretary
             Thomas A. Lettero
</TABLE>

                                       49