<PAGE>   1
 
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
 
                       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 27, 1998, 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                             (I.R.S. Employer
     of 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>
<CAPTION>
                                                             NAME OF EACH EXCHANGE ON
            TITLE OF EACH CLASS                                  WHICH REGISTERED
            -------------------                              ------------------------
<S>                                                <C>
                    None
</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. [ ]
 
     On January 27, 1997, Registrant and its wholly-owned subsidiary
Stratosphere Gaming Corp. filed voluntary petitions for Chapter 11
Reorganization in the United States Bankruptcy Court for the District of Nevada.
The Registrant's Restated Second Amended Plan of Reorganization became effective
on October 14, 1998, and on that date all of its old equity securities were
canceled and 2,030,000 shares of new Common Stock were issued to the holders of
the Registrant's 14  1/4% First Mortgage Notes. Since October 14, 1998, there
has been extremely limited trading of the Registrant's new Common Stock on the
over the counter bulletin board.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>   2
 
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 most 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" (the "Thrill Rides").
 
     The Company currently is operating with, among other things, the Tower, a
hotel with 1,444 rooms and suites, a 97,000 square foot casino featuring
approximately 1,700 slot machines, 37 table games, 6 poker tables, a 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 250-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"), the Company and its wholly-owned
subsidiary Stratosphere Gaming Corp. ("SGC" and collectively with the Company,
the "Debtors") filed voluntary petitions for Chapter 11 Reorganization pursuant
to the United States Bankruptcy Code ("Bankruptcy Proceedings"). As of that
date, the United States Bankruptcy Court for the District of Nevada ("Bankruptcy
Court") assumed jurisdiction over the assets of the Company and SGC. The Company
and SGC acted 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 (the
"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 reflected the effect of the Restated Second Amended
Plan as of September 27, 1998, in the consolidated financial statements included
in this Form 10-K.
 
     Pursuant to the Restated Second Amended Plan becoming effective, the
Company canceled all prior equity interests (including 58.4 million shares of
Common Stock, all options and warrants). The Company exchanged 2,030,000 shares
of new Common Stock (represents 100% of the Common Stock as of the Effective
Date) 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 has been 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 were discharged in exchange for a cash payment of $6.0 million.
Allowed priority claims (estimated at $.9 million) have been paid in full. The
discharge and settlement of these claims resulted in a gain of $153.4 million,
which has been reflected as an extraordinary item on the Consolidated Statement
of Operations for the period ended September 27, 1998. The amount of the gain is
based on the Company's estimate of the amount of claims that will ultimately be
allowable by the Bankruptcy Court, and is not 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 cash the Company is required to
distribute 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).
 
     Prior to confirmation of the Restated Second Amended Plan, the Company
became a party to a global settlement agreement ("Settlement Agreement") with
the holders of the Vegas World Vacation Packages
                                        2
<PAGE>   3
 
("Package Holders"). The Settlement Agreement required the approvals of the
Bankruptcy Court and Nevada State District Court. Upon obtaining the necessary
approvals, the Settlement Agreement became effective on June 23, 1998. Pursuant
to the terms of the Settlement Agreement, the Company provides room nights,
tower elevations and beverages (at the casino bars) to the Package Holders
identified in Exhibit A to the Settlement Agreement. The Company estimates the
total cost of providing such services to be approximately $3.3 million. The
Company received from Bob Stupak the Deed to the Stupak Center (estimated fair
market value of $350,000), $.4 million of cash and the remaining three million
shares of old Common Stock held in the escrow account previously established by
Bob Stupak. The Stupak receivable of $3.9 million ($800,000 of which was
unreserved) was written-off. The Company has not attributed any value to the
treasury stock received as it was canceled upon the Restated Second Amended Plan
becoming effective. The net estimated cost of the Settlement Agreement of $3.3
million is reflected as a Reorganization Item in the accompanying Consolidated
Statements of Operations.
 
     The Company, as part of the Restated Second Amended Plan, has sought to
assume its Development and Lease Agreement with Strato-Retail LLC ("Master
Lease"). Strato-Retail LLC has 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. Evidentiary hearings were conducted on
January 28, 29 and March 5, 1999, and a decision is expected in several months.
In the event the Company is allowed to assume the Master Lease, the Company will
be required to complete the construction of Phase II and expects that
Strato-Retail LLC will be required to reimburse the Company for $7.9 million. In
addition, the Company will be required to pay to Strato-Retail LLC damages for
any pre-petition date breaches of the Master Lease as the Bankruptcy Court
determines. In the event the amount the Bankruptcy Court determines necessary to
cure pre-petition breaches, if any, is unacceptable to the Company, the Company
maintains the right to reject the Master Lease, in which event, any damages
resulting from such rejection will be deemed a pre-petition unsecured claim to
be paid in accordance with the Restated Second Amended Plan. In the event of the
rejection of the Master Lease, Strato-Retail LLC would then have the option of
continuing under the Master Lease and possessing Phase I of the Premises or
terminating the Master Lease and vacating Phase I of the Premises.
 
     In accordance with the Restated Second Amended Plan, as of the Effective
Date, the Stratosphere Litigation L.L.C. ("LLC") was formed. The administrator
for the LLC is Thomas A. Lettero and the Board of Managers is Carl C. Icahn,
Robert J. Mitchell and Russell Glass. The LLC was formed for the purpose of
pursuing (1) all claims and causes of action of the holders of the Original
First Mortgage Notes and the Indenture Trustee and (2) rights, claims and causes
of action which the Company may have against any person which the Company
determined to transfer to the LLC for prosecution. Upon the Effective Date of
the Restated Second Amended Plan, all individual causes of action of holders of
Original First Mortgage Notes related to the Standby Equity Commitment were
assigned to the LLC.
 
     In January 1999, the LLC and IBJ Whitehall Bank & Trust Company, f/k/a/ IBJ
Schroder Bank & Trust Company, as Indenture Trustee ("IBJ Whitehall") entered
into that certain Assignment of Claims whereby IBJ Whitehall acknowledged the
Restated Second Amended Plan in its entirety and acknowledged the transfer by
the holders of the Original First Mortgage Notes to the LLC of any and all
claims and causes of action including any and all claims, causes of action,
counter-claims, defenses, affirmative defenses and setoffs that IBJ Whitehall
had asserted or could have asserted in those certain proceedings entitled IBJ
Schroder v. Grand Casinos, Inc., United States District Court, District of
Nevada, Case No. CV-S-97-01252-DWH (RJJ) (the "Grand Litigation"). Additionally,
IBJ Whitehall expressly reconfirmed the transfer and assignment to the LLC of
any and all claims and causes of action it held respecting the Original First
Mortgage Notes. Furthermore, the LLC expressly reaffirmed its acceptance of the
claims and causes of action of the holders of the Original First Mortgage Notes.
 
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
                                        3
<PAGE>   4
 
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 Pod also contains gift
shops and several free-standing kiosks featuring souvenirs and food products
designed to capitalize on the unique nature of the Tower.
 
     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 1,700 slot machines, 37 table games, 6 poker tables, a
sports book and keno lounge. Stratosphere's bar and lounge facilities have been
positioned for convenient access to the gaming areas.
 
     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.
 
THE RETAIL-ENTERTAINMENT CENTER
 
     The Retail-Entertainment Center, located on the second floor of the Base
Building, currently occupies approximately 160,000 square feet, of which 57,000
square feet is currently undeveloped. The retail area offers various restaurants
and shops and, in combination with the 650 seat show room that currently offers
afternoon and evening shows, is designed to appeal to the wide spectrum of
visitors who come to Las Vegas.
 
THE HOTEL
 
     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 Cafe and Grille," "Roxy's 50's Diner," and "Tower
of Pasta," a restaurant serving Italian cuisine. Stratosphere has parking for
over 4,000 cars.
 
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. Aggressive
advertising and promotional campaigns are maintained to maximize hotel room
occupancy and visitation to the Tower. 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 several world class destination resorts, with numerous other tourist
attractions. Major Las Vegas casino/hotels are themselves
 
                                        4
<PAGE>   5
 
tourist attractions, including Bellagio, 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 with the fourth quarter 1999 opening of "Paris" (a Bally's Park Place
project) that will feature a 500 foot replica of the Eiffel Tower.
 
     Certain states have recently legalized, and others may legalize casino
gaming in specific areas, and passage of the Indian Gaming Regulatory Act in
1988 has led to rapid increases in Native American gaming operations. Such
proliferation of gaming activities could materially and adversely affect the
Company's business. In particular, the legalization of casino gaming in or near
any metropolitan area from which the Company intends to attract customers could
have a material adverse effect on the Company's business.
 
EMPLOYEES
 
     The Company currently employs approximately 2,100 full and part-time
associates, of which approximately 1,000 are covered by a collective bargaining
agreement.
 
     The existing collective bargaining agreements between the Culinary Worker's
Union, Local 226 and Bartenders, Local 165 expired June 1, 1997. On December 10,
1998, the Company and Local 226 and Local 165 reached a tentative agreement that
became effective on June 1, 1997. Pursuant to the agreement, the Company paid
the affected employees approximately $1.0 million in retroactive increases on
December 23, 1998. This amount had been previously accrued on the consolidated
balance sheet. The agreement expires on May 31, 2002, and provides for future
increases of between 3% and 4% annually.
 
     On October 15, 1998, management reached an agreement with Operating
Engineers, Local 501 union. Such agreement is not expected to have a material
adverse effect on future labor costs.
 
     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 proposed 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 and is a
corporate licensee (a "Corporate Licensee") under the terms of the Nevada Act.
The
 
                                        5
<PAGE>   6
 
gaming license requires the periodic payment of fees and taxes and is 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
 
                                        6
<PAGE>   7
 
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, 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
                                        7
<PAGE>   8
 
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 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
 
                                        8
<PAGE>   9
 
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, the Company and SGC filed voluntary
petitions for Chapter 11 Reorganization pursuant to the United States Bankruptcy
Code. As of that date, the Bankruptcy Court assumed jurisdiction over the assets
of the Company and SGC. The Company and SGC acted as debtors-in-possession on
behalf of their respective bankrupt estates were authorized as such to operate
their business subject to Bankruptcy Court supervision. On June 9, 1998, the
Bankruptcy Court entered the Confirmation Order confirming 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 reflected the effect of the Restated Second Amended Plan as of
September 27, 1998, in the consolidated financial statements included in this
Form 10-K.
 
     Pursuant to the Restated Second Amended Plan becoming effective on October
14, 1998, the Company canceled all prior equity interests (including 58.4
million shares of Common Stock, all options and warrants). The Company exchanged
2,030,000 shares of new Common Stock (represents 100% of the Common Stock as of
the Effective Date) 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 has
been 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 were discharged in exchange of a cash payment of $6.0
million. Allowed priority claims (estimated at $.9 million) have been paid in
full. The discharge and settlement of these claims resulted in a gain of $153.4
million, which has been reflected as an extraordinary item on the consolidated
statement of operations for the period ended September 27, 1998. The amount of
the gain is based on the Company's estimate of the amount of claims that will
ultimately be allowable by the Bankruptcy Court, and is not 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 cash the Company is required to
distribute 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).
 
     Prior to confirmation of the Restated Second Amended Plan, the Company
became a party to the Settlement Agreement with the Package Holders. The
Settlement Agreement required the approvals of the Bankruptcy Court and Nevada
State District Court. Upon obtaining the necessary approvals, the Settlement
Agreement became effective on June 23, 1998. Pursuant to the terms of the
Settlement Agreement, the Company provides room nights, tower elevations and
beverages (at the casino bars) to the Package Holders identified in Exhibit A to
the Settlement Agreement. The Company estimates the total cost of providing such
services to be approximately $3.3 million. The Company received from Bob Stupak
the Deed to the Stupak Center (estimated fair market value of $350,000), $.4
million of cash and the remaining three million shares of Common Stock held in
the escrow account previously established by Bob Stupak. The Stupak receivable
of $3.9 million ($800,000 of which was unreserved) was written-off. The Company
has not attributed any value to the treasury stock received as it was canceled
upon the Restated Second Amended Plan becoming effective. The net estimated cost
of the Settlement Agreement of $3.3 million is reflected as a Reorganization
Item in the accompanying Consolidated Statements of Operations.
 
     The Company, as part of the Restated Second Amended Plan, has sought to
assume the Master Lease with Strato-Retail LLC. Strato-Retail LLC has 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.
Evidentiary hearings
 
                                        9
<PAGE>   10
 
were conducted on January 28, 29 and March 5, 1999, and a decision is expected
in several months. In the event the Company is allowed to assume the Master
Lease, the Company will be required to complete the construction of Phase II and
expects that Strato-Retail LLC will be required to reimburse the Company for
$7.9 million. In addition, the Company will be required to pay to Strato-Retail
LLC damages for any pre-petition date breaches of the Master Lease as the
Bankruptcy Court determines. In the event the amount the Bankruptcy Court
determines necessary to cure pre-petition breaches, if any, is unacceptable to
the Company, the Company maintains the right to reject the Master Lease, in
which event, any damages resulting from such rejection will be deemed a
pre-petition unsecured claim to be paid in accordance with the Restated Second
Amended Plan. In the event of the rejection of the Master Lease, Strato-Retail
LLC would then have the option of continuing under the Master Lease and
possessing Phase I of the Premises or terminating the Master Lease and vacating
Phase I of the Premises.
 
     In accordance with the Restated Second Amended Plan, as of the Effective
Date, the LLC was formed. The administrator for the LLC is Thomas A. Lettero and
the Board of Managers is Carl C. Icahn, Robert J. Mitchell and Russell Glass.
The LLC was formed for the purpose of pursuing (1) all claims and causes of
action of the holders of the Original First Mortgage Notes and the Indenture
Trustee and (2) rights, claims and causes of action which the Company may have
against any person which the Company determined to transfer to the LLC for
prosecution. Upon the Effective Date of the Restated Second Amended Plan all
individual causes of action of holders of Original First Mortgage Notes related
to the Standby Equity Commitment were assigned to the LLC.
 
     In January 1999, the LLC and IBJ Whitehall, as Indenture Trustee, entered
into that certain Assignment of Claims whereby IBJ Whitehall acknowledged the
Plan in its entirety and acknowledged the transfer by the holders of the
Original First Mortgage Notes to the LLC of any and all claims and causes of
action including any and all claims, causes of action, counter-claims, defenses,
affirmative defenses and setoffs that IBJ Whitehall had asserted or could have
asserted in the Grand Litigation. Additionally, IBJ Whitehall expressly
reconfirmed the transfer and assignment to the LLC of any and all claims and
causes of action it held respecting the Original First Mortgage Notes.
Furthermore, the LLC expressly reaffirmed its acceptance of the claims and
causes of action of the holders of the Original First Mortgage Notes.
 
     NEED FOR ADDITIONAL FINANCING. Completion of the unfinished 1,000 bay hotel
tower and other amenities (Phase II) of the project 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 ten months and cost approximately $80.0 million. The Company
does not have in place any financing arrangements for Phase II in the event it
determines to proceed with the project.
 
     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,
lodging and recreational activities in and near Las Vegas. Many of the Company's
competitors are larger than the Company and have 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
                                       10
<PAGE>   11
 
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 is prepared to convey 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. Pursuant to the Owner Participation
Agreement, the Company has also agreed to provide relocation assistance and that
15% of the new jobs generated by Stratosphere between opening day April 29,1996
and April 26, 1998, would be made available to employ persons residing in the
immediate vicinity of Stratosphere.
 
     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, is 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 has halted prior to
completion. The Company, as part of the Restated Second Amended Plan, has sought
to assume the Master Lease. Strato-Retail LLC has 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. Evidentiary hearings were
conducted on January 28 and 29, 1999, and a decision is expected in several
months. In the event the Company is allowed to assume the Master Lease, the
Company will be required to complete the construction of Phase II and expects
that Strato-Retail LLC will be required to reimburse the Company for $7.9
million. In addition, the Company will be required to pay to Strato-Retail LLC
damages, if any, for any pre-petition date breaches of the Master Lease as the
Bankruptcy Court
 
                                       11
<PAGE>   12
 
determines. In the event the amount the Bankruptcy Court determines necessary to
cure pre-petition breaches, if any, is unacceptable to the Company, the Company
maintains the right to reject the Master Lease, in which event, any damages
resulting from such rejection will be deemed a pre-petition unsecured claim to
be paid in accordance with the Restated Second Amended Plan. In the event of the
rejection of the Master Lease, Strato-Retail LLC would then have the option of
continuing under the Master Lease and possessing the Phase I retail space or
terminating the Master Lease and vacating the premises.
 
ITEM 3. LEGAL PROCEEDINGS
 
     On August 5, 1996, a complaint was filed in the United States District
Court for the District of Nevada (Michael Caesar, et al. v. Stratosphere
Corporation, et al.) against the Company, Lyle A. Berman (a former officer and
director of the Company and officer and director of Grand), Robert E. Stupak (a
former officer and director of the Company), Thomas A. Lettero (an officer and
current director of the Company), Thomas G. Bell (a former director of the
Company), Andrew S. Blumen (a former officer and director of the Company), and
Grand. The complaint purports to seek relief on behalf of a class of plaintiffs
who purchased the Company's Common Stock during the period from December 19,
1995, through July 22, 1996, inclusive. The complaint alleged that the
defendants made misrepresentations and engaged in other wrongdoings. In addition
to the Caesar case above, eight additional cases making the same claims against
the same defendants (and in one instance also against Stanley Taube, a former
director of the Company and also a former officer and director of Grand) have
been filed. On January 15, 1997, the court ordered these eight additional
lawsuits to be consolidated with the Caesar lawsuit under the caption "In re
Stratosphere Corporation Securities Litigation."
 
     On February 14, 1997, Plaintiffs filed a Consolidated and Amended Class
Action Complaint naming as defendants Grand, Bob Stupak, Lyle A. Berman, Stanley
M. Taube, David R. Wirshing, Thomas A. Lettero, Andrew S. Blumen, Thomas G.
Bell, Bob Stupak Enterprises, BT Securities Corporation and Montgomery
Securities, Inc. The Consolidated and Amended Class Action Complaint alleged
causes of action under the federal securities laws and Nevada law for purported
misrepresentations during the period between December 19, 1995, and July 22,
1996. The litigation was brought on behalf of a putative class of purchasers of
the Company's securities during that time period. The Consolidated and Amended
Class Action Complaint did not name the Company as a defendant, presumably due
to the automatic stay imposed by the Company's bankruptcy filing and because any
claims of plaintiffs against the Company would be resolved in the Bankruptcy
Proceedings. By virtue of the confirmation and consummation of the Restated
Second Amended Plan, the Company was discharged from any liability to Plaintiffs
or Defendants with Plaintiffs and Defendants receiving nothing under the
Restated Second Amended Plan.
 
     On March 14, 1997, the Plaintiffs in the consolidated federal litigation
discussed above (the "Securities Litigation Claimants") filed a complaint
against the Company in an adversary proceeding in the context of the Bankruptcy
Proceedings. The Securities Litigation Claimants alleged that the Company made
misrepresentations and engaged in other wrongdoings during the period between
December 19, 1995, and July 22, 1996, in violation of the federal securities
laws and Nevada law. The complaint was dismissed as part of the confirmation
proceedings of the Restated Second Amended Plan and all claims of the Securities
Litigation Claimants were discharged.
 
     On August 16, 1996, a complaint was filed in District Court, Clark County,
Nevada (Victor Opitz et al. v. Stratosphere Corporation et al.) against the
Company, Grand, Robert B. Stupak (a former officer and director of the Company),
Lyle A. Berman (a former officer and director of the Company and an officer and
director of Grand) and Stanley Taube (a former director of the Company and a
former director of Grand). The complaint purports to seek relief on behalf of a
class of plaintiffs who purchased stock during the period from December 19,
1995, to July 22, 1996. The complaint alleged the defendants made
misrepresentations and engaged in other wrongdoing. By virtue of the
confirmation and consummation of the Restated Second Amended Plan, the Company
was discharged from any liability arising out of the complaint with all other
parties to the action receiving nothing under the Restated Second Amended Plan.
 
                                       12
<PAGE>   13
 
     McDonalds Corporation filed a proof of claim in the Bankruptcy Proceedings
in which it asserted both an administrative and a general unsecured claim. The
Debtors have filed an objection to the claim, and the matter is currently
pending. The amount of the allowed general unsecured claim, if any, is not
material and will be treated under the Restated Second Amended Plan with all
other general unsecured claims. However, McDonalds has asserted an
administrative claim of $410,843 for guaranteed income pursuant to a lease
during the administrative period of the Bankruptcy Proceedings. In the event
McDonalds is able to establish an allowed administrative claim, such claim would
be paid by the Debtors upon entry of a final order approving the claim. The
Debtors have filed a Motion for Summary Judgment to disallow the claim, which
motion is set to be heard by the Bankruptcy Court in March 1999. In the event
the Motion for Summary Judgment is denied and the Bankruptcy Court orders a
trial on the merits, trial is currently set for June 1999. Based upon the legal
requirements of the Bankruptcy Code for an administrative claim, the Debtors
believe they will prevail on the objection to the McDonalds' claim.
 
     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. Trial is currently set for June 1999. The Company believes
that it can successfully defeat the lien, or alternatively, in the event that it
is required to satisfy the lien, the Company will be reimbursed by either
Strato-Retail LLC or the subtenant.
 
     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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
     None
 
                                       13
<PAGE>   14
 
                                    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. Since February 1999, (first trading of the
New Common Stock) prices have ranged from $20 to $23.
 
     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 2, 1999 for New Common Stock.
 
                                       14
<PAGE>   15
 
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
 
<TABLE>
<CAPTION>
                                   SUCCESSOR
                                    COMPANY                                PREDECESSOR COMPANY
                                 -------------   -----------------------------------------------------------------------
                                 SEPTEMBER 28,   DECEMBER 29,       FISCAL         FISCAL              YEAR ENDED
                                 1998 THROUGH    1997 THROUGH     YEAR ENDED     YEAR ENDED           DECEMBER 31,
                                 DECEMBER 27,    SEPTEMBER 27,   DECEMBER 28,   DECEMBER 29,     -----------------------
STATEMENT OF OPERATIONS DATA:        1998            1998            1997           1996            1995         1994
-----------------------------    -------------   -------------   ------------   ------------     ----------   ----------
                                                 (IN THOUSANDS EXCEPT FOR SHARE AND PER SHARE DATA)
<S>                              <C>             <C>             <C>            <C>              <C>          <C>
Net revenues(a)................    $  30,586       $  99,386      $  137,516     $  108,739      $       60   $      107
Costs and expenses.............       30,636          93,802         134,711        439,905(b)          947        1,050
                                   ---------       ---------      ----------     ----------      ----------   ----------
Income (loss) from
  operations...................          (50)          5,584           2,805       (331,166)           (887)        (943)
Other expense (income).........          134           2,021          22,120         17,677           3,776         (665)
                                   ---------       ---------      ----------     ----------      ----------   ----------
Income(loss) before
  extraordinary item...........         (184)          3,563         (19,315)      (348,843)         (4,663)        (278)
                                   ---------       ---------      ----------     ----------      ----------   ----------
Extraordinary item:
  Gain on pre-petition debt
    discharge..................           --         153,437(c)           --             --              --           --
Net Income (Loss)                  $    (184)      $ 157,000      $  (19,315)    $ (348,843)     $   (4,663)  $     (278)
                                   =========       =========      ==========     ==========      ==========   ==========
Basic income (loss) per common
  share:
  Before extraordinary item....    $   (0.09)              *      $    (0.33)    $    (6.00)     $    (0.12)  $    (0.01)
  Extraordinary item...........           --               *              --             --              --           --
Net income (loss) per share....    $   (0.09)              *      $    (0.33)    $    (6.00)     $    (0.12)  $    (0.01)
                                   =========       =========      ==========     ==========      ==========   ==========
Weighted average common shares
  outstanding..................    2,030,000               *      58,393,105     58,134,811      37,583,065   30,000,000
                                   =========       =========      ==========     ==========      ==========   ==========
 
Total Assets...................    $ 155,546       $ 165,109      $  155,976     $  181,080(b)   $  433,906   $  111,841
Long-term capital lease
  obligations..................        8,979          11,150              --(d)      19,540              --           --
Long-term debt.................          242             288             444(d)     253,000         203,000           --
</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.
 
(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.
 
                                       15
<PAGE>   16
 
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 1, 1999, the operations included approximately 1,700 slot machines, 37
table games, 6 poker tables, a sports book, keno lounge, 1,444 hotel rooms and
five themed restaurants.
 
RESTRUCTURING
 
     On January 27, 1997, the Debtors filed voluntary petitions for Chapter 11
Reorganization pursuant to the United States Bankruptcy Code. As of that date,
the Bankruptcy Court assumed jurisdiction over the assets of the Company and
SGC. The Company and SGC acted 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 the Confirmation Order, confirming 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 reflected the effect of the Restated Second Amended Plan as of
September 27, 1998, in the consolidated financial statements included in this
Form 10-K.
 
     Pursuant to the Restated Second Amended Plan becoming effective on October
14, 1998, the Company canceled all prior equity interests (including 58.4
million shares of Common Stock, all options and warrants). The Company exchanged
2,030,000 shares of new Common Stock (represents 100% of the Common Stock as of
the Effective Date) 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 has
been 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 were discharged in exchange of a cash payment of $6.0
million. Allowed priority claims (estimated at $.9 million) have been paid in
full. The discharge and settlement of these claims resulted in a gain of $153.4
million, which has been reflected as an extraordinary item on the Consolidated
Statement of Operations for the period ended September 27, 1998. The amount of
the gain is based on the Company's estimate of the amount of claims that will
ultimately be allowable by the Bankruptcy Court, and is not 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 cash the Company is required to
distribute 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).
 
     Prior to confirmation of the Restated Second Amended Plan, the Company
became a party to the Settlement Agreement with the Package Holders. The
Settlement Agreement required the approvals of the Bankruptcy Court and Nevada
State District Court. Upon obtaining the necessary approvals, the Settlement
Agreement became effective on June 23, 1998. Pursuant to the terms of the
Settlement Agreement, the Company provides room nights, tower elevations and
beverages (at the casino bars) to the Package Holders identified in Exhibit A to
the Settlement Agreement. The Company estimates the total cost of providing such
services to be approximately $3.3 million. The Company received from Bob Stupak
the Deed to the Stupak Center (estimated fair market value of $350,000), $.4
million of cash and the remaining three million shares of Common Stock held in
the escrow account previously established by Bob Stupak. The Stupak receivable
of $3.9 million ($800,000 of which was unreserved) was written off. The Company
has not attributed any value to the treasury stock received as it was canceled
upon the Restated Second Amended Plan becoming effective. The net estimated cost
of the Settlement Agreement of $3.3 million is reflected as a Reorganization
Item in the accompanying Consolidated Statements of Operations.
 
                                       16
<PAGE>   17
 
     The Company, as part of the Restated Second Amended Plan, has sought to
assume the Master Lease with Strato-Retail LLC. Strato-Retail LLC has 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.
Evidentiary hearings were conducted on January 28, 29 and March 5, 1999, and a
decision is expected in several months. In the event the Company is allowed to
assume the Master Lease, the Company will be required to complete the
construction of Phase II and expects that Strato-Retail LLC will be required to
reimburse the Company for $7.9 million. In addition, the Company will be
required to pay to Strato-Retail LLC damages for any pre-petition date breaches
of the Master Lease as the Bankruptcy Court determines. In the event the amount
the Bankruptcy Court determines necessary to cure pre-petition breaches, if any,
is unacceptable to the Company, the Company maintains the right to reject the
Master Lease, in which event, any damages resulting from such rejection will be
deemed a pre-petition unsecured claim to be paid in accordance with the Restated
Second Amended Plan. In the event of the rejection of the Master Lease,
Strato-Retail LLC would then have the option of continuing under the Master
Lease and possessing Phase I of the Premises or terminating the Master Lease and
vacating Phase I of the Premises.
 
     In accordance with the Restated Second Amended Plan, as of the Effective
Date, the LLC was formed. The administrator for the LLC is Thomas A. Lettero and
the Board of Managers is Carl C. Icahn, Robert J. Mitchell and Russell Glass.
The LLC was formed for the purpose of pursuing (1) all claims and causes of
action of the holders of Original First Mortgage Notes and the Indenture Trustee
and (2) rights, claims and causes of action which the Company may have against
any person which the Company determined to transfer to the LLC for prosecution.
Upon the Effective Date of the Restated Second Amended Plan all individual
causes of action of holders of Original First Mortgage Notes related to the
Standby Equity Commitment were assigned to the LLC.
 
     In January 1999, the LLC and IBJ Whitehall Bank, as Indenture Trustee,
entered into that certain Assignment of Claims whereby IBJ Whitehall
acknowledged the Plan in its entirety and acknowledged the transfer by the
holders of the Original First Mortgage Notes to the LLC of any and all claims
and causes of action including any and all claims, causes of action,
counter-claims, defenses, affirmative defenses and setoffs that IBJ Whitehall
had asserted or could have asserted in the Grand Litigation. Additionally, IBJ
Whitehall expressly reconfirmed the transfer and assignment to the LLC of any
and all claims and causes of action it held respecting the Original First
Mortgage Notes. Furthermore, the LLC expressly reaffirmed its acceptance of the
claims and causes of action of the holders of the Original First Mortgage Notes.
 
     Pursuant to the guidance of AICPA SOP 90-7, "fresh start reporting" has
been reflected as of September 27, 1998, in the Consolidated Financial
Statements included in this Form 10-K (see Note 2 to the consolidated financial
statements).
 
                                       17
<PAGE>   18
 
RESULTS OF OPERATIONS
 
     The following discussion regarding the operating results of the Company
will be limited to a comparison of fiscal years 1998 and 1997 due to the fact
that operations commenced on April 26, 1996 and any comparisons to the year
ending 1996 would not be relevant. 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 the actual results of
fiscal year 1997 since operations have remained similar and such comparison
would not be misleading.
 
COMPARISON OF OPERATING RESULTS FOR FISCAL YEAR 1998 AND 1997
 
<TABLE>
<CAPTION>
                                                                  COMBINED
                                                                  POST AND            PREDECESSOR
                                                             PRE-REORGANIZATION     COMPANY FISCAL
                                                             FISCAL YEAR ENDED        YEAR ENDED
                                                             DECEMBER 27, 1998     DECEMBER 28, 1997
                                                             ------------------    -----------------
                                                               (UNAUDITED)
<S>                                                          <C>                   <C>
Revenues:
  Casino.................................................       $ 55,534,156         $ 62,981,160
  Hotel..................................................         23,998,362           24,006,537
  Food and beverage......................................         33,760,459           33,143,254
  Tower, retail and other income.........................         29,295,219           30,339,898
                                                                ------------         ------------
Gross Revenues...........................................        142,588,196          150,470,849
  Less: Promotional allowances...........................         12,616,103           12,955,013
                                                                ------------         ------------
Net Revenues.............................................        129,972,093          137,515,836
                                                                ------------         ------------
Costs and Expenses:
  Casino.................................................         25,516,446           27,838,121
  Hotel..................................................          7,879,652            8,554,553
  Food and beverage......................................         23,252,141           25,552,348
  Other operating expenses...............................         11,751,683           11,755,549
  Depreciation and amortization..........................          8,108,215            7,843,230
  Selling, general and administrative....................         47,930,436           53,166,758
                                                                ------------         ------------
     Total Costs and Expenses............................        124,438,573          134,710,559
                                                                ------------         ------------
Income From Operations...................................          5,533,520            2,805,277
                                                                ------------         ------------
Other income (expense):
  Interest income........................................            203,270               47,674
  Interest expense.......................................         (1,532,380)          (5,491,686)
  Gain (Loss) on sale of assets..........................            (71,704)              14,186
                                                                ------------         ------------
     Total Other Expense, net............................         (1,400,814)          (5,429,826)
                                                                ------------         ------------
Income (Loss) Before Reorganization Items, Income Taxes
  and Extraordinary Item.................................          4,132,706           (2,624,549)
Reorganization Items:....................................           (754,075)         (16,690,482)
                                                                ------------         ------------
Income (Loss) Before Income Taxes and Extraordinary
  Item...................................................          3,378,631          (19,315,031)
Provision (Benefit) for Income Taxes.....................                 --                   --
Extraordinary Gain on Pre-petition Debt Discharge........        153,436,882                   --
                                                                ------------         ------------
Net Income (Loss)........................................       $156,815,513         $(19,315,031)
                                                                ============         ============
</TABLE>
 
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
 
                                       18
<PAGE>   19
 
gaming odds promotions offered by the Company. Management anticipates increased
competition with the opening of several new mega-resorts on the Las Vegas Strip
during the next twelve months. Casino marketing efforts have been directed
toward the development of several promotional events and direct mail programs.
Casino revenues represented 39% and 42% of total gross revenues for the 1998 and
1997 fiscal years, respectively.
 
     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. 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. Management anticipates increased competition for hotel room sales
during the next twelve months with the increase of approximately 15,000 newly
constructed hotel rooms in the Las Vegas market.
 
     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 8% from $27.8 million for
fiscal year 1997 to $25.5 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. Management does not anticipate further
significant labor reductions.
 
     Hotel operating costs declined approximately 8% from $8.6 million for
fiscal year 1997 to $7.9 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.
 
     Food and beverage operating costs declined approximately 9% from $25.6
million for fiscal year 1997 to $23.3 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. Management
does not anticipate significant expense reductions in future periods.
 
     Selling, general and administrative expenses declined approximately 10%
from $53.2 million for fiscal year 1997 to $47.9 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 (see Note 2 to the Consolidated Financial Statements included in this Form
10-K), principal and interest payments associated with the capital lease
obligations will continue. The Grand Note and the 14 1/4% First Mortgage Notes
have been cancelled. Future period interest will be limited to the capital lease
obligation interest and interest related to any additional Company financings
(see Liquidity and Capital Resources).
 
     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
                                       19
<PAGE>   20
 
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 (see Note 2 to the consolidated financial statements included in
this Form 10-K).
 
LIQUIDITY AND CAPITAL RESOURCES
 
DEBT
 
     Pursuant to the Restated Second Amended Plan becoming effective on October
14, 1998, the Company issued 2,030,000 shares of the New Common Stock (100% of
shares as of the Effective Date) to the holders of the 14 1/4% First Mortgage
Notes in exchange for the secured portion of their debt (estimated at $120.6
million). The remaining portion of the 14 1/4% First Mortgage Note claim
(approximately $104.0 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. As of March 10, 1999,
approximately $4.3 million had been paid in respect to these claims. The balance
has been reserved pending resolution of claim disputes.
 
     In addition, pursuant to the Restated Second Amended Plan, the Company will
continue to make payments on its capital lease obligations; however, the
financial covenants related to these agreements have been removed and the
agreements amended. The Company will be required to make a final payment of
approximately $6.9 million on its capital lease obligations on April 30, 1999.
To the extent necessary, the Company believes it can obtain new financing
sufficient to fund the final capital lease payment.
 
SHAREHOLDERS' EQUITY
 
     Pursuant to the Restated Second Amended Plan, all equity interests
(including the 58.4 million shares of Old Common Stock, options and warrants) in
the Company held prior to the Effective Date were canceled. On the Effective
Date the Company issued the 2,030,000 of New Common Stock shares representing
100% of the Common Stock of the Company to the holders of the 14 1/4% First
Mortgage Notes in exchange for the secured portion of their claim (approximately
$120.6 million). Approximately 89.6% of the New Common Stock has been issued to
Carl C. Icahn related entities.
 
     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 $12.6 million as of December
27, 1998. 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 $10.3 million and $1.6 million from operating
activities for the nine months ended September 27, 1998 (predecessor company)
and three months ended December 27, 1998 (successor company), respectively. The
combined cash generated of $11.9 million and $6.0 million of unrestricted cash
were used to fund payments on capital lease obligations of $9.0 million,
payments to creditors pursuant to the Restated Second Amended Plan of $5.2
million and $3.7 million of capital expenditures.
 
     With the Restated Second Amended Plan becoming effective on October 14,
1998, the Company was required to provide payment of $6.0 million to general
unsecured creditors and approximately $.9 million to creditors with priority
claims. As mentioned above, the Company has currently paid $5.2 million related
to the settlement of these claims and will pay the balance upon settlement of
disputed claims (see Note 16 to the consolidated financial statements included
in this Form 10-K). The Company estimates that its current level of cash and
anticipated funds from operations will be adequate to fund its cash
requirements.
 
                                       20
<PAGE>   21
 
     The Company anticipates completing various casino enhancement projects
during 1999. Included in these projects is a new race and sports book,
entertainment lounge and installation of an escalator to the 650 seat showroom.
The Company estimates the expenditures to be approximately $3.0 million. The
Company anticipates funding the enhancements and other miscellaneous capital
expenditures from operating activities during 1999 or incorporating a portion of
the costs in the refinancing of the Company's capital lease obligations.
 
YEAR 2000
 
     The Company's hardware configuration, casino operating system, hotel
property management and financial accounting system upgrades have been
completed. These upgrades, combined with other operating systems that are
already year 2000 compliant, represent completion of the Company's most critical
systems. Management continues to assess all other information support systems
throughout the Company, as well as those systems it relies on from its primary
vendors. The Company plans to be Year 2000 compliant with all remaining internal
systems prior to the end of the 1999 third quarter. Management currently
estimates that the combined upgrades and purchases of new systems may total
approximately $3.0 million. Approximately $2.1 million has been spent as of
December 27, 1998. There can be no assurance based on future assessment or other
changed circumstances that the amount estimated will represent the actual costs
incurred. In addition, the Company's ability to upgrade its software timely is
largely dependent on the performance of its software vendors.
 
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).
 
                                       21
<PAGE>   22
 
ITEM 8. FINANCIAL STATEMENTS
 
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 
<TABLE>
<S>                                                            <C>
Report of Independent Public Accountants....................    F-2
Consolidated Balance Sheets at December 27, 1998 (Successor
  Company), September 27, 1998
  (Successor Company) and December 28, 1997 (Predecessor
     Company)...............................................    F-3
Consolidated Statements of Operations for the period
  September 28, 1998 through December 27, 1998 (Successor
  Company), December 29, 1997 through September 27, 1998
  (Predecessor Company) and Fiscal Years Ended December 28,
  1997 and December 29, 1996
  (Predecessor Company).....................................    F-4
Consolidated Statements of Shareholders' Equity (Deficit)
  for the period from January 1, 1996 through September 27,
  1998 (Predecessor Company) and September 28, 1998 through
  December 27, 1998 (Successor Company).....................    F-5
Consolidated Statements of Cash Flows for the period
  September 28, 1998 through December 27, 1998 (Successor
  Company), December 29, 1997 through September 27, 1998
  (Predecessor Company) and fiscal years ended December 28,
  1997 and December 29, 1996 (Predecessor Company)..........    F-6
Notes to Consolidated Financial Statements..................    F-8
</TABLE>
 
                                       F-1
<PAGE>   23
 
                    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 (the
"Successor Company" see Note 2) as of December 27, 1998 and September 27, 1998,
and the related statements of operations, shareholders' equity (deficit) and
cash flows for the three months ended December 27, 1998. We have also audited
the accompanying consolidated balance sheet of the Predecessor Company as of
December 28, 1997 and the related consolidated statements of operations,
shareholders' equity (deficit) and cash flows for the nine months ended
September 27, 1998, and the years ended December 28, 1997 and December 29, 1996.
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 generally accepted auditing
standards. 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, (a) the financial position of the
Successor Company as of December 27, 1998 and September 27, 1998, and the
results of their operations and their cash flows for the three months ended
December 27, 1998, and (b) the financial position of the Predecessor Company as
of December 28, 1997, and the results of their operations and their cash flows
for the nine months ended September 27, 1998, and the years ended December 28,
1997 and December 29, 1996, all in conformity with generally accepted accounting
principles.
 
                                                             ARTHUR ANDERSEN LLP
 
Las Vegas, Nevada
February 12, 1999
 
                                       F-2
<PAGE>   24
 
                   STRATOSPHERE CORPORATION AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS
 
<TABLE>
<CAPTION>
                                                                                     PREDECESSOR
                                                           SUCCESSOR COMPANY           COMPANY
                                                      ----------------------------   ------------
                                                      DECEMBER 27,   SEPTEMBER 27,   DECEMBER 28,
                                                          1998           1998            1997
                                                      ------------   -------------   ------------
<S>                                                   <C>            <C>             <C>
ASSETS
Current Assets:
  Cash and cash equivalents                           $ 12,623,817   $ 15,879,443    $ 20,326,317
  Cash and cash equivalents-restricted..............     2,218,270      7,382,904         471,273
  Investments-restricted............................     3,291,342      3,253,733       3,139,469
  Accounts receivable, net..........................     2,618,618      2,778,681       2,479,512
  Other current assets..............................     5,426,622      6,814,286       5,753,608
                                                      ------------   ------------    ------------
Total Current Assets................................    26,178,669     36,109,047      32,170,179
                                                      ------------   ------------    ------------
Property and Equipment, Net.........................   126,172,780    125,699,999     122,381,979
                                                      ------------   ------------    ------------
Other Assets:
  Deferred financing costs-net......................       194,385        299,735         624,156
  Other receivable..................................     3,000,000      3,000,000              --
  Related party receivable-net......................            --             --         800,000
                                                      ------------   ------------    ------------
Total Other Assets..................................     3,194,385      3,299,735       1,424,156
                                                      ------------   ------------    ------------
Total Assets........................................  $155,545,834   $165,108,781    $155,976,314
                                                      ============   ============    ============
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
  Accounts payable-trade............................  $  1,406,654   $  1,534,094    $  1,124,425
  Current installments of long-term debt............       148,017        148,017         148,017
  Current installments of capital lease
     obligations....................................     8,979,055      8,979,055              --
  Accrued interest..................................       123,853        162,830         263,457
  Accrued payroll and related expenses..............     5,145,703      6,958,457       5,778,505
  Other accrued expenses............................    12,754,074     17,936,664       6,156,276
                                                      ------------   ------------    ------------
Total Current Liabilities...........................    28,557,356     35,719,117      13,470,680
                                                      ------------   ------------    ------------
Long-Term Liabilities:
  Long-term note payable-less current
     installments...................................        94,204        140,426         296,033
  Capital lease obligations-less current
     installments...................................            --      2,171,090              --
                                                      ------------   ------------    ------------
Total Long-Term Liabilities.........................        94,204      2,311,516         296,033
                                                      ------------   ------------    ------------
Liabilities Subject to Compromise...................            --             --     299,208,988
                                                      ------------   ------------    ------------
Total Liabilities...................................    28,651,560     38,030,633     312,975,701
                                                      ============   ============    ============
Commitments and Contingencies
Shareholders' Equity (Deficit):
  Preferred stock, $.01 par value; authorized
     3,000,000, -0-and 10,000,000 shares; no shares
     issued and outstanding at December 27, 1998,
     September 27, 1998 and December 28, 1997,
     respectively
  New common stock, $.01 par value; authorized
     10,000,000 shares; issued and outstanding
     2,030,000......................................        20,300         20,300              --
  Old common stock, $.01 par value; authorized
     100,000,000 shares; issued and outstanding
     58,393,105.....................................            --             --         583,931
  Additional paid-in-capital........................   127,057,848    127,057,848     218,546,069
  Accumulated (deficit).............................      (183,874)            --    (376,129,387)
                                                      ------------   ------------    ------------
Total Shareholders' Equity (Deficit)................   126,894,274    127,078,148    (156,999,387)
                                                      ------------   ------------    ------------
Total Liabilities and Shareholders' Equity
  (Deficit).........................................  $155,545,834   $165,108,781    $155,976,314
                                                      ============   ============    ============
</TABLE>
 
                See notes to consolidated financial statements.

                                       F-3
<PAGE>   25
 
                   STRATOSPHERE CORPORATION AND SUBSIDIARIES

                      CONSOLIDATED STATEMENT OF OPERATIONS
 
<TABLE>
<CAPTION>
                                                                SUCCESSOR                     PREDECESSOR
                                                                 COMPANY                        COMPANY
                                                              -------------   --------------------------------------------
                                                              SEPTEMBER 28,   DECEMBER 29,    FISCAL YEAR     FISCAL YEAR
                                                              1998 THROUGH    1997 THROUGH       ENDED           ENDED
                                                              DECEMBER 27,    SEPTEMBER 27,   DECEMBER 28,   DECEMBER 29,
                                                                  1998            1998            1997           1996
                                                              -------------   -------------   ------------   -------------
<S>                                                           <C>             <C>             <C>            <C>
REVENUES:
  Casino....................................................   $13,147,299    $ 42,386,857    $ 62,981,160   $  47,901,144
  Hotel.....................................................     5,929,323      18,069,039      24,006,537      19,698,730
  Food and beverage.........................................     8,327,898      25,432,561      33,143,254      26,825,729
  Tower, retail and other income............................     6,396,712      22,898,507      30,339,898      25,541,729
                                                               -----------    ------------    ------------   -------------
Gross Revenues..............................................    33,801,232     108,786,964     150,470,849     119,967,332
  Less: Promotional allowances..............................     3,214,833       9,401,270      12,955,013      11,228,465
                                                               -----------    ------------    ------------   -------------
NET REVENUES................................................    30,586,399      99,385,694     137,515,836     108,738,867
                                                               -----------    ------------    ------------   -------------
COSTS AND EXPENSES:
  Casino....................................................     6,196,825      19,319,621      27,838,121      21,474,255
  Hotel.....................................................     1,852,430       6,027,221       8,554,553       7,082,100
  Food and beverage.........................................     5,916,556      17,335,585      25,552,348      22,416,703
  Other operating expenses..................................     2,716,052       9,035,632      11,755,549       9,444,697
  Depreciation and amortization.............................     2,115,559       5,992,656       7,843,230      11,477,925
  Pre-opening costs amortization............................            --              --              --      23,909,146
  Impairment of long-lived assets...........................            --              --              --     295,946,633
  Selling, general and administrative.......................    11,839,190      36,091,246      53,166,758      48,153,596
                                                               -----------    ------------    ------------   -------------
    Total Costs and Expenses................................    30,636,612      93,801,961     134,710,559     439,905,055
                                                               -----------    ------------    ------------   -------------
INCOME (LOSS) FROM OPERATIONS...............................       (50,213)      5,583,733       2,805,277    (331,166,188)
                                                               -----------    ------------    ------------   -------------
OTHER INCOME (EXPENSE):
  Interest income...........................................       203,270              --          47,674       3,992,108
  Interest expense (Contractual Interest for the three and
    nine months ended December 27 and September 27, 1998
    estimated at $306,799 and $34,176,185, respectively.)...      (306,798)     (1,225,582)     (5,491,686)    (21,761,565)
  Gain (Loss) on sale of assets.............................       (30,133)        (41,571)         14,186          93,025
                                                               -----------    ------------    ------------   -------------
    Total Other Expense, net................................      (133,661)     (1,267,153)     (5,429,826)    (17,676,432)
                                                               -----------    ------------    ------------   -------------
Income (Loss) Before Reorganization Items, Income Taxes and
  Extraordinary Item........................................      (183,874)      4,316,580      (2,624,549)   (348,842,620)
Reorganization Items:.......................................            --        (754,075)    (16,690,482)             --
                                                               -----------    ------------    ------------   -------------
Income (Loss) Before Income Taxes and Extraordinary Item....      (183,874)      3,562,505     (19,315,031)   (348,842,620)
Provision (Benefit) for Income Taxes........................            --              --              --              --
Extraordinary Gain on Prepetition Debt Discharge............            --     153,436,882              --              --
                                                               -----------    ------------    ------------   -------------
NET INCOME (LOSS)...........................................      (183,874)   $156,999,387    $(19,315,031)  $(348,842,620)
                                                               ===========    ============    ============   =============
BASIC INCOME (LOSS) PER COMMON SHARE
  Before extraordinary item.................................   $     (0.09)              *    $      (0.33)  $       (6.00)
  Extraordinary item........................................            --               *              --              --
                                                               -----------    ------------    ------------   -------------
  Net.......................................................   $     (0.09)              *    $      (0.33)  $       (6.00)
                                                               ===========    ============    ============   =============
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING..................     2,030,000               *      58,393,105      58,134,811
                                                               ===========    ============    ============   =============
</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.
 
                                       F-4
<PAGE>   26
 
                   STRATOSPHERE CORPORATION AND SUBSIDIARIES
 
           CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
 
<TABLE>
<CAPTION>
                                                                                                               TOTAL
                                                                             ADDITIONAL                    SHAREHOLDERS'
                                           COMMON    TREASURY   PREFERRED     PAID-IN       ACCUMULATED       EQUITY
                                           STOCK      STOCK       STOCK       CAPITAL         DEFICIT        (DEFICIT)
                                          --------   --------   ---------   ------------   -------------   -------------
<S>                                       <C>        <C>        <C>         <C>            <C>             <C>
Balances at December 31, 1995
  (Predecessor Company)................   $563,611   $     --   $     --    $199,697,889   $  (7,971,736)  $ 192,289,764
Net loss...............................         --         --         --              --    (348,842,620)   (348,842,620)
Exercise of 134,833 stock options......      1,348         --         --         571,692              --         573,040
Exercise of 81,596 common stock
  purchase warrants....................        816         --         --         722,590              --         723,406
Cost of secondary stock offering.......         --         --         --        (248,047)             --        (248,047)
Purchase of land for common stock......     18,156         --         --      18,186,604              --      18,204,760
Unrealized holding loss on
  investment...........................         --         --         --        (143,085)             --        (143,085)
                                          --------   --------   --------    ------------   -------------   -------------
Balances at December 29, 1996
  (Predecessor Company)................    583,931         --         --     218,787,643    (356,814,356)   (137,442,782)
Net loss...............................         --         --         --              --     (19,315,031)    (19,315,031)
Vegas World acquisition (leasehold
  settlement) cost.....................         --         --         --        (240,000)             --        (240,000)
Unrealized holding loss on
  investment...........................         --         --         --          (1,574)             --          (1,574)
                                          --------   --------   --------    ------------   -------------   -------------
Balances at December 28, 1997
  (Predecessor Company)................    583,931         --         --     218,546,069    (376,129,387)   (156,999,387)
Purchase of treasury stock resulting
  from Vegas World Vacation Package
  settlement...........................         --    (30,000)        --          30,000              --              --
                                          --------   --------   --------    ------------   -------------   -------------
Balances at September 27, 1998
  (Predecessor Company)................   $583,931   $(30,000)  $     --    $218,576,069   $(376,129,387)  $(156,999,387)
                                          ========   ========   ========    ============   =============   =============
Balances at September 27, 1998
  (Predecessor Company)................   $583,931   $(30,000)  $     --    $218,576,069   $(376,129,387)  $(156,999,387)
Cancellation of old common stock
  pursuant to the plan of
  reorganization.......................   (583,931)    30,000         --         553,931              --              --
Issuance of new common stock pursuant
  to the plan of reorganization........     20,300         --         --              --              --          20,300
Elimination of accumulated deficit
  pursuant to the plan of
  reorganization.......................         --         --         --    (219,130,000)    219,130,000              --
Additional paid-in-capital pursuant to
  the plan of reorganization...........         --         --         --     127,057,848              --     127,057,848
Net income.............................         --         --         --              --     156,999,387     156,999,387
                                          --------   --------   --------    ------------   -------------   -------------
Balances at September 27, 1998
  (Successor Company)..................     20,300         --         --     127,057,848              --     127,078,148
Net loss...............................         --         --         --              --        (183,874)       (183,874)
                                          --------   --------   --------    ------------   -------------   -------------
Balances at December 27, 1998
  (Successor Company)..................   $ 20,300   $     --   $     --    $127,057,848   $    (183,874)  $ 126,894,274
                                          ========   ========   ========    ============   =============   =============
</TABLE>
 
                See notes to consolidated financial statements.
 
                                       F-5
<PAGE>   27
 
                   STRATOSPHERE CORPORATION AND SUBSIDIARIES
 
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
 
<TABLE>
<CAPTION>
                                                             SUCCESSOR
                                                              COMPANY                  PREDECESSOR COMPANY
                                                           -------------   --------------------------------------------
                                                           SEPTEMBER 28,   DECEMBER 29,    FISCAL YEAR     FISCAL YEAR
                                                           1998 THROUGH    1997 THROUGH       ENDED           ENDED
                                                           DECEMBER 27,    SEPTEMBER 27,   DECEMBER 28,   DECEMBER 29,
                                                               1998            1998            1997           1996
                                                           -------------   -------------   ------------   -------------
<S>                                                        <C>             <C>             <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income (loss).....................................   $   (183,874)   $ 156,999,387   $(19,315,031)  $(348,842,620)
  Adjustments to reconcile net income (loss) to net cash
    provided by (used in) operating activities:
    Depreciation and amortization.......................      2,215,649        6,299,366      8,404,854      13,407,234
    Amortization of pre-opening costs...................                                             --      23,909,146
    Extraordinary gain on prepetition debt discharge....             --     (153,436,882)            --              --
    Reorganization Items:
      Write-off of debt issuance costs..................             --               --     11,210,108              --
      Professional Fees.................................             --        2,916,261      5,500,000              --
      Management Retention Expense......................             --          194,625        820,000              --
      Vegas World Vacation Package Settlement...........             --        3,346,793             --              --
      Adjust accounts to fair value.....................             --       (8,597,847)            --              --
      Increase in allowed claims........................             --        3,708,184             --              --
      Interest Earned on Accumulated Cash During Chapter
        11 Proceedings..................................             --         (813,941)      (839,626)             --
    Provision for doubtful accounts.....................         24,330          139,192        272,481       3,166,829
    Impairment of long-lived assets.....................             --               --             --     295,946,633
    (Gain) loss on sale or disposal of assets                    30,133           41,571        (14,187)        214,495
    Changes in operating assets and liabilities:
      Accounts and other receivable.....................        135,733       (2,638,361)     1,992,195        (278,951)
      Other current assets..............................      1,387,664       (1,060,678)       373,717      (4,070,428)
      Accounts payable-trade (pre-petition).............             --               --       (902,924)             --
      Accounts payable-trade (post-petition)............       (127,440)         409,810      1,124,425         912,041
      Accrued expenses (pre-petition)...................             --               --     (7,715,597)             --
      Accrued expenses (post-petition)..................     (1,864,425)      12,977,147      8,340,789      28,931,755
                                                           ------------    -------------   ------------   -------------
  Net Cash Provided by (Used in) Operating Activities
    Before Reorganization Items.........................      1,617,768       20,484,627      9,251,204      13,296,134
                                                           ------------    -------------   ------------   -------------
  Increases (decreases) to Cash Resulting from
    Reorganization Items:
    Pre-petition claims payable pursuant to amended
      plan..............................................             --       (7,382,904)            --              --
    Professional fees paid..............................             --       (2,783,491)    (2,679,802)             --
    Management Retention Disbursements..................             --         (835,875)       217,250              --
    Interest Earned on Accumulated Cash During Chapter
      11 Proceedings....................................             --          813,941        839,626              --
                                                           ------------    -------------   ------------   -------------
NET CASH (USED IN) REORGANIZATION ITEMS.................             --      (10,188,329)    (1,622,926)             --
                                                           ------------    -------------   ------------   -------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES.....      1,617,768       10,296,298      7,628,278      13,296,134
                                                           ------------    -------------   ------------   -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
    Change in cash and cash equivalents-restricted......      5,164,634       (6,911,631)      (472,847)    109,913,662
    Change in investments-restricted....................        (37,609)        (114,264)      (461,125)      2,678,344
    Change in securities available for sale.............             --               --      2,000,905       3,140,045
    Payments for property and equipment.................     (2,658,073)      (1,062,400)    (1,403,341)   (191,301,881)
    Change in construction payables.....................             --               --       (544,133)    (32,664,947)
    Pre-opening costs...................................             --               --             --     (18,112,284)
    Increase in related party receivable and other......             --               --       (168,697)     (3,777,687)
    Cash proceeds from sale of property and equipment...         39,600          308,000      1,585,827              --
                                                           ------------    -------------   ------------   -------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES.....      2,508,552       (7,780,295)       536,589    (130,124,748)
                                                           ------------    -------------   ------------   -------------
</TABLE>
 
                                       F-6
<PAGE>   28
                   STRATOSPHERE CORPORATION AND SUBSIDIARIES
 
              CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
 
<TABLE>
<CAPTION>
                                                             SUCCESSOR
                                                              COMPANY                  PREDECESSOR COMPANY
                                                           -------------   --------------------------------------------
                                                           SEPTEMBER 28,   DECEMBER 29,    FISCAL YEAR     FISCAL YEAR
                                                           1998 THROUGH    1997 THROUGH       ENDED           ENDED
                                                           DECEMBER 27,    SEPTEMBER 27,   DECEMBER 28,   DECEMBER 29,
                                                               1998            1998            1997           1996
                                                           -------------   -------------   ------------   -------------
<S>                                                        <C>             <C>             <C>            <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
    Proceeds from issuance of common stock-net..........             --               --             --       1,296,446
    Payments to creditors pursuant to plan of
      reorganization....................................     (5,164,634)              --             --              --
    Costs of secondary stock offering...................             --               --             --        (248,046)
    Debt issuance and deferred financing costs..........             --               --         (6,250)       (760,707)
    Proceeds from issuance of long-term debt............             --               --             --       1,170,375
    Payments on long-term debt..........................        (46,222)        (155,607)      (429,103)       (741,272)
    Payments on capital lease obligations subject to
      compromise........................................     (2,171,090)      (6,807,270)   (10,266,760)     (5,000,000)
    Increase in affiliate payable                                    --               --        544,759       1,074,852
    Proceeds from the issuance of debt to affiliate.....             --               --             --      50,000,000
    Vegas World acquisition (leasehold settlement)
      costs.............................................             --               --       (240,000)             --
                                                           ------------    -------------   ------------   -------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES.....     (7,381,946)      (6,962,877)   (10,397,354)     46,791,648
                                                           ------------    -------------   ------------   -------------
Net (decrease) in cash and cash equivalents.............     (3,255,626)      (4,446,874)    (2,232,487)    (70,036,966)
Cash and cash equivalents -- beginning of period........     15,879,443       20,326,317     22,558,804      92,595,770
                                                           ------------    -------------   ------------   -------------
CASH AND CASH EQUIVALENTS -- END OF PERIOD..............   $ 12,623,817    $  15,879,443   $ 20,326,317   $  22,558,804
                                                           ============    =============   ============   =============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
  Interest-net of capitalized interest..................   $    240,425    $   1,004,556   $  2,097,540   $   2,014,243
NON-CASH INVESTING AND FINANCING ACTIVITIES:
  Issuance of common stock in purchase of land..........   $         --    $          --   $         --   $  18,204,760
  Increase in land and building from reduction in notes
    receivable from stockholder.........................   $         --    $     350,000   $         --   $          --
  Cancellation of old common stock pursuant to the plan
    of reorganization...................................   $         --    $    (583,931)  $         --   $          --
  Issuance of new common stock pursuant to the plan of
    reorganization......................................   $         --    $      20,300   $         --   $          --
  Discharge of first mortgage notes.....................   $         --    $(203,000,000)  $         --   $          --
  Discharge of note payable -- affiliate................   $         --    $ (50,000,000)  $         --   $          --
Purchase of equipment through capital lease.............   $         --    $          --   $    444,050   $  33,224,175
  Preferential distribution to stockholder..............   $         --    $          --   $   (240,000)  $          --
</TABLE>
 
                See notes to consolidated financial statements.
 
                                       F-7
<PAGE>   29
 
                   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. A black line has been drawn on the
accompanying consolidated financial statements to distinguish between the
pre-reorganization and post-reorganization entity (see Note 2).
 
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):
 
                                       F-8
<PAGE>   30
                   STRATOSPHERE CORPORATION AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
<TABLE>
<CAPTION>
                                               SUCCESSOR
                                                COMPANY                  PREDECESSOR COMPANY
                                             -------------   -------------------------------------------
                                             SEPTEMBER 28,   DECEMBER 29,    FISCAL YEAR    FISCAL YEAR
                                             1998 THROUGH    1997 THROUGH       ENDED          ENDED
                                             DECEMBER 27,    SEPTEMBER 27,   DECEMBER 28,   DECEMBER 29,
                                                 1998            1998            1997           1996
                                             -------------   -------------   ------------   ------------
<S>                                          <C>             <C>             <C>            <C>
Food and Beverage.........................     $  1,011        $  3,316        $  4,795       $  3,339
Rooms.....................................          465           1,276           1,220            458
Other.....................................           20             155             358             59
                                               --------        --------        --------       --------
                                               $  1,496        $  4,747        $  6,373       $  3,856
                                               ========        ========        ========       ========
</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
27, 1998 consist primarily of funds reserved for final settlement of unsecured
claims pursuant to the Restated Second Amended Plan.
 
INVESTMENTS RESTRICTED
 
     Investments restricted at December 27, 1998, September 27, 1998, and
December 28, 1997 consists primarily of funds pledged for workers' compensation
benefits.
 
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. Capitalized interest totaled $13,954,854
during fiscal year 1996. There was no capitalized interest during fiscal years
1997 and 1998.
 
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").
 
                                       F-9
<PAGE>   31
                   STRATOSPHERE CORPORATION AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
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.
 
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. For the fiscal year ended December
29, 1996, $2,113,383 of debt issuance cost was amortized. On the Petition Date
the Company expensed unamortized deferred debt issuance costs. The December 28,
1997 consolidated statement of operations 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
and nine months ended September 27, 1998.
 
PRE-OPENING COSTS
 
     Pre-opening costs incurred prior to the opening were capitalized and
amortized to expense using the straight line method over the six months
following the opening. These costs include payroll, training and marketing costs
incurred prior to commencement of operations. Amortization of pre-opening costs
totaled $23,909,146 for fiscal year ended December 29, 1996. There was no
amortization of pre-opening costs for the three months ended December 27, 1998,
nine months ended September 27, 1998 and fiscal year ended December 28, 1997.
 
SALES, ADVERTISING AND PROMOTION
 
     Sales, advertising and promotion costs are expensed as incurred and totaled
$1,823,198, $5,826,080, $8,126,094 and $6,651,727 for the three months ended
December 27, 1998, nine months ended September 27, 1998, fiscal years 1997 and
1996, 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 27, 1998.
 
                                      F-10
<PAGE>   32
                   STRATOSPHERE CORPORATION AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
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 27, 1998, December 28, 1997 and December 29, 1996 all
comprised 52 week years.
 
(2) RESTRUCTURING
 
     Pursuant to the Restated Second Amended Plan becoming effective on October
14, 1998, the Company canceled all prior equity interests (including 58.4
million shares of Common Stock, all options and warrants). The Company exchanged
2,030,000 shares of new Common Stock (represents 100% of the Common Stock as of
the Effective Date) 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 has
been 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 were discharged in exchange for cash payments which
will total $6.0 million. Allowed priority claims (estimated at $.9 million) have
been paid in full. The discharge and settlement of these claims resulted in a
gain of $153.4 million, which has been reflected as an extraordinary item on the
consolidated statement of operations for the period ended September 27, 1998.
The amount of the gain is based on the Company's estimate of the amount of
claims that will ultimately be allowable by the Bankruptcy Court, and is not
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 cash the
Company is required to distribute 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).
 
     Prior to confirmation of the Restated Second Amended Plan, the Company
became a party to a global settlement agreement ("Settlement Agreement") with
the holders of the Vegas World Vacation Packages ("Package Holders"). The
Settlement Agreement required the approvals of the Bankruptcy Court and Nevada
State District Court. Upon obtaining the necessary approvals, the Settlement
Agreement became effective on June 23, 1998. Pursuant to the terms of the
Settlement Agreement, the Company provides room nights, tower elevations and
beverages (at the casino bars) to the Package Holders identified in Exhibit A to
the Settlement Agreement. The Company estimates the total cost of providing such
services to be approximately $3.3 million. The Company received from Bob Stupak
the Deed to the Stupak Center (estimated fair market value of $350,000), $.4
million of cash and the remaining three million shares of Common Stock held in
the escrow account previously established by Bob Stupak. The Stupak receivable
of $3.9 million ($800,000 of which was unreserved) was written off. The Company
has not attributed any value to the treasury stock received as it was canceled
upon the Restated Second Amended Plan becoming effective. The net estimated cost
of the Settlement Agreement of $3.3 million is reflected as a Reorganization
Item in the accompanying Consolidated Statements of Operations. The cost of room
night and beverages provided pursuant to the settlement agreement totaled $3.2
million for the periods ended December 27, 1998 and September 27, 1998.
 
     The Company, as part of the Restated Second Amended Plan, has sought to
assume the Master Lease. Strato-Retail LLC has 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. Evidentiary hearings were
conducted on January 28, 29 and March 5, 1999, and a decision is expected in
several months. In the event the Company is allowed to assume the Master Lease,
the Company will be required to complete the construction of Phase II
 
                                      F-11
<PAGE>   33
                   STRATOSPHERE CORPORATION AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
and expects that Strato-Retail LLC will be required to reimburse the Company for
$7.9 million. In addition, the Company will be required to pay to Strato-Retail
LLC damages for any pre-petition date breaches of the Master Lease as the
Bankruptcy Court determines. In the event the amount the Bankruptcy Court
determines necessary to cure pre-petition breaches, if any, is unacceptable to
the Company, the Company maintains the right to reject the Master Lease, in
which event, any damages resulting from such rejection will be deemed a
pre-petition unsecured claim to be paid in accordance with the Restated Second
Amended Plan. In the event of the rejection of the Master Lease, Strato-Retail
LLC would then have the option of continuing under the Master Lease and
possessing Phase I of the Premises or terminating the Master Lease and vacating
Phase I of the Premises.
 
     In accordance with the Restated Second Amended Plan, as of the Effective
Date, the Stratosphere Litigation L.L.C. ("LLC") was formed. The administrator
for the LLC is Thomas A. Lettero and the Board of Managers is Carl C. Icahn,
Robert J. Mitchell and Russell Glass. The LLC was formed for the purpose of
pursuing (1) all claims and causes of action of the holders of Original First
Mortgage Notes and the Indenture Trustee and (2) rights, claims and causes of
action which the Company may have against any person which the Company
determined to transfer to the LLC for prosecution. Upon the Effective Date of
the Restated Second Amended Plan all individual causes of action of holders of
Original First Mortgage Notes related to the Standby Equity Commitment were
assigned to the LLC.
 
     In January 1999, the LLC and IBJ Whitehall Bank & Trust Company, f/k/a/ IBJ
Schroder Bank & Trust Company, as Indenture Trustee ("IBJ Whitehall") entered
into that certain Assignment of Claims whereby IBJ Whitehall acknowledged the
Plan in its entirety and acknowledged the transfer by the holders of the
Original First Mortgage Notes to the LLC of any and all claims and causes of
action including any and all claims, causes of action, counter-claims, defenses,
affirmative defenses and setoffs that IBJ Whitehall had asserted or could have
asserted in those certain proceedings entitled IBJ Schroder v. Grand Casinos,
Inc., United States District Court, District of Nevada, Case No.
CV-S-97-01252-DWH (RJJ) (the "Grand Litigation"). Additionally, IBJ Whitehall
expressly reconfirmed the transfer and assignment to the LLC of any and all
claims and causes of action it held respecting the Original First Mortgage
Notes. Furthermore, the LLC expressly reaffirmed its acceptance of the claims
and causes of action of the holders of the Original First Mortgage Notes.
 
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
                                      F-12
<PAGE>   34
                   STRATOSPHERE CORPORATION AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
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 management, 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:
 
<TABLE>
<CAPTION>
                                                  ADJUSTMENTS TO RECORD THE PLAN OF REORGANIZATION
                                                ----------------------------------------------------
                                                 PREDECESSOR                             SUCCESSOR
                                                   COMPANY        DEBT       FRESH        COMPANY
                                                BALANCE SHEET   DISCHARGE    START     BALANCE SHEET
                                                -------------   ---------   --------   -------------
                                                                   (IN THOUSANDS)
<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
                                                  =========     ========    ========     ========
</TABLE>
 
                                      F-13
<PAGE>   35
                   STRATOSPHERE CORPORATION AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
<TABLE>
<CAPTION>
                                                  ADJUSTMENTS TO RECORD THE PLAN OF REORGANIZATION
                                                ----------------------------------------------------
                                                 PREDECESSOR                             SUCCESSOR
                                                   COMPANY        DEBT       FRESH        COMPANY
                                                BALANCE SHEET   DISCHARGE    START     BALANCE SHEET
                                                -------------   ---------   --------   -------------
                                                                   (IN THOUSANDS)
<S>                                             <C>             <C>         <C>        <C>
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
                                                  ---------     --------    --------     --------
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>
 
                                      F-14
<PAGE>   36
                   STRATOSPHERE CORPORATION AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     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):
 
                 CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS
 
<TABLE>
<CAPTION>
                                                           FOR THE FISCAL YEAR ENDED DECEMBER 27, 1998
                                                           --------------------------------------------
                                                            AS REPORTED      ADJUSTMENTS      PROFORMA
                                                           -------------    -------------    ----------
                                                                          (IN THOUSANDS)
<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
 
                                      F-15
<PAGE>   37
                   STRATOSPHERE CORPORATION AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
(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>
                                                                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 27, 1998,
September 27, 1998 and December 28, 1997 (in thousands):
 
<TABLE>
<CAPTION>
                                                                                        PREDECESSOR
                                                             SUCCESSOR COMPANY            COMPANY
                                                       -----------------------------    ------------
                                                       DECEMBER 27,    SEPTEMBER 27,    DECEMBER 28,
                                                           1998            1998             1997
                                                       ------------    -------------    ------------
<S>                                                    <C>             <C>              <C>
Hotel and related..................................       $1,004          $  890           $  664
Gaming.............................................          874             862              947
Other..............................................        1,197           1,459            1,162
                                                          ------          ------           ------
Total..............................................        3,075           3,211            2,773
Less allowance for doubtful accounts...............         (456)           (432)            (293)
                                                          ------          ------           ------
                                                          $2,619          $2,779           $2,480
                                                          ======          ======           ======
</TABLE>
 
                                      F-16
<PAGE>   38
                   STRATOSPHERE CORPORATION AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
(5) OTHER CURRENT ASSETS
 
     Other current assets consists of the following as of December 27, 1998,
September 27, 1998 and December 28, 1997 (in thousands):
 
<TABLE>
<CAPTION>
                                                                                        PREDECESSOR
                                                             SUCCESSOR COMPANY            COMPANY
                                                       -----------------------------    ------------
                                                       DECEMBER 27,    SEPTEMBER 27,    DECEMBER 28,
                                                           1998            1998             1997
                                                       ------------    -------------    ------------
<S>                                                    <C>             <C>              <C>
Inventory..........................................       $2,868          $2,771           $2,781
Prepaid expenses...................................        2,559           4,043            2,973
                                                          ------          ------           ------
                                                          $5,427          $6,814           $5,754
                                                          ======          ======           ======
</TABLE>
 
(6) PROPERTY AND EQUIPMENT -- NET
 
     Property and equipment consist of the following as of December 27, 1998,
September 27, 1998 and December 28, 1997 (in thousands):
 
<TABLE>
<CAPTION>
                                                                                        PREDECESSOR
                                                             SUCCESSOR COMPANY            COMPANY
                                                       -----------------------------    ------------
                                                       DECEMBER 27,    SEPTEMBER 27,    DECEMBER 28,
                                                           1998            1998             1997
                                                       ------------    -------------    ------------
<S>                                                    <C>             <C>              <C>
Land and improvement, including land held for
  development......................................      $ 21,811        $ 21,811         $ 21,427
Building and improvements..........................        66,374          66,366           66,717
Furniture, fixtures and equipment..................        23,840          21,264           36,732
Construction in progress...........................        16,259          16,259           16,263
                                                         --------        --------         --------
                                                          128,284         125,700          141,139
Less accumulated deprecation and amortization......        (2,111)             --          (18,757)
                                                         --------        --------         --------
                                                         $126,173        $125,700         $122,382
                                                         ========        ========         ========
</TABLE>
 
     Included in property and equipment at December 27, 1998, September 27, 1998
and December 28, 1997, are assets recorded under capital leases of $30.7
million, $30.8 million and $31.4 million, respectively. Accumulated depreciation
and amortization at December 27, 1998, September 27, 1998 and December 28, 1997,
includes amounts recorded for capital leases of $948,051, $0 and $6,547,165,
respectively.
 
     In connection with the adoption of SFAS 121, the Company recorded a
non-cash impairment loss of $295.9 million or $5.09 loss per weighted average
common share on December 29, 1996. The impairment loss was measured as the
amount by which the carrying value of the long-lived assets exceeded their
estimated fair market value. Management made an assessment of the fair market
value of each long-lived asset category to reflect the impairment loss. As a
result of the reduced carrying amount of the impaired assets, depreciation and
amortization expense has been reduced for fiscal years 1998 and 1997. Pursuant
to applying "fresh start reporting" as of September 27, 1998, building and
improvement asset values were increased $8.6 million in order to reflect the
estimated fair market value of such assets as of September 27, 1998 (see Note
2).
 
                                      F-17
<PAGE>   39
                   STRATOSPHERE CORPORATION AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
(7) OTHER ACCRUED EXPENSES
 
     Other accrued expenses, exclusive of pre-petition liabilities subject to
compromise at December 27, 1998, September 27, 1998 and December 28, 1997,
consisted of the following (in thousands):
 
<TABLE>
<CAPTION>
                                                                                        PREDECESSOR
                                                             SUCCESSOR COMPANY            COMPANY
                                                       -----------------------------    ------------
                                                       DECEMBER 27,    SEPTEMBER 27,    DECEMBER 28,
                                                           1998            1998             1997
                                                       ------------    -------------    ------------
<S>                                                    <C>             <C>              <C>
Vacation packages..................................      $ 3,201          $ 3,270          $   --
Accrued liabilities................................        2,780            2,227           2,020
Accrued restructuring costs........................        2,448            2,967           2,258
Cash reserved for unpaid bankruptcy claims.........        2,218            7,383              --
Deposits...........................................          899              498             506
Accrued taxes......................................          507              672             710
Other..............................................          701              920             662
                                                         -------          -------          ------
                                                         $12,754          $17,937          $6,156
                                                         =======          =======          ======
</TABLE>
 
(8) LONG TERM DEBT
 
     A summary of debt outstanding, exclusive of amounts classified to
"Liabilities subject to compromise" at December 27, 1998, September 27, 1998 and
December 28, 1997 consisted of the following (in thousands):
 
<TABLE>
<CAPTION>
                                                                                        PREDECESSOR
                                                             SUCCESSOR COMPANY            COMPANY
                                                       -----------------------------    ------------
                                                       DECEMBER 27,    SEPTEMBER 27,    DECEMBER 28,
                                                           1998            1998             1997
                                                       ------------    -------------    ------------
<S>                                                    <C>             <C>              <C>
Other..............................................       $ 242            $ 288           $ 444
                                                          -----            -----           -----
                                                            242              288             444
Less current portion...............................        (148)            (148)           (148)
                                                          -----            -----           -----
Long-term debt-less current portion................       $  94            $ 140           $ 296
                                                          =====            =====           =====
</TABLE>
 
     The future aggregate annual maturities of non-affiliate long-term debt at
December 27, 1998 are as follows (in thousands):
 
<TABLE>
<S>                                                             <C>
1999........................................................    $148
2000........................................................      94
2001........................................................      --
2002........................................................      --
2003........................................................      --
Thereafter..................................................      --
                                                                ----
  Total                                                         $242
                                                                ====
</TABLE>
 
(9) LEASES AND CAPITAL LEASE OBLIGATIONS
 
     Pursuant to the Restated Second Amended Plan, the Company has and will
continue payments on its capital and operating lease obligations. In addition,
pursuant to the Restated Second Amended Plan, the Capital and Operating lease
agreements have been amended removing all financial covenants.
 
                                      F-18
<PAGE>   40
                   STRATOSPHERE CORPORATION AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     Future minimum lease payments, excluding contingent rentals, due under
non-cancelable operating and capital leases for the five years subsequent to
December 27, 1998, are as follows (in thousands):
 
<TABLE>
<CAPTION>
FISCAL YEAR                                                     CAPITAL LEASES    OPERATING LEASES
-----------                                                     --------------    ----------------
<S>                                                             <C>               <C>
1999........................................................        $9,291             $1,604
2000........................................................            --                 --
2001........................................................            --                 --
2002........................................................            --                 --
2003........................................................            --                 --
Thereafter..................................................            --                 --
                                                                    ------             ------
Total minimum lease payments................................         9,291                 --
Less: amounts representing interest at 7.72%................          (312)                --
                                                                    ------             ------
Present value of minimum capital lease payments.............         8,979                 --
Less: current installment                                               --                 --
                                                                    ------             ------
Obligations under capital leases............................        $8,979                 --
                                                                    ======             ======
</TABLE>
 
     Rent expense from the operating leases was $310,171, $1,148,761, $2,131,440
and $1,298,569 for the three month period ended December 27, 1998, the nine
month period ended September 27, 1998 and the fiscal years 1997 and 1996,
respectively.
 
     For fiscal year 1997, the capital lease obligation was classified in
"Liabilities subject to compromise." The prime rate of interest was 7.75% and
8.5% at December 27, 1998 and December 28, 1997, respectively.
 
(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 27, 1998, consisted
of the following (in thousands):
 
<TABLE>
<S>                                                             <C>
1999........................................................    $ 1,000
2000........................................................      1,000
2001........................................................      1,000
2002........................................................      1,000
2003........................................................      1,000
Thereafter..................................................     12,333
                                                                -------
                                                                $17,333
                                                                =======
</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). Approximately 89.6% of the
new Common Stock was issued to Carl C. Icahn related entities.
 
     The Company has not implemented a stock option plan.
 
                                      F-19
<PAGE>   41
                   STRATOSPHERE CORPORATION AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
(12)  INCOME TAXES
 
     The income tax benefit attributable to losses from operations for the three
month period ended December 27, 1998, nine month period ended September 27, 1998
and the fiscal years ended December 28, 1997 and December 29, 1996 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, 1998   DECEMBER 29, 1997       FISCAL YEAR         FISCAL YEAR
                                     THROUGH              THROUGH               ENDED               ENDED
                                   DECEMBER 27,        SEPTEMBER 27,        DECEMBER 28,        DECEMBER 29,
                                       1998                 1998                1997                1996
                                ------------------   ------------------   -----------------   -----------------
<S>                             <C>                  <C>                  <C>                 <C>
Current.......................      $      --            $   1,351            $      --           $      --
Deferred benefit..............            (15)              (1,351)            (122,095)             (1,632)
Increase in deferred tax asset
  valuation allowance.........             15                   --              122,095               1,632
                                    ---------            ---------            ---------           ---------
                                    $      --            $      --            $      --           $      --
                                    =========            =========            =========           =========
</TABLE>
 
                                      F-20
<PAGE>   42
                   STRATOSPHERE CORPORATION AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
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 27, 1998, September 27, 1998 and
December 28, 1997 (in thousands):
 
<TABLE>
<CAPTION>
                                                        SUCCESSOR               PREDECESSOR
                                                         COMPANY                  COMPANY
                                                       ------------    -----------------------------
                                                       DECEMBER 27,    SEPTEMBER 27,    DECEMBER 28,
TEMPORARY DIFFERENCES                                      1998            1998             1997
---------------------                                  ------------    -------------    ------------
<S>                                                    <C>             <C>              <C>
Current:
  Allowance for doubtful accounts..................      $    160        $     145       $     103
  Progressive jackpots.............................           189              183             108
  Accrued vacation and employee related............           757              800            (511)
  Outstanding chip and token liability.............           (42)             (40)             80
  Other............................................          (903)            (931)           (897)
                                                         --------        ---------       ---------
                                                              161              157          (1,117)
                                                         --------        ---------       ---------
Long-term:
  Pre-opening costs................................         3,995            4,416           5,579
  Allowance for doubtful accounts..................            --              278           1,101
  Debt issuance costs..............................            --            2,628              --
  Excess of tax over book basis of assets acquired
     in connection with Vegas World Asset
     Purchase......................................            --               --           6,850
  Excess of tax over book basis of assets due
     primarily to write down of assets.............        75,312           89,267          87,321
                                                         --------        ---------       ---------
                                                           79,307           96,589         100,851
                                                         --------        ---------       ---------
TOTAL TEMPORARY DIFFERENCES........................        79,468           96,746          99,734
                                                         --------        ---------       ---------
Carryforwards:
  Net operating losses.............................            --           37,930          35,932
                                                         --------        ---------       ---------
Total Carryforwards................................            --           37,930          35,932
                                                         --------        ---------       ---------
Total temporary differences and carryforwards......        79,468          134,676         135,666
Valuation allowance................................       (79,468)        (134,676)       (135,666)
                                                         --------        ---------       ---------
TOTAL DEFERRED TAX ASSETS (LIABILITIES)............      $     --        $      --       $      --
                                                         ========        =========       =========
</TABLE>
 
     The Company recorded a valuation allowance at December 27, 1998, September
27, 1998 and December 28, 1997, relating to recorded tax benefits because of the
significant uncertainty as to whether such benefits will ever be realized.
 
                                      F-21
<PAGE>   43
                   STRATOSPHERE CORPORATION AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     The provision (benefit) for income taxes differs from the amount computed
at the federal statutory rate as a result of the following at December 31:
 
<TABLE>
<CAPTION>
                                               SUCCESSOR                     PREDECESSOR
                                                COMPANY                        COMPANY
                                             -------------   -------------------------------------------
                                             SEPTEMBER 28,   DECEMBER 29,    FISCAL YEAR    FISCAL YEAR
                                             1998 THROUGH    1997 THROUGH       ENDED          ENDED
                                             DECEMBER 27,    SEPTEMBER 27,   DECEMBER 28,   DECEMBER 29,
                                                 1998            1998            1997           1996
                                             -------------   -------------   ------------   ------------
<S>                                          <C>             <C>             <C>            <C>
Federal statutory rate....................         (35)%            35%           (35)%          (35)%
Permanent differences.....................          27%             --%            --%            --%
Increase (decrease) in deferred tax asset
  valuation allowance.....................           8%            (35)%           35%            35%
                                                 -----           -----          -----          -----
                                                    --%             --%            --%            --%
                                                 =====           =====          =====          =====
</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.
 
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 28, 1998, 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
 
                                      F-22
<PAGE>   44
                   STRATOSPHERE CORPORATION AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
giving rise to a deferred tax asset. In addition, the tax basis in the Company's
assets will be further reduced for purposes of the Alternative Minimum Tax.
 
(13) RELATED PARTY TRANSACTIONS
 
     Carl C. Icahn related entities own approximately 89.6% of the Company's
Common Stock. Since January 1999, Mr. Cassella and Mr. Lettero (Chief Executive
Officer and Chief Financial Officer) of the Company provided "over sight"
management services to Arizona Charlie's (an entity owned 100% by Carl C.
Icahn). The Company will be reimbursed for all payroll and other expenses
attributed to providing such services. There were no billable services performed
during the three months ended December 27, 1998 and the nine months ended
September 27, 1998, respectively.
 
(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
$1,158,570, $3,254,482, $4,894,922 and $3,500,149 for the three months ended
December 27, 1998, nine months ended September 27, 1998, fiscal years 1997 and
1996, 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 $55,818, $109,967, $45,707 and $30,955 for the three months
ended December 27, 1998, nine months ended September 27, 1998, fiscal years 1997
and 1996, 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
 
     On August 5, 1996, a complaint was filed in the United States District
Court for the District of Nevada (Michael Caesar, et al. v. Stratosphere
Corporation, et al.) against the Company, Lyle A. Berman (a former officer and
director of the Company and officer and director of Grand), Robert E. Stupak (a
former officer and director of the Company), Thomas A. Lettero (an officer and
current director of the Company), Thomas G. Bell (a former director of the
Company), Andrew S. Blumen (a former officer and director of the Company), and
Grand. The complaint purports to seek relief on behalf of a class of plaintiffs
who purchased the Company's Common Stock during the period from December 19,
1995, through July 22, 1996, inclusive. The complaint alleged that the
defendants made misrepresentations and engaged in other wrongdoings. In addition
to the Caesar case above, eight additional cases making the same claims against
the same defendants (and in one instance also against Stanley Taube, a former
director of the Company and also a former officer and director of Grand) have
been filed. On January 15, 1997, the court ordered these eight additional
lawsuits to be consolidated with the Caesar lawsuit under the caption "In re
Stratosphere Corporation Securities Litigation."
                                      F-23
<PAGE>   45
                   STRATOSPHERE CORPORATION AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     On February 14, 1997 the plaintiffs filed a Consolidated and Amended Class
Action Complaint naming as defendants Grand, Bob Stupak, Lyle A. Berman, Stanley
M. Taube, David R. Wirshing, Thomas A. Lettero, Andrew S. Blumen, Thomas G.
Bell, Bob Stupak Enterprises, BT Securities Corporation and Montgomery
Securities, Inc. The Consolidated and Amended Class Action Complaint alleged
causes of action under the federal securities laws and Nevada law for purported
misrepresentations during the period between December 19, 1995, and July 26,
1996. The litigation was brought on behalf of a putative class of purchasers of
Stratosphere Corporation securities during that time period. The Consolidated
and Amended Class Action Complaint did not name the Company as a defendant,
presumably due to the automatic stay imposed by the Company's bankruptcy filing
and because any claims of plaintiffs against the Company would be resolved in
the Bankruptcy Proceedings. By virtue of the confirmation and consummation of
the Restated Second Amended Plan, the Company was discharged from any liability
to Plaintiffs or Defendants with Plaintiffs and Defendants receiving nothing
under the Restated Second Amended Plan.
 
     On March 14, 1997, the plaintiffs in the consolidated federal litigation
discussed above (the "Securities Litigation Claimants") filed a complaint
against the Company in an adversary proceeding in the Bankruptcy Proceedings.
The Securities Litigation Claimants alleged that the Company made
misrepresentations and engaged in other wrongdoings during the period between
December 19, 1995, and July 22, 1996, in violation of the federal securities
laws and Nevada Law. The complaint was dismissed as part of the confirmation
proceedings of the Restated Second Amended Plan and all claims of the Securities
Litigation Claimants were discharged.
 
     On August 16, 1996, a complaint was filed in District Court, Clark County,
Nevada (Victor Opitz et al. v. Stratosphere Corporation et al.) against the
Company, Grand, Robert B. Stupak (a former officer and director of the Company),
Lyle A. Berman (a former officer and director of the Company and an officer and
director of Grand) and Stanley Taube (a former director of the Company and a
former director of Grand). The complaint purports to seek relief on behalf of a
class of plaintiffs who purchased stock during the period from December 19,
1995, to July 22, 1996. The complaint alleges the defendants made
misrepresentations and engaged in other wrongdoing. By virtue of the
confirmation and consummation of the Restated Second Amended Plan, the Company
was discharged from any liability arising out of the complaint, with all other
parties to the action receiving nothing under the Restated Second Amended Plan.
 
     McDonalds Corporation filed a proof of claim in the Bankruptcy Proceedings
in which it asserted both an administrative and a general unsecured claim. The
Debtors have filed an objection to the claim, and the matter is currently
pending. The amount of the allowed general unsecured claim, if any, is not
material and will be treated under the Plan with all other general unsecured
claims. However, McDonalds has asserted an administrative claim of $410,843 for
guaranteed income pursuant to a lease during the administrative period of the
Bankruptcy Proceedings. In the event McDonalds is able to establish an allowed
administrative claim, such claim would be paid by the Debtors upon entry of a
final order approving the claim. The Debtors have filed a Motion for Summary
Judgment to disallow the claim, which motion is set to be heard by the
Bankruptcy Court in March 1999. In the event the Motion for Summary Judgment is
denied and the Bankruptcy Court orders a trial on the merits, trial is currently
set for June 1999. Based upon the legal requirements of the Bankruptcy Code for
an administrative claim, the Debtors believe they will prevail on the objection
to the McDonalds' claim.
 
     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. Trial is currently set for June 1999. Stratosphere
believes that it can successfully defeat
 
                                      F-24
<PAGE>   46
                   STRATOSPHERE CORPORATION AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
the lien, or alternatively, in the event that it is required to satisfy the
lien, the Company will be reimbursed by either Strato-Retail LLC or the
subtenant.
 
     The Company has reserved approximately $1.8 million of the $6.0 million
being distributed to general unsecured creditors for claims that have been filed
during the bankruptcy proceedings but disputed by the Company. Included among
the claims for which the approximately $1.8 million is being reserved are claims
filed by Strato-Retail LLC of $60.0 million, McDonalds $4.1 million, Grand
Casinos, Inc. $2.3 million and Vesst Investment Partnership $2.7 million. The
Company has also reserved $.4 million related to the dispute of miscellaneous
secured claims. These claims will be discharged once the disputes are resolved
and regardless of the amount of the claim allowed by the Bankruptcy Court, the
total cash distributed under the Restated Second Amended Plan will not change.
 
     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
 
     Not applicable.
 
                                      F-25
<PAGE>   47
 
                                    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..................    63     Chairman of the Board
John P. Saldarelli.............    57     Director
Robert J. Mitchell.............    52     Director
Martin Hirsch..................    44     Director
Daniel A. Cassella.............    52     Chief Executive Officer
Thomas A. Lettero..............    42     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.
 
     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
 
                                      III-1
<PAGE>   48
 
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.
 
     THOMAS A. LETTERO has been 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.
 
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
                                                                                            ------------
                                                                                               AWARDS
                                                                                            ------------
                                                                 ANNUAL COMPENSATION         SECURITIES
                                                                ----------------------       UNDERLYING
           NAME AND PRINCIPAL POSITION                YEAR       SALARY        BONUS        OPTIONS (#)
           ---------------------------                ----       ------        -----        -----------
<S>                                                   <C>       <C>           <C>           <C>
Daniel A. Cassella(a).............................    1998       158,582            --             --
  Chief Executive Officer                             1997            --            --             --
                                                      1996            --            --             --
Andrew S. Blumen(b)...............................    1998       265,769       225,000(c)          --
  General Counsel                                     1997       225,000                           --
                                                      1996       225,000        55,000             --
Thomas A. Lettero.................................    1998       307,334       200,000(c)          --
  Chief Financial Officer,                            1997       200,000                           --
  Treasurer and Secretary                             1996       188,462        55,000             --
Thomas Willer.....................................    1998       180,000        83,125(c)          --
  Vice President Marketing                            1997       178,961        26,250             --
                                                      1996       175,000        25,000             --
</TABLE>
 
---------------
(a) Mr. Cassella became Chief Executive Officer on August 2, 1998, and has been
    a director of the Company since March 10, 1998.
 
(b) Effective October 14, 1998, Mr. Blumen resigned as an officer of the
    Company. Mr. Blumen has continued to serve as legal counsel to the Company.
 
(c) Represents amounts paid pursuant to Senior Executive Retention Agreements.
 
                                      III-2
<PAGE>   49
 
OPTION GRANTS IN LAST FISCAL YEAR
 
     Pursuant to the Restated Second Amended Plan becoming effective on October
14, 1998, all equity interests in the Company were canceled including all stock
options and warrants. The Company has not implemented a stock option plan as of
March 1, 1999.
 
EMPLOYMENT AGREEMENTS, SEPARATION AGREEMENT AND SEVERANCE AGREEMENTS
 
     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.
 
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.
 
     The Company paid former directors, Mr. Bell and Mr. Maheu, $39,777 each for
services provided through October 14, 1998, at which time the Board was
reconstituted upon the Restated Second Amended Plan becoming effective.
 
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
 
     The Compensation Committee consisted of former directors, Mr. Bell and Mr.
Maheu, until October 14, 1998. Since the effective date, the Compensation
Committee has consisted of Mr. Icahn and Mr. Cassella.
 
     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.
 
                                      III-3
<PAGE>   50
 
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
 
     The following table sets forth as of March 13, 1998, 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...............................................           --       --
Daniel A. Cassella..........................................           --       --
Thomas A. Lettero...........................................           --       --
All directors and executive officers (as a group four
  persons)..................................................    1,818,600     89.6
</TABLE>
 
---------------
 
(a) Includes 833,320 shares owned by Nybor LLP, an entity controlled by Mr.
    Icahn and 985,280 shares held by Nevar LLC, which also is an entity
    controlled by Mr. Icahn. Nevar LLC acquired its shares from American Real
    Estate Partners, L.P. (an entity controlled by Mr. Icahn) via a transfer
    agreement in which Nevar LLC would be obligated to sell the shares back to
    American Real Estate Partners, L.P. at its cost plus interest at a
    reasonable rate upon the transaction meeting the licensing requirements of
    regulatory authorities.
 
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 27, 1998, 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.
 
     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 will be reimbursed for the cost of all such services
provided.
 
                                      III-4
<PAGE>   51
 
                                    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....................  F-2
       Consolidated Balance Sheets at December 27, 1998 (Successor
       Company), September 27, 1998 (Successor Company) and
       December 28, 1997 (Predecessor Company).....................  F-3
       Consolidated Statements of Operations for the period
       September 28, 1998 through December 27, 1998 (Successor
       Company), December 29, 1997 through September 27, 1998
       (Predecessor Company) and Fiscal Years Ended December 29,
       1997 and December 29, 1996 (Predecessor Company)............  F-4
       Consolidated Statements of Shareholders' Equity (Deficit)
       for the period from January 1, 1996 through September 27,
       1998 (Predecessor Company) and September 28, 1998 through
       December 27, 1998 (Successor Company).......................  F-5
       Consolidated Statements of Cash Flows for the period
       September 28, 1998 through December 27, 1998 (Successor
       Company), December 29, 1997 through September 27, 1998
       (Predecessor Company) and fiscal years ended December 28,
       1997 and December 29, 1996 (Predecessor Company)............  F-6
       Notes to Consolidated Financial Statements..................  F-8
</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
-------                     -----------------------
<C>       <S>
 2(1)     The Company's First Amended Plan of Reorganization.(e)
 2(2)     Disclosure Statement to accompany the Company's Second
          Amended Plan of Reorganization.(f)
 2(3)     The Company's Restated Second Amended Plan of
          Reorganization, dated February 26, 1998.(h)
 3(1)     Certificate of Incorporation of the Company, as amended.
 3(2)     Bylaws of the Company, as amended and restated.
 3(3)     Articles of Incorporation of the Operating Subsidiary.
 3(4)     Bylaws of the Operating Subsidiary.
10(1)     Owner Participation Agreement between the City of Las Vegas
          Downtown Redevelopment Agency and the Company.(c)
10(2)     Employment Agreement by and between the Company and Andrew
          S. Blumen.(a)
10(3)     Development and Lease Agreement, dated March 11, 1996 by and
          between Strato-Retail, LLC and the Company.(b)
10(4)     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.(c)
10(5)     Lease Agreement, dated as of April 29, 1996 by and between
          First Security Trust Company of Nevada and Stratosphere
          Gaming Corp.(c)
</TABLE>
 
                                      IV-1
<PAGE>   52
 
<TABLE>
<CAPTION>
EXHIBIT                     DESCRIPTION OF DOCUMENT
-------                     -----------------------
<C>       <S>
10(6)     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.(c)
10(7)     Promissory Notes from the Borrower to the Various
          Lenders.(c)
10(8)     Trust Agreement, dated as of April 29, 1996 between
          Stratosphere Gaming Corp., as Grantor, and First Security
          Trust Company of Nevada, as Trustee.(c)
10(9)     Security Agreement and Assignment of Lease, dated as of
          April 29, 1996 between First Security Trust Company of
          Nevada and BA Leasing & Capital Corporation.(c)
10(10)    Guaranty, dated as of April 29, 1996 by the Company in favor
          of the Beneficiaries named therein.(c)
10(11)    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.(c)
10(12)    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.(d)
10(13)    Senior Executive Retention Agreement, dated as of January
          23, 1998 by and between Thomas Lettero and the Company.(h)
10(14)    Senior Executive Retention Agreement, dated as of January
          23, 1998 by and between Andrew S. Blumen and the Company.(h)
10(15)    Executive Employment Agreement dated effective as of May 15,
          1998 by and between Thomas A. Lettero and Stratosphere
          Corporation and Stratosphere Gaming Corporation
10(16)    Settlement Agreement and Release between Stratosphere
          Corporation, Stratosphere Gaming Corp., Grand Casinos, Inc.,
          Grand Casinos Resorts Inc., Las Vegas Vacation Club, Inc.,
          Bob Stupak Enterprises, Inc., Bob Stupak, Richard Duncan,
          The Settlement Class, Shirinian & Roitman and Rusing & Lope
          P.L.L.C. effective April 1, 1998. (g)
10(17)    Certificate of Formation of Stratosphere Litigation, L.L.C.
10(18)    Members Agreement between Stratosphere Corporation and
          Stratosphere Litigation, L.L.C. dated October 14, 1998.
10(19)    Assignment of Claims between IBJ Whitehall and Stratosphere
          Litigation, L.L.C. dated January 20, 1999.
21        Subsidiaries
27        Financial Data Schedule
</TABLE>
 
---------------
 
(a) Incorporated herein by reference to the Company's Registration Statement on
     Form S-1, as amended, (No. 33-81286).
 
(b) Incorporated herein by reference to the Company's Quarterly Report on Form
     10-Q for the quarterly period ended March 31, 1996.
 
(c) Incorporated herein by reference to the Company's Quarterly Report on Form
     10-Q for the quarterly period ended June 30, 1996.
 
(d) Incorporated herein by reference to the Company's Quarterly Report on Form
     10-Q for the quarterly period ended September 29, 1996.
 
(e) Incorporated herein by reference to the Company's Current Report on Form 8-K
     dated June 26, 1997.
 
(f) Incorporated herein by reference to the Company's Quarterly Report on Form
     10-Q for the quarterly period ended September 30, 1997.
 
                                      IV-2
<PAGE>   53
 
(g) Incorporated herein by reference to the Company's current report on Form 8-K
     dated April 1, 1998.
 
(h) Incorporated herein by reference to the Company's Annual Report on Form 10-K
     for the year ended December 27, 1997.
 
+   Relates to Executive Compensation.
 
(b) Reports on Form 8-K.
 
     The Company filed the following Report on Form 8-K during the fiscal
quarter ended December 28, 1997.
 
<TABLE>
    <S>                 <C>
       Date Filed       Items Listed
    ----------------    ------------
    October 19, 1998        3,7
</TABLE>
 
                                      IV-3
<PAGE>   54
 
                                   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
 
Date: March 16, 1999                      By:     /s/ THOMAS A. LETTERO
 
                                            ------------------------------------
                                            Name: /s/ Thomas A. Lettero
                                            Title: Chief Financial Officer
 
     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 16, 1999.
 
<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/ DANIEL A. CASSELLA                Chief Executive Officer
---------------------------------------------
             Daniel A. Cassella
 
            /s/ THOMAS A. LETTERO                Chief Financial Officer, Treasurer and
---------------------------------------------    Secretary
              Thomas A. Lettero
</TABLE>
 
                                      IV-4
<PAGE>   55
 
                                   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
 
Date: March 16, 1999                      By:
 
                                            ------------------------------------
                                            Name: Thomas A. Lettero
                                            Title: Chief Financial Officer
 
     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 16, 1999.
 
<TABLE>
<CAPTION>
                    NAME                                             TITLE
                    ----                                             -----
<C>                                              <S>
 
                                                 Chairman of the Board
---------------------------------------------
                Carl C. Icahn
 
                                                 Director
---------------------------------------------
             John P. Saldarelli
 
                                                 Director
---------------------------------------------
             Robert J. Mitchell
 
                                                 Director
---------------------------------------------
                Martin Hirsch
 
                                                 Chief Executive Officer
---------------------------------------------
             Daniel A. Cassella
 
                                                 Chief Financial Officer, Treasurer and
---------------------------------------------    Secretary
              Thomas A. Lettero
</TABLE>
 
                                      IV-5