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                                 UNITED STATES

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-K

(MARK ONE)

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
    OF 1934

                  FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001,

                                       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                              88-0292318
   (STATE OR OTHER JURISDICTION OF                (I.R.S. EMPLOYER
    INCORPORATION OR ORGANIZATION)              IDENTIFICATION NO.)
    2000 LAS VEGAS BOULEVARD SOUTH                     89104
          LAS VEGAS, NEVADA                          (ZIP CODE)
   (ADDRESS OF PRINCIPAL EXECUTIVE
               OFFICES)
</Table>

       REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (702) 383-4719

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

<Table>
<Caption>
       TITLE OF EACH CLASS                                      NAME OF EACH EXCHANGE ON WHICH REGISTERED
       -------------------                                      -----------------------------------------
       <S>                                                      <C>
       Common Stock, par value $0.01 per share                  OTC Bulletin Board
</Table>

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: COMMON STOCK, PAR
VALUE $0.01 PER SHARE
                            ------------------------

     Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

                                Yes  X   No  ___

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

     As of December 31, 2001, 2,030,000 shares of the Registrant's Common Stock
were outstanding. The aggregate market value of the Common Stock held by
non-affiliates of the Registrant on such date, based upon the last sale price of
the Common Stock as reported on the over the counter bulletin board on December
31, 2001, was $8,456,000. For purposes of this computation, affiliates of the
Registrant are deemed to be the Registrant's executive officers and directors
and American Real Estate Partners, L.P. ("AREP").
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<PAGE>

                                     PART I

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

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

     As a result of the restructuring, the Company implemented the guidance
provided by the American Institute of Certified Public Accountants Statement of
Position 90-7 "Financial Reporting By Entities In Reorganization Under The
Bankruptcy Code" ("AICPA SOP 90-7") and as such, adopted "fresh start reporting"
as of September 27, 1998. The Company's emergence from its Chapter 11
proceedings resulted in a new reporting entity with no retained earnings or
accumulated deficit as of September 27, 1998. Accordingly, the Company's
consolidated financial statements for periods prior to September 27, 1998 are
not comparable to consolidated financial data presented on or subsequent to
September 27, 1998. Column headings have been included on the accompanying
Selected Consolidated Financial Data (Part II, Item 6) to distinguish between
the predecessor and successor entities.

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

     The Company owns and operates the Stratosphere Casino, Hotel & Tower
("Stratosphere") which is centered around the Stratosphere Tower (the "Tower"),
the tallest freestanding observation tower in the United States. Standing 1,149
feet above the Las Vegas Strip, the Tower is visible from all directions,
including visitors flying into Las Vegas. The Tower's Pod (the "Pod"), a
12-story building that begins at the

                                        2
<PAGE>

771-foot level, features a 360-seat revolving restaurant, a 220-seat cocktail
lounge, indoor and outdoor observation decks and two amusement rides located
over 900 feet in the air, a roller coaster and a simulated "Big Shot"
(collectively the "Thrill Rides").

     The Company operates, among other things, the Tower, a hotel with 2,444
rooms and suites, a 97,000 square foot casino featuring approximately 1,474 slot
machines, 48 table games, a race and sports book, a keno lounge, a 160,000
square foot second level containing a retail center (the "Retail Center") of
approximately 46 shops and a 650-seat Broadway Showroom, an 3,600-seat Outdoor
Events Center, a 120-seat entertainment lounge and parking for approximately
4,000 cars. Stratosphere opened for business on April 29, 1996.

THE TOWER

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

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

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

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

THE CASINO AREA

     Stratosphere's casino contains approximately 97,000 square feet of gaming
space, with approximately 1,474 slot machines, 48 table games, a race and sports
book and keno lounge. Five themed restaurants, four bars, two of which feature
live entertainment and a deli are located adjacent to the casino. These
facilities have been designed for convenient access to the casino.

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

RETAIL AND ENTERTAINMENT CENTER

     The Retail Center, located on the second floor of the base building,
occupies approximately 160,000 square feet, of which 57,000 square feet remains
undeveloped. The Retail Center offers various "fast food" restaurants and shops.
Adjacent to the Retail Center is the 650-seat showroom that currently offers
afternoon and evening shows, which are designed to appeal to the wide spectrum
of value-minded visitors who come to Las Vegas. In September 2001, the Company
completed construction of a new 3,600-seat Outdoor Events Center which features
mid-level mainstream concert and boxing events.

                                        3
<PAGE>

HOTEL, FOOD AND BEVERAGE

     The Hotel currently has 2,444 rooms and suites. The Hotel has seven themed
restaurants; "The Top of The World" located in the Pod, the 480-seat
"Stratosphere Courtyard Buffet," the 182-seat "Crazy Armadillo" featuring
Tex-Mex cuisine and an oyster bar, "Roxy's 50's Diner," "Lucky's Cafe" coffee
shop, "Tower of Pasta," a restaurant serving Italian cuisine, and "Hamada's", a
restaurant serving Asian cuisine. In addition, a New York style deli is located
adjacent to the race and sports book.

CONSTRUCTION

     In mid-1996, Stratosphere Corporation suspended construction of the
1,002-room hotel tower (the "Hotel Expansion"), which had reached a height of
approximately 14 stories. In April 2000, construction was resumed to complete
the unfinished hotel tower with a total construction budget of $65.0 million. In
June 2001 the Company completed construction of the new hotel tower that
includes 1,000 new guestrooms and amenities including a 67,000-square foot pool
and recreation area with a new snack and cocktail bar, private cabanas and a
large spa. "Lucky's Cafe" a 350-seat coffee shop, a new porte-cochere and valet
parking entrance, gift shop and new tour bus entrance and lobby have also been
competed. The Company refurbished and expanded the "Stratosphere Courtyard
Buffet" as well as remodeled "Montana's Steak House" and converted it into the
"Crazy Armadillo" featuring Tex-Mex cuisine and an oyster bar.

     In June 2000, the Company and two entities owned and controlled by Mr. Carl
C. Icahn, including Arizona Charlie's, Inc. and Fresca LLC d.b.a. Arizona
Charlie's East created Stratosphere Development, LLC ("Development"), to provide
development and construction management services for construction related
projects to these properties. Development was formed as a series Limited
Liability Company under Delaware law. Development's financial results are
included in the accompanying consolidated financial statements since the Company
exercises control over Development.

     The Company obtained a promissory note for a construction financing from a
related party. See discussion related to debt in Part II, Item 7.

BUSINESS AND MARKETING STRATEGY

     The Company utilizes the unique characteristics of the Tower to attract
visitors. Hotel rooms, entertainment and food and beverage products are priced
to appeal to the value-conscious, mid-market Las Vegas visitor. The Company
offers competitive gambling odds for its slots, table games and sports book
products. Aggressive advertising and promotional campaigns are maintained to
maximize hotel room occupancy, visitation to the Tower and retention of guests
on property. The Company employs a direct mail program targeting guests in its
database with a variety of product offerings, including incentives to visit the
Company's facilities on a frequent basis.

COMPETITION

     The casino/hotel industry is highly competitive. The Las Vegas market
includes many world class destination resorts, with numerous other tourist
attractions. Numerous Las Vegas casino/hotels are themselves tourist
attractions, including Bellagio, Venetian, Paris, Mandalay Bay, Mirage, Caesars
Palace, MGM Grand, Treasure Island, Monte Carlo, New York New York, Aladdin,
Luxor and the Rio. Each of these resorts competes with the Company in its
ability to attract visitors to the Tower. The Paris Hotel and Casino also offers
a free-standing Eiffel Tower replica with an observation deck similar to that of
the Company's 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 somewhat
limited due to the lack of meeting and convention facilities. In addition,
future visitation to the Tower may be negatively impacted as visitors who have
previously visited the Tower chose to experience other Las Vegas attractions and
entertainment options.

                                        4
<PAGE>

     On March 8, 2000, California residents voted to expand Native American
gaming operations within that state. The Native American gaming expansion could
result in up to 43,000 slot machines on 57 tribal reservations. The Company
estimates that approximately 35% of its hotel occupancy are from guests
traveling from southern California. The potential proliferation of gaming in
southern California could have a material adverse effect on the Company's
business. Management is presently unable, however, to assess the magnitude of
the impact to the Company.

EMPLOYEES

     The Company currently employs approximately 2,250 full and part-time
associates, of which approximately 1,150 are covered by collective bargaining
agreements.

     Approximately 1,050 associates working in kitchen production, food service,
slot service, bell service, housekeeping, and beverage service are currently
covered by a collective bargaining agreement between Stratosphere Gaming
Corporation and the Culinary Workers Union Local 226 and the Bartenders Union
Local 165. This agreement has been in effect since June 1, 1997 and will expire
on May 31, 2002.

     Approximately 55 associates working in maintenance and engineering
classifications are currently covered by a collective bargaining agreement
between Stratosphere Gaming Corporation and Operating Engineers Local 501. This
agreement has been in effect since October 15, 2000 and will expire on October
14, 2002.

     Approximately 10 associates working in the warehouse are currently covered
by a collective bargaining agreement between Stratosphere Gaming Corporation and
Teamsters Local 995. This agreement has been in effect since August 1, 2001 and
will expire on July 31, 2004.

     On January 27, 2001, a representation election was conducted by the
National Labor Relations Board, which determined that a majority of the dealers
wanted to be represented by the Transport Workers Union of America. Negotiations
are continuing and a final agreement has not yet been reached.

     The Company has historically had good relationships with unions
representing its employees and the Company does not anticipate any business
disruption as a result of these elections.

INSURANCE

     The Company carries insurance of the type customary in the hotel and casino
industry in amounts deemed by management to be appropriate.

NEW LAWS AND REGULATIONS

     Changes in existing applicable state and federal laws and regulations and
new laws and regulations could have a significant effect on operations. As a
result of federal legislation passed in 1996, the National Gambling Impact Study
Commission conducted a two-year study of the gaming industry in the United
States and reported its findings and recommendations to Congress in June 1999.
It is possible that this report may result in additional regulation and taxation
of the gaming industry. In addition, any imposed limitations on college sports
betting by either the Congress of the United States or the National Collegiate
Athletic Association could adversely impact future revenues of the Company.

RELIANCE ON CERTAIN MARKETS

     The interstate highway between Las Vegas and southern California, where
large numbers of customers reside, has experienced excessive traffic delays
during peak periods. Such delays may affect the number of customers who visit
the Company's property.

KEY EMPLOYEES

     There is intense competition to attract and retain management and key
employees in the gaming industry. The Company's business could be adversely
affected in the event of the inability to recruit or retain key personnel.
                                        5
<PAGE>

ENVIRONMENTAL MATTERS

     The Company is subject to various federal, state and local laws, ordinances
and regulations that (i) govern activities or operations that may have adverse
environmental effects, such as discharges to air and water or (ii) may impose
liability for the costs of cleaning up and certain damages resulting from sites
of past spills, disposals or other releases of hazardous or toxic substances or
wastes (together "Environmental Laws"). The Company endeavors to maintain
compliance with Environmental Laws, but from time to time, current or historical
operations on the property may have resulted or may result in noncompliance or
liability for cleanup pursuant to Environmental Laws. In that regard, the
Company may incur costs for cleaning up contamination relating to historical
uses of certain of its properties.

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. Changes in such laws, regulations and
procedures could have an adverse effect on the Company's gaming operations.

     The Company is registered with the Nevada Commission as a publicly traded
corporation (a "Registered Corporation") and has been found suitable to own the
stock of SGC. SGC is licensed by the Nevada Gaming Authorities to conduct
nonrestricted gaming operations and is a corporate licensee under the terms of
the Nevada Act (a "Corporate Licensee"). The 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.
                                        6
<PAGE>

     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 the Company and SGC are
required to be reported to or approved by the Nevada Commission.

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

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

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

                                        7
<PAGE>

ownership of the voting securities of the Company beyond such period of time as
may be prescribed by the Nevada Commission may be found guilty of a criminal
offense. The Company is subject to disciplinary action if, after it receives
notice that a person is unsuitable to be a stockholder or to have any other
relationship with it, it (i) pays that person any dividend or interest upon
voting securities of the Company, (ii) allows that person to exercise, directly
or indirectly, any voting right conferred through securities held by that
person, (iii) pays remuneration in any form to that person for services rendered
or otherwise, or (iv) fails to pursue all lawful efforts to require such
unsuitable person to relinquish his voting securities including, if necessary,
the immediate purchase of said voting securities for cash at fair market value.

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

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

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

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

                                        8
<PAGE>

sion before the Registered Corporation can make exceptional repurchases of
voting securities above the current market price thereof and before a corporate
acquisition opposed by management can be consummated. The Nevada Act also
requires prior approval of a plan of recapitalization proposed by the Registered
Corporation's Board of Directors in response to a tender offer made directly to
the Registered Corporation's stockholders for the purposes of acquiring control
of the Registered Corporation.

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

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

NEVADA LIQUOR REGULATIONS

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

LEVERAGE AND DEBT SERVICE

     As of December 31, 2001, the Company had long-term debt of $87.9 million,
including current maturities of $7.4 million, which represents approximately 39%
of total capitalization of the Company at such date. The following table
reflects the Company's principal contractual cash obligations due over the
indicated periods and when they expire (in thousands):

<Table>
<Caption>
                                                   2002     2003      2004      TOTAL
                                                  ------   -------   -------   -------
<S>                                               <C>      <C>       <C>       <C>
Related party construction loan note payable....  $3,651   $ 3,651   $65,106   $72,408
Related party lease purchase note payable.......     625    11,771        --    12,396
Capital lease obligation........................   3,111        --        --     3,111
                                                  ------   -------   -------   -------
                                                  $7,387   $15,422   $65,106   $87,915
                                                  ======   =======   =======   =======
</Table>

     At current rates, interest payments on the related party notes payable and
capital lease will be approximately $5.5 million, $5.0 million and $3.4 million
for the years ended December 31, 2002, 2003 and 2004, respectively.

                                        9
<PAGE>

DEBT

     On May 1, 2001, the Company delivered a $73.0 million promissory note for a
construction loan to American Real Estate Holdings, LLP ("AREH") in order to
finance the construction of the 1,000-room hotel tower, Lucky's Cafe and new
pool area (the "Hotel Expansion"). The promissory note is secured by a deed of
trust on certain real property. Demand notes bearing interest at 9.5% and
totaling $48.0 million, as of April 18, 2001, were replaced by this note. Since
May 1, 2001 AREH has provided additional advances of $25.0 million against the
$73.0 million note. In November 2001 the Company began making principal payments
on the loan in equal monthly installments based on a twenty (20) year
amortization schedule and continuing through and including June 2002 when the
remaining balance shall be due. Interest accrues at a variable rate per annum
equal to the sum of (i) three hundred (300) basis points plus (ii) the 90 day
London Interbank Offered Rate ("LIBOR"). This interest rate at December 31, 2001
was 6.51%. The Company paid AREH one point or $730,000 on July 3, 2001 for this
loan. A twenty-four (24) month extension of the loan term may be obtained by the
Company upon payment of an additional $730,000. Management intends to pay the
additional $730,000 to obtain this twenty-four (24) month extension and AREH has
committed to providing the extension upon receipt of the extension fee.

     On May 1, 2001, the Company delivered a $12.5 million promissory note to
AREH to replace the $12.5 million demand note used to acquire the property under
the Master Lease from Strato-Retail, LLC. The promissory note is secured by a
deed of trust on certain real property. In November 2001 the Company began
making principal payments on the loan in equal installments based on a twenty
(20) year amortization schedule and continuing through and including July 8,
2002, when the remaining balance shall be due. Interest accrues at a variable
rate per annum equal to the sum of (i) three hundred fifty (350) basis points
plus (ii) the 90 day LIBOR. This interest rate at December 31, 2001 was 7.01%.
The Company paid AREH one point or $125,000 on May 4, 2001 for this loan. A
twelve (12) month extension of the loan term may be obtained by the Company upon
the payment at an additional $125,000. Management intends to pay the additional
$125,000 to obtain this twelve (12) month extension and AREH has committed to
providing the extension upon receipt of the extension fee.

     The Company's ability to service its debt will be dependent on its future
performance which will be affected by prevailing economic conditions and
financial, business and other factors, certain of which are beyond the Company's
control. Accordingly, no assurance can be given that the Company will maintain a
level of operating cash flow that will be sufficient to service its obligations.
If the Company is unable to generate sufficient cash flow or is unable to
refinance or extend outstanding borrowings, it will have to adopt one or more
alternatives, such as reducing or delaying planned capital expenditures, selling
assets, restructuring debt, obtaining additional equity or debt financing or
joint venture partners. There can be no assurance that any of these financing
strategies could be effected on satisfactory terms, if at all. See Part II, Item
7, "Management's Discussion and Analysis of Financial Conditions and Results of
Operations."

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 statements made by
or on behalf of the Company.

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

                                        10
<PAGE>

Amended Plan becoming binding were satisfied on or before September 27, 1998.
Accordingly, the Company has reflected the effect of the Restated Second Amended
Plan as of September 27, 1998.

     As a result of the restructuring, the Company implemented the guidance
provided by the American Institute of Certified Public Accountants Statement of
Position 90-7 "Financial Reporting By Entities In Reorganization Under The
Bankruptcy Code" ("AICPA SOP 90-7") and as such, adopted "fresh start reporting"
as of September 27, 1998. The Company's emergence from its Chapter 11
proceedings resulted in a new reporting entity with no retained earnings or
accumulated deficit as of September 27, 1998. Accordingly, the Company's
consolidated financial data for periods prior to September 27, 1998 are not
comparable to consolidated financial statements presented on or subsequent to
September 27, 1998. Column headings have been included on the accompanying
Selected Consolidated Financial Data (Part II, Item 6) to distinguish between
the predecessor and successor entities.

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

     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
Casino also competes with a large number of hotels and motels located in and
near Las Vegas. The Tower competes with all other forms of entertainment,
recreational activities and other attractions in and near Las Vegas. Many of the
Company's competitors offer more products than the Company and have greater name
recognition and may have greater resources.

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

OTHER INFORMATION

     On April 25, 2000, Mr. Icahn, owner and controlling person of NYBOR and
AREH (together "Icahn Entities"), respectively, submitted a written offer to the
Company to purchase the remaining outstanding shares not owned by Icahn
Entities. Icahn Entities collectively own 89.6% of the Company's outstanding
common stock. AREH is the subsidiary limited partnership of American Real Estate
Partners, L.P. ("AREP") a master limited partnership whose units are traded on
the New York Stock Exchange. Mr. Icahn currently owns approximately 86% of the
outstanding depository units of AREP. If the purchase is successful, it is
anticipated that the Company would then be merged into Icahn Entities. Pursuant
to the offer, shareholders of the Company, other than Icahn Entities, would
receive approximately $45.32 per share based upon the offer's stated valuation
of $90 million for the equity of the entire Company. Icahn Entities would
thereafter be the Company's sole shareholder and together own 100% of the
Company's common stock.

     On February 1, 2002, the Company announced that it entered into a merger
agreement under which AREP, through an affiliate, will acquire the remaining
shares of Stratosphere that AREP does not currently

                                        11
<PAGE>

own. AREP currently owns approximately 51% of Stratosphere and Mr. Icahn owns
approximately 38.6%. The initial determination to engage in the transaction at
the prices set forth below was previously announced by AREP in September 2000.

     Under the agreement the stockholders who are unaffiliated with Mr. Icahn
are to receive a cash price of $45.32 per share, and the Icahn related
stockholders (other than AREP) are to receive a cash price of $44.33 per share.
AREP is to pay an aggregate of approximately $44.3 million for the Stratosphere
shares. Mr. Icahn owns approximately 86% of the outstanding equity interests in
AREP.

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

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

     ACQUISITION OF RETAIL CENTER.  In September 2000, the Company created
Stratosphere Leasing, LLC ("Leasing"), a wholly-owned limited liability company
to lease and manage the retail shops located in the Stratosphere. Leasing was
formed as a Limited Liability Company under Delaware law.

     By agreement dated September 30, 2000, between the Company and
Strato-Retail the parties (i) agreed to dismiss various litigation actions
pending between them; (ii) exchanged mutual releases; and (iii) agreed that
Strato-Retail's rights, as tenant, under the Master Lease would be assigned to
Leasing and the related construction agreement between the Company and
Strato-Retail would be terminated. In connection with the transaction, the
Company acquired the property under the Master Lease for $13.0 million. This
transaction was financed with the proceeds of an unsecured, demand loan from
AREH in the amount of $12.5 million with an interest rate of 9.5% per annum. The
demand note was replaced by a $12.5 million promissory note to AREH on May 1,
2001. The promissory note is secured by a deed of trust on certain real
property. In November 2001 the Company began making principal payments on the
loan in equal installments based on a twenty (20) year amortization schedule and
continuing through and including July 8, 2002, when the

                                        12
<PAGE>

remaining balance shall be due. Interest accrues at a variable rate per annum
equal to the sum of (i) three hundred fifty (350) basis points plus (ii) the 90
day LIBOR. This interest rate at December 31, 2001 was 7.01%. The Company paid
AREH one point or $125,000 on May 4, 2001 for this loan. A twelve (12) month
extension of the loan term may be obtained by the Company upon the payment at an
additional $125,000. Management intends to pay the additional $125,000 to obtain
this twelve (12) month extension and AREH has committed to providing the
extension upon receipt of the extension fee.

     In connection with the acquisition, Leasing acquired by assignment all of
the subleases of Strato-Retail including the lease with McDonald's Corporation
("McDonald's"). The lease with McDonald's provides that Leasing will guarantee
that McDonald's shall, for the initial term of the lease, achieve annual net
income of approximately $494,000 or in the case of a partial calendar year, the
prorated portion of $494,000 ("GANI"). The initial term of the lease expires on
October 20, 2006. In the event that the annual net income (as defined) reported
to landlord is less than the GANI, the landlord will refund the difference to
McDonald's within 30 days of the determination of such difference. The Company
paid McDonald's approximately $345,000 in July 2001 for the 2000 annual net
income shortfall. The cash payment for the purchase was reduced by $500,000 to
cover the income guarantee and such amount is recorded as a current liability as
of December 31, 2001. Estimated future commitments under this guarantee are
recorded as a long-term liability in the amount of approximately $1.6 million.

     Additionally, in July 2001, Leasing entered into an agreement with Tower
Merchandise Management, LLC ("TMM") to lease the Stratosphere gift shops located
in various places throughout the hotel property. TMM had been managing the
operation of these shops since April 1996. This agreement runs from July 1, 2001
through June 30, 2006 with two options to renew for an additional five years
each. Over the term of the agreement, TMM is required to spend $1.5 million on
build outs and improvements. TMM will pay Leasing a minimum base rent of $.5
million per annum and an escalating percentage of gross sales over $3.5 million
per annum.

ITEM 3.  LEGAL PROCEEDINGS

     The Company's complaint for the avoidance of preferential transfers made to
McDonald's (the "Complaint") and the Company's objection to the proof of claim
filed by McDonald's Corporation came to trial June 24, 1999. On September 20,
1999, the Bankruptcy Court entered its Notice of Entry of Findings of Fact,
Conclusions of Law and Judgment Re Debtors' Complaint for Avoidance of
Preferential Transfer Pursuant to 11 U.S.C. sec.547 and Order Re Objection To
McDonald's Proof of Claim ("Judgment"). The Judgment ordered that payments made
in January 1997, by the Company to McDonald's in the amount of $.7 million
("Judgment Amount"), were preferential payments pursuant to Section 547(b) of
the Bankruptcy Code and were thereby recoverable by the Company. Regarding the
Company's objection to the proof of claim filed by McDonald's, the Bankruptcy
Court held that McDonald's was not entitled to an administrative claim and that
it was not entitled to any claim for damages. On September 29, 1999, McDonald's
Corporation filed its notice of appeal to the Bankruptcy Appellate Panel for the
Ninth Circuit Court of Appeals and on November 6, 2000, the Bankruptcy Appellant
Panel issued its decision affirming the Bankruptcy Court's judgment. On or about
December 4, 2000, McDonald's Corporation filed its Notice of Appeal to the Ninth
Circuit Court of Appeals, where the matter was heard on November 7, 2001. On
November 29, 2001, the Court of Appeals affirmed the judgment. At December 31,
2001, the Judgment Amount was classified as an other receivable on the
Consolidated Balance Sheet. McDonald's paid Stratosphere approximately $753,000
on January 31, 2002 for the Judgment Amount including accrued interest.

     The Company has also filed a complaint for the avoidance of preferential
transfers made to Grand Casinos, Inc. ("Grand"). Included in the complaint are
approximately $5.9 million of payments made to Grand prior to the Company
beginning bankruptcy proceedings. The parties are conducting discovery and trial
has been set for May 2, 2002. At December 31, 2001, the Company classified
preferential transfers of $2.3 million as an other receivable on the
Consolidated Balance Sheet.

     On January 31, 2001, the Company was named in an action styled Disabled
Rights Action Committee v. Stratosphere Gaming Corp., Case No A430070, in the
Eighth Judicial District Court of the State of Nevada.

                                        13
<PAGE>

The complaint alleges a number of violations of the Americans with Disabilities
Act ("ADA"), including inadequate room selection, door widths and other similar
items. Simultaneously with the complaint, plaintiffs filed a Motion for
Preliminary Injunction, seeking to have construction halted on the new hotel
tower until the property fully complies with the ADA. The Company removed the
action to the United States District Court in Nevada, and it is now styled
Disabled Rights Action Committee v. Stratosphere Gaming Corp., Case No.
CV-S-01-0162-RLH (PAL). The federal district court held a hearing on plaintiffs'
Motion for Preliminary Injunction and denied the motion, focusing upon what the
Court believed to be the plaintiffs' lack of irreparable injury. The federal
district court also granted the Company's Motion to Dismiss the plaintiffs'
state law claims, leaving in place only the ADA claims. The Company and the
Plaintiffs then filed Motions for Summary Judgment. The District Court granted
and denied in part each of the parties' respective motions. The Court ordered
that the Company must make certain renovations to 532 rooms that were opened in
1996. The Court issued an injunction requiring that these renovations be
completed by August 9, 2002. The Company had already commenced these renovations
prior to the Court's Order and expects to meet the Court's deadline. The Company
believes the costs of these renovations will be approximately $450,000.

     On May 3, 2001, the Company was named in an action brought by Harrah's
Entertainment, Inc. and Harrah's Operating Company, Inc. (collectively
"Harrah's") alleging infringement of a purported patent covering a business
method allegedly developed by Harrah's. The use of an allegedly similar business
method by the Company in its advertising and promotions is said by plaintiff to
infringe upon its patent rights. In January 2002, the parties entered into a
sealed Consent Judgment resolving the dispute, which was the subject matter of
this action. In December 2001, the Company paid Harrah's the settlement for this
action.

     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

                                        14
<PAGE>

                                    PART II

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

     Prior to February 24, 1994, there was no established trading market for the
Company's securities. On February 24, 1994, the Company's Common Stock ("Old
Common Stock") commenced trading on the NASDAQ Small Cap Market under the symbol
TOWV and the Pacific Stock Exchange under the symbol TOW. On June 24, 1994, the
Old Common Stock commenced trading on the NASDAQ National Market. The symbol was
changed to TOWVQ to indicate that the Company had begun operating under
Bankruptcy Proceedings on January 27, 1997. The Old Common Stock was delisted
from the Pacific Stock Exchange on December 3, 1996, and was delisted from the
National Market System on March 31, 1997, and began trading on the over the
counter bulletin board. All trading of the Company's Old Common Stock ceased as
of October 14, 1998, when such Old Common Stock was canceled pursuant to the
Restated Second Amended Plan. On October 14, 1998, pursuant to the Restated
Second Amended Plan, the Company issued 2,030,000 shares of New Common Stock
("New Common Stock"). There has been extremely limited trading volume of the New
Common Stock since October 14, 1998. During 2001 and 2000, prices as reported on
the over the counter bulletin board have ranged from $33 to $45 in 2001 and $21
to $47 in 2000.

     The Company has never paid any cash dividends with respect to the Old
Common Stock or New Common Stock. The Company had eight stockholders of record
as of December 31, 2001 for New Common Stock.

ITEM 6.  SELECTED CONSOLIDATED FINANCIAL DATA

     Beginning in year 2001, the Company adopted a calendar year reporting
period. Prior to 2001, the Company utilized a 52- or 53-week accounting period.
The Company's fiscal year was the 52- or 53-weeks ending on the last Sunday in
December. The fiscal year ended December 31, 2000 was a 53-week year. The change
in reporting period did not have a material effect on the presentation or
comparability of the financial statement amounts.

STATEMENT OF OPERATIONS DATA

<Table>
<Caption>
                                                     SUCCESSOR COMPANY                                  PREDECESSOR COMPANY
                             -----------------------------------------------------------------     ------------------------------
                                                 FISCAL           FISCAL         SEPTEMBER 28,     DECEMBER 29,         FISCAL
                              YEAR ENDED       YEAR ENDED       YEAR ENDED       1998 THROUGH      1997 THROUGH       YEAR ENDED
                             DECEMBER 31,     DECEMBER 31,     DECEMBER 26,      DECEMBER 27,      SEPTEMBER 27,     DECEMBER 28,
                                 2001             2000             1999              1998              1998              1997
                             ------------     ------------     -------------     -------------     -------------     ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                          <C>              <C>              <C>               <C>               <C>               <C>
Net revenues...............    $141,974         $131,832         $122,553           $30,443          $ 98,796          $136,836
Costs and expenses.........     137,416          124,457          119,361            30,493            93,212           134,031
                               --------         --------         --------           -------          --------          --------
Income (loss) from
  operations...............       4,558            7,375            3,192               (50)            5,584             2,805
Income taxes, interest and
  other expense............       3,733            2,547              972               134             2,022            22,120
                               --------         --------         --------           -------          --------          --------
Income (loss) before
  extraordinary item.......         825            4,828            2,220              (184)            3,562           (19,315)
                               --------         --------         --------           -------          --------          --------
Extraordinary item -- gain
  on pre-petition debt
  discharge................          --               --               --                --           153,437(a)             --
                               --------         --------         --------           -------          --------          --------
Net income (loss)..........    $    825         $  4,828         $  2,220           $  (184)         $156,999          $(19,315)
                               ========         ========         ========           =======          ========          ========
Basic income (loss) per
  common share:
  Before extraordinary
    item...................    $   0.41         $   2.38         $   1.09           $ (0.09)                *          $  (0.33)
  Extraordinary item.......          --               --               --                --                --                --
                               --------         --------         --------           -------          --------          --------
Net income (loss) per
  share....................    $   0.41         $   2.38         $   1.09           $ (0.09)                *          $  (0.33)
                               ========         ========         ========           =======          ========          ========
Weighted average common
  shares outstanding.......       2,030            2,030            2,030             2,030                 *            58,393
                               ========         ========         ========           =======          ========          ========
</Table>

                                        15
<PAGE>

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

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

BALANCE SHEET DATA

<Table>
<Caption>
                                                 SUCCESSOR COMPANY                            PREDECESSOR COMPANY
                             ----------------------------------------------------------   ----------------------------
                             DECEMBER 31,   DECEMBER 31,   DECEMBER 26,   DECEMBER 27,    SEPTEMBER 27,   DECEMBER 28,
                                 2001           2000           1999           1998            1998            1997
                             ------------   ------------   ------------   -------------   -------------   ------------
(IN THOUSANDS)
<S>                          <C>            <C>            <C>            <C>             <C>             <C>
Total Assets...............    $249,975       $210,376       $157,488       $155,546        $165,109        $155,976
Capital lease                     3,111          5,778          8,445          8,979          11,150              --(b)
  obligations..............
Notes Payable..............      84,804         39,750             87            242             288             444(b)
</Table>

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

(b)  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.

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, retail, and entertainment
facility and a 1,149 foot, free-standing observation tower in Las Vegas, Nevada.
As of December 31, 2001, the operations included approximately 1,474 slot
machines, 48 table games, a race and sports book, a keno lounge, 2,444 hotel
rooms and seven themed restaurants.

  RECENT ACCOUNTING PRONOUNCEMENTS

     During 2001, the Financial Accounting Standards Board ("FASB") issued
Statements of Financial Standards ("SFAS") No.'s 141, 142, 143 and 144,
"Business Combinations", "Goodwill and Other Intangible Assets", "Accounting for
Asset Retirement Obligations" and "Accounting for Impairment or Disposal of
Long-Lived Assets", respectively.

     SFAS No. 141 requires that all business combinations initiated after June
30, 2001 use the purchase method of accounting. SFAS No. 141 prohibits and
eliminates the pooling-of-interest accounting method for business combinations.
The Company adopted SFAS No. 141 during the third quarter ended September 30,
2001. The adoption of SFAS No. 141 did not have an impact on the Company as the
Company has not historically had a pooling-of-interest transaction and had not
initiated any business combinations after June 30, 2001.

     SFAS No. 142 changes the accounting for goodwill from an amortization
method to an impairment-only method. Amortization of goodwill, including
goodwill recorded in past business combinations, will cease upon the adoption of
SFAS No. 142. The Company adopted SFAS No. 142 on January 1, 2002. After
December 31, 2001, goodwill can only be written down upon impairment discovered
during annual tests for fair value or discovered during tests taken when certain
triggering events occur. Additionally, an intangible asset acquired individually
or with a group of assets (but not those acquired in a business combination)
should

                                        16
<PAGE>

be separately recognized if the benefit of the intangible asset can be sold,
transferred, licensed, rented or exchanged regardless of the acquirers intent to
do so. The Company currently has no goodwill or intangible assets.

     During 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations." SFAS No. 143 requires entities to record the fair value of a
liability for an asset retirement obligation in the period in which it is
incurred. The statement requires that the amount recorded as a liability be
capitalized by increasing the carrying amount of the related long-lived asset.
Subsequent to initial measurement, the liability is accreted to the ultimate
amount anticipated to be paid, and is also adjusted for revisions to the timing
or amount of estimated cash flows. The capitalized cost is depreciated over the
useful life of the related asset. Upon settlement of the liability, an entity
either settles the obligation for its recorded amount or incurs a gain or loss
upon settlement. SFAS No. 143 will become effective January 1, 2003, with
earlier application encouraged. The Company is currently evaluating the impact,
if any, of adopting this statement.

     During 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets." SFAS No. 144 will become effective for fiscal
years beginning after December 15, 2001. This statement supersedes SFAS No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of." SFAS No. 144 retains the fundamental provisions of SFAS No. 121
for (a) recognition and measurement of the impairment of long-lived assets to be
held and used and (b) measurement of long-lived assets to be disposed of by
sale. The Company is currently evaluating the impact, if any, of adopting SFAS
No. 144.

  CRITICAL ACCOUNTING POLICIES

     The preparation of consolidated financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make a number of 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. Such estimates
and assumptions affect the reported amounts of revenues and expenses during the
reporting period. On an ongoing basis, management evaluates its estimates and
assumptions based upon historical experience and various other factors and
circumstances. Management believes its estimates and assumptions are reasonable
in the circumstances; however, actual results may differ from these estimates
under different future conditions.

  CASINO REVENUES AND PROMOTIONAL ALLOWANCES

     During the first quarter, 2001, the Emerging Issues Task Force reached a
consensus on the portion of Issue 00-22, "Accounting for 'Points' and Certain
Other Time-Based or Volume-Based Sales Incentive Offers, and Offers for Free
Products or Services to be Delivered in the Future," which addressed the income
statement classification of the value of the points redeemable for cash awarded
under point programs similar to the Company's Player's Club and Guaranteed
Refund programs. The consensus states the cost of these programs should be
reported as a contra-revenue, rather than an expense and is retroactive to
January 1, 2001, with prior year restatement required. The Company has adopted
the current consensus recommendations on Issue 00-22. Debate continues on a
number of other facets of Issue 00-22, which could have an impact on the
presentation of the Company's financial statements.

     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

                                        17
<PAGE>

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.

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

     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 estimates fair 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.

  RESTRUCTURING

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

     As a result of the restructuring, the Company implemented the guidance
provided by the American Institute of Certified Public Accountants Statement of
Position 90-7 "Financial Reporting By Entities In Reorganization Under The
Bankruptcy Code" ("AICPA SOP 90-7") and as such, adopted "fresh start reporting"
as of September 27, 1998. The Company's emergence from its Chapter 11
proceedings resulted in a new reporting entity with no retained earnings or
accumulated deficit as of September 27, 1998. Accordingly, the Company's
consolidated financial data for periods prior to September 27, 1998 are not
comparable to consolidated financial statements presented on or subsequent to
September 27, 1998. Column headings have been included on the accompanying
Selected Consolidated Financial Data (Part II, Item 6) to distinguish between
the predecessor and successor entities.

     Pursuant to the Restated Second Amended Plan becoming effective on October
14, 1998, the Company canceled all prior equity interests (including the 58.4
million outstanding shares of Common Stock, options and warrants) and exchanged
2,030,000 shares of New Common Stock for the secured portion of the 14 1/4%
First Mortgage Notes (estimated at $120.6 million). Approximately 89.6% of the
New Common Stock was issued to Carl C. Icahn related entities. The remaining
portion of the 14  1/4% First Mortgage Notes claim (approximately $104 million),
the balance of the note due Grand Casinos, Inc. (approximately $52.4 million)
and all other general unsecured claims would be discharged in exchange of a cash
payment of $6.0 million. Certain priority claims (estimated at $.9 million) were
paid in full. The discharge and settlement of these claims resulted in a gain of
$153.4 million, which was reflected as an extraordinary item on the September
27, 1998, consolidated statements of operations. The amount of the gain was
based on the Company's estimate of the amount of claims that would ultimately be
allowable by the Bankruptcy Court, and was based on the total of actual claims
filed. In the event additional unsecured claims are allowed by the Bankruptcy
Court, it will not increase the Company's cash required for full debt discharge.
A portion of the $6.9 million to be distributed has been reserved for potential
future settlement of unsecured claim disputes (approximately $1.9 million).
                                        18
<PAGE>

RESULTS OF OPERATIONS

     The following discussion regarding the operating results of the Company
will be a comparison of fiscal years 2001 to 2000 and 2000 to 1999.

<Table>
<Caption>
                                                                        FISCAL YEAR       FISCAL YEAR
                                                   YEAR ENDED              ENDED             ENDED
                                                  DECEMBER 31,         DECEMBER 31,       DECEMBER 26,
                                                      2001                 2000               1999
(IN THOUSANDS)                                  -----------------    -----------------    ------------
<S>                                             <C>                  <C>                  <C>
REVENUES:
  Casino....................................        $ 61,531             $ 52,174           $ 47,817
  Hotel.....................................          32,041               26,168             24,640
  Food and beverage.........................          36,476               36,157             33,230
  Tower, retail and other income............          26,487               28,612             26,893
                                                    --------             --------           --------
Gross Revenues..............................         156,535              143,111            132,580
  Less: Promotional allowances..............          14,561               11,279             10,027
                                                    --------             --------           --------
NET REVENUES................................         141,974              131,832            122,553
                                                    --------             --------           --------
COSTS AND EXPENSES:
  Casino....................................          32,986               29,459             27,737
  Hotel.....................................          12,755               10,644             10,416
  Food and beverage.........................          26,580               25,920             24,872
  Other operating expenses..................          12,830               13,291             11,580
  Depreciation and amortization.............          11,257                8,582              8,337
  Selling, general and administrative.......          41,008               36,561             36,419
                                                    --------             --------           --------
     Total Costs and Expenses...............         137,416              124,457            119,361
                                                    --------             --------           --------
INCOME FROM OPERATIONS......................           4,558                7,375              3,192
                                                    --------             --------           --------
OTHER INCOME (EXPENSE):
  Interest income...........................             943                1,047                741
  Interest expense..........................          (4,159)              (1,057)              (867)
  Loss on sale of assets....................              (4)                  (4)               (71)
                                                    --------             --------           --------
     Total Other Expense, net...............          (3,220)                 (14)              (197)
                                                    --------             --------           --------
INCOME BEFORE INCOME TAXES..................           1,338                7,361              2,995
PROVISION FOR INCOME TAXES..................             513                2,533                775
                                                    --------             --------           --------
NET INCOME..................................        $    825             $  4,828           $  2,220
                                                    ========             ========           ========
</Table>

     Beginning in year 2001, the Company adopted a calendar year reporting
period. Prior to 2001, the Company utilized a 52- or 53-week accounting period.
The Company's fiscal year was the 52- or 53-weeks ending on the last Sunday in
December. The fiscal year ended December 31, 2000 was a 53-week year. The change
in reporting period did not have a material effect on the presentation or
comparability of the financial statement amounts.

COMPARISON OF OPERATING RESULTS FOR THE FISCAL YEAR 2001 AND 2000

REVENUES

     Casino revenues increased $9.3 million (18%) from $52.2 million in fiscal
year 2000 to $61.5 million for the twelve months ended December 31, 2001. The
primary factors for increased revenues are as follows. Revenues from table games
increased $4.4 million (36%) from $12.1 million in fiscal year 2000 to $16.5
million for the twelve months ended December 31, 2001. The Company's win
percentage for table games increased by 2.7% (17%) from 15.8% for fiscal year
2000 to 18.5% for the twelve months ended December 31, 2001. The increased win
percentage and increased customer play resulting from the completion

                                        19
<PAGE>

of the 1,000 rooms associated with the Hotel Expansion contributed equally to
the table games revenue increase. Revenues from slots increased $5.3 million
(14%) from $38.4 million in fiscal year 2000 to $43.7 million for the twelve
months ended December 31, 2001. Management attributes the increased slot
revenues to casino marketing efforts building hosted play on the tiered card
program and increased customer handle resulting from the completion of the 1,000
rooms associated with the Hotel Expansion. Race and Sports book revenues
declined $.3 million (25%) from $1.2 million in fiscal year 2000 to $.9 million
for the twelve months ended December 31, 2001. The Company experienced
unexpected sports book wins of $.3 million and $.3 million related to the 2000
National Football League Superbowl and the 2000 National Basketball Association
Finals, respectively. The Company also experienced an unexpected sports book
loss of $.3 related to the United States Tennis Association's 2000 U.S. Open.
Revenue from poker declined $.2 million (67%) from $.3 million in fiscal year
2000 to $.1 million for the twelve months ended December 31, 2001. The Company
closed its poker room on March 1, 2001. Keno revenues increased $.2 million
(200%) from $.1 million in fiscal year 2000 to $.3 million for the twelve months
ended December 31, 2001. The Company experienced unexpected losses during the
first half of 2000 as a result of a Keno promotion aimed at increasing non-keno
casino play among all hotel guests and tower visitors. The promotion was
discontinued at the end of the second quarter, 2000. Casino revenues represented
39% of total gross revenues for the twelve months ended December 31, 2001 and
36% of total gross revenues for fiscal year 2000.

     Hotel revenues increased $5.8 million (22%) from $26.2 million in the
fiscal year 2000 to $32.0 million for the twelve months ended December 31, 2001.
The average daily rate ("ADR") decreased $3 (6%) from $51 during fiscal year
2000 to $48 during the twelve months ended December 31, 2001. Hotel occupancy
decreased 3% from 95.8% during fiscal year 2000 to 93.2% for the twelve months
ended December 31, 2001. The 1,000 additional rooms associated with the Hotel
Expansion were completed on June 22, 2001. The increase in hotel revenues is
directly attributed to the increased room capacity brought about by the Hotel
Expansion. The Company has begun an advertising campaign targeting retail and
convention guests in order to enhance ADR. Management will also continue to
focus on maintaining the Company's relationships with the travel agents and
wholesalers. Hotel revenues represented 20% of total gross revenues for the
twelve months ended December 31, 2001 and 18% of total gross revenues for fiscal
year 2000.

     Food and beverage revenues increased $.3 million (1%) from $36.2 million
for fiscal year 2000 to $36.5 million for the twelve months ended December 31,
2001. Revenues were down during the first six months of 2001 due to disruptions
caused by construction. Food and beverage revenues rebounded during the third
quarter as a result of increased guest volume brought about by the completion of
the 1,000 rooms associated with the Hotel Expansion. Lucky's Cafe opened in May
2001, the newly refurbished Stratosphere Courtyard Buffet reopened July 25, 2001
and the Crazy Armadillo featuring Tex-Mex cuisine and an oyster bar opened in
November 2001. Food and beverage revenues represented 23% of total gross
revenues for the twelve months ended December 31, 2001 and 25% of total gross
revenues for fiscal year 2000.

     Tower, retail and other income decreased $2.1 million (7%) from $28.6
million for fiscal year 2000 to $26.5 million for the twelve months ended
December 31, 2001. The primary factors for decreased revenues are as follows.
Tower revenues decreased $2.4 million (16%) from $14.9 million for fiscal year
2000 to $12.5 million for the twelve months ended December 31, 2001. Tower
visitations (including Top of the World dining) decreased 300,837 (14%) from
2,132,753 for fiscal year 2000 to 1,831,916 for the twelve months ended December
31, 2001. Ride admissions declined 197,670 (18%) from 1,095,945 for fiscal year
2000 to 898,275 for the twelve months ended December 31, 2001. Competition on
the Las Vegas Strip and the events of September 11, 2001 have been the major
factors contributing to the decline in Tower revenues, visitation and ride
admissions. Tower revenues since September 2001 have decreased $1.5 million
(31%) from $4.8 million for September through December 2000 to $3.3 million for
September through December 2001. Entertainment revenues increased $.6 million
(13%) from $4.7 million for fiscal year 2000 to $5.3 million for the twelve
months ended December 31, 2001. Management attributes the increase in
entertainment revenues to increased showroom pricing and additional revenues
from concerts and boxing events held in the new Outdoor Events Center. The
Company completed construction of a new 3,600-seat Outdoor Events Center in
September 2001. Management anticipates entertainment revenues will continue to
accelerate as the Company

                                        20
<PAGE>

increases the number of special events and concerts. Revenues from soft drink
sponsorships decreased $.2 million (33%) from $.6 million for fiscal year 2000
to $.4 million for the twelve months ended December 31, 2001. Management expects
revenues from soft drink sponsorships to remain flat during 2002. Tower, retail
and other revenues represented 17% of total gross revenues for the twelve months
ended December 31, 2001 and 20% of total gross revenues for fiscal year 2000.

     Promotional allowances increased $3.3 million (29%) from $11.3 million for
fiscal year 2000 to $14.6 million for the twelve months ended December 31, 2001.
The increase in promotional allowances was the result of more direct mail
promotions from the Guaranteed Refund program that include room, food and
beverage being offered to guests on a complimentary basis. Complimentaries to
hosted casino players also contributed to the increase in promotional
allowances. Management anticipates promotional allowances will increase in
future periods with an increase in the number of casino-hosted players, direct
marketing efforts and special event offers targeting casino guests.

     The terrorist attacks of September 11, 2001 and general economic
conditions, which may be expected to continue, are believed by management to
have had a negative impact on September through December 2001 revenues.
Management still expects casino, hotel, food, and beverage and entertainment
revenues to increase through the second quarter of 2002 because of the Hotel
Expansion, which was completed in June 2001. However, the increase during this
period and revenues for the foreseeable future may be adversely impacted by the
decreased air travel to Las Vegas because of the terrorist attacks, general
economic conditions and increased competition from high-end casinos and hotels
who have entered the mid-level casino customer market as a result of the
September 11, 2001 terrorist attacks and the recent economic downturn.

COSTS AND EXPENSES

     Casino operating expenses increased approximately $3.5 million (12%) from
$29.5 million for fiscal year 2000 to $33.0 million for the twelve months ended
December 31, 2001. Payroll expenses, primarily in table games, increased $1.2
million as a direct result of increased casino play. Also, the Company's slot
lease expense and gaming tax expense increased $1.6 million and $.6 million,
respectively, as a result of increased casino play. Additionally, the Company
saved $.2 million during 2001 by bringing check cashing processing in house.

     Hotel operating expenses increased $2.1 million (20%) from $10.6 million
for fiscal year 2000 to $12.7 million for the twelve months ended December 31,
2001. Payroll and supplies expenses increased $2.5 million and $.7 million,
respectively, due to the additional 1,000 rooms associated with the Hotel
Expansion. The increased costs of providing guests with complimentary room
nights have been charged to casino and marketing operations. As a result, hotel
complimentary expense decreased $.9 million.

     Food and beverage costs have increased $.7 million (3%) from $25.9 million
for fiscal year 2000 to $26.6 million for the twelve months ended December 31,
2001. Cost of sales decreased $.7 million for the twelve months ended December
31, 2001. Cost containment in purchasing and tighter inventory controls were
major factors contributing to the decrease in food and beverage costs.
Management believes the Company will probably not realize increased food and
beverage cost savings of this magnitude in future periods. Payroll and supply
expenses have increased $1.5 million and $.3 million, respectively. Management
attributes these increases to pre-opening and start-up expenses associated with
Lucky's Cafe, the Stratosphere Courtyard Buffet and the Crazy Armadillo. The
Company has taken steps to reduce and control payroll expenses in these venues.
The increased costs of providing guests with complimentary food and drinks have
been charged to casino and marketing operations. As a result, food and beverage
complimentary expense decreased $.2 million.

     Other operating expenses decreased $.5 million (4%) from $13.3 million for
fiscal year 2000 to $12.8 million for the twelve months ended December 31, 2001.
Entertainer fees increased $.6 million as a direct result of a shared revenue
agreement between the Company and the producers of the American Superstars and
Viva Las Vegas shows as well as fees paid to entertainers to perform in the
Company's new Outdoor Events Center. Tower repairs and maintenance expenses and
payroll expenses have decreased $.1 million and $.2 million, respectively. In
2000, the Company completed an extensive overhaul of the "Big Shot" and "High
Roller" roller coaster thrill rides. In July 2001, Stratosphere Leasing, LLC
entered into an
                                        21
<PAGE>

agreement with Tower Merchandise Management, LLC to lease the Stratosphere gift
shops located in various places throughout the hotel property. TMM had been
managing the operation of these shops since April 1996. As a result of this
transaction, cost of sales associated with the retail shops discontinued in July
2001 which allowed the Company to decrease expenses $.7 million.

     Depreciation and amortization expenses have increased $2.7 million (31%)
from $8.6 million for fiscal year 2000 to $11.3 million for the twelve months
ended December 31, 2001. Management attributes the increase to the depreciation
and amortization of the retail mall assets over the remaining lease life of the
current tenants, the amortization of the Lessee Incentive provided on the
McDonald's lease and the depreciation of the recently completed Hotel Expansion.

     Selling, general and administrative expenses increased $4.4 million (12%)
from $36.6 million for fiscal year 2000 to $41.0 million for the twelve months
ended December 31, 2001. Marketing and advertising expenses increased $2.3
million. Management expects marketing expenses to increase as the Company
targets filling the new 1,000 rooms and other enhanced amenities associated with
the Hotel Expansion. Utility expense increased $1.7 million. Utility expense
will continue to outpace last year because of the 1,000 additional rooms and the
increased utility rates of electricity and gas. Facilities payroll expenses
increased $.3 million as a direct result of adding 1,000 guest rooms, Lucky's
Cafe and remodeling the Stratosphere Courtyard Buffet associated with the Hotel
Expansion. Legal expenses and settlement costs associated with the lawsuits
described in Part I, Item 3, Legal Proceedings have increased $.8 million. In
December 2001, the Company wrote-off $.5 million in expenses related to the
development of a new thrill ride. Coincidentally, $.5 million of expenses was
incurred by the Company for a gaming tax adjustment during fiscal year 2000.
Outside services decreased $.4 million as the Company expects to receive
reimbursement from AREP for costs incurred regarding the anticipated merger with
AREP.

     In connection with the opening of the Hotel Expansion, management expects
casino, hotel, food, beverage and certain other operating expenses to increase
accordingly.

OTHER FACTORS IMPACTING EARNINGS

     Interest income decreased $.1 million (10%) from $1.0 million for fiscal
year 2000 to $.9 million during the twelve months ended December 31, 2001 due to
lower interest rates from banking institutions.

     Interest expense increased $3.1 million (293%) from $1.1 million for fiscal
year 2000 to $4.2 million during the twelve months ended December 31, 2001.
Interest from the Company's note associated with the purchase of the retail mall
increased expenses $.7 million while interest expense associated with the
Capital Lease decreased $.2 million. Interest expense associated with the $73.0
million Note Payable to AREH used to finance the Hotel Expansion was $2.3
million for 2001. The interest associated with this note during the construction
period has been capitalized as a cost of the hotel expansion. Amortization of
debt issuance cost also increased interest expense by $.5 million.

COMPARISON OF OPERATING RESULTS FOR THE FISCAL YEAR 2000 AND 1999

REVENUES

     Casino revenues increased $4.4 million (9%) from $47.8 million in fiscal
year 1999 to $52.2 million for fiscal year 2000. Slot revenues increased $3.1
million from $35.3 million in fiscal year 1999 to $38.4 million for fiscal year
2000. Management attributes this increase to decreased disruption caused by
escalator and race and sports book construction in 1999. Increased hotel
occupancy also contributed to the increase. Race and sports book revenues
increased $1.4 million from fiscal year 1999 to fiscal year 2000. The race and
sports book opened in August, 1999.

     Hotel revenues increased $1.6 million (6%) from $24.6 million in fiscal
year 1999 to $26.2 million for fiscal year 2000. Hotel occupancy increased from
92.1% in 1999 to 95.8% in 2000 and was the major contributing factor for the
increase in hotel revenues. Average daily rate ("ADR") decreased from $52 in
fiscal year 1999 to $51 in fiscal year 2000.

                                        22
<PAGE>

     Food and beverage revenues increased $2.9 million (9%) from $33.2 million
in fiscal year 1999 to $36.1 million for fiscal year 2000. Increased hotel
occupancy and food and beverage prices were the major contributors to the
overall increase in food and beverage revenues in 2000.

     Tower, retail and other revenues increased $1.7 million (6%) from $26.9
million in fiscal year 1999 to $28.6 million for fiscal year 2000. An increase
in entertainment revenues from aggressive showroom marketing and pricing
contributed $1.5 million to the overall increase in Tower, retail and other
revenues.

     Promotional allowances increased $1.3 million (13%) from $10.0 million in
fiscal 1999 to $11.3 million for fiscal year 2000. Management attributes the
increase to direct marketing efforts and special events offered to casino guests
intended to increase hotel and showroom occupancy.

     Management completed the Hotel Expansion, which includes an additional
1,000 rooms, a 350-seat coffee shop and related amenities in late June 2001.

COST AND EXPENSES

     Casino operating costs increased $1.8 million (6%) from $27.7 million in
fiscal year 1999 to $29.5 million in fiscal year 2000. Additional gaming
activity, including having the race and sports book open the entire year, lead
to a $.8 million increase in labor costs. The Company also increased the number
of slot machines on the floor, which are provided by manufacturers with
participation agreements. In 2000, this increased slot lease percentage expense
$.6 million from $1.6 million in fiscal year 1999 to $2.2 million in fiscal year
2000. Costs from casino marketing promotional events and the costs of providing
complimentary rooms, food and beverage increased $.5 million in fiscal year
2000.

     Hotel operating costs increased $.2 million (2%) from $10.4 million in
fiscal year 1999 to $10.6 million in fiscal year 2000. Increased hotel occupancy
lead to a $.7 million increase in labor costs while room complimentary expenses
decreased $.4 million.

     Food and beverage costs increased $1.0 million (4%) from $24.9 million in
fiscal year 1999 to $25.9 million in fiscal year 2000. Increased food and
beverage revenues lead to a $.8 million increase in food costs and a $.7 million
increase in labor costs.

     Other operating expenses increased $1.7 million (15%) from $11.6 million in
fiscal year 1999 to $13.3 million in fiscal year 2000. The costs of providing
casino guests with complimentary entertainment and beverages increased $1.4
million and entertainer fees increased $.3 million in fiscal year 2000.

     In connection with the opening of the Hotel Expansion, management expects
casino, hotel, food, beverage and certain other operating expenses to increase
accordingly.

OTHER FACTORS IMPACTING EARNINGS

     Interest income increased $.3 million (41%) from $.7 million in fiscal year
1999 to $1.0 million for fiscal year 2000 due to investment of increased cash
balances.

     Interest expense increased $.2 million (22%) from $.9 million in fiscal
year 1999 to $1.1 million in fiscal year 2000. Interest from the Company's notes
associated with the purchase of the retail lease from Strato-Retail increased
expenses $.3 million while amortization of deferred financing costs decreased
$.1 million for fiscal year 2000. Management expects interest expense to
increase significantly in 2001 as additional notes are secured for financing the
Company's Hotel Expansion.

LIQUIDITY AND CAPITAL RESOURCES

     The Company's current cash requirements include personnel, operating
expenses, capital expenditures and debt service. Internally generated funds
fluctuate in a pattern generally consistent with revenues. The

                                        23
<PAGE>

following table reflects the Company's principal contractual cash obligations
due over the indicated periods and when they expire (in thousands):

<Table>
<Caption>
                                                           2002     2003      2004      TOTAL
                                                          ------   -------   -------   -------
<S>                                                       <C>      <C>       <C>       <C>
Related party construction loan note payable............  $3,651   $ 3,651   $65,106   $72,408
Related party lease purchase note payable...............     625    11,771        --    12,396
Capital lease obligation................................   3,111        --        --     3,111
                                                          ------   -------   -------   -------
                                                          $7,387   $15,422   $65,106   $87,915
                                                          ======   =======   =======   =======
</Table>

     At current rates, interest payments on the related party notes payable and
capital lease will be approximately $5.5 million, $5.0 million and $3.4 million
for the years ended December 31, 2002, 2003 and 2004, respectively.

DEBT

     On May 1, 2001, the Company delivered a $73.0 million promissory note for a
construction loan to AREH in order to finance the construction of the 1,000-room
hotel tower, Lucky's Cafe and new pool area (the "Hotel Expansion"). The
promissory note is secured by a deed of trust on certain real property. Demand
notes bearing interest at 9.5% and totaling $48.0 million, as of April 18, 2001,
were replaced by this note. Since May 1, 2001 AREH has provided additional
advances of $25.0 million against the $73.0 million note. In November 2001 the
Company began making principal payments on the loan in equal monthly
installments based on a twenty (20) year amortization schedule and continuing
through and including June 2002 when the remaining balance shall be due.
Interest accrues at a variable rate per annum equal to the sum of (i) three
hundred (300) basis points plus (ii) the 90 day London Interbank Offered Rate
("LIBOR"). This interest rate at December 31, 2001 was 6.51%. The Company paid
AREH one point or $730,000 on July 3, 2001 for this loan. A twenty-four (24)
month extension of the loan term may be obtained by the Company upon payment of
an additional $730,000. Management intends to pay the additional $730,000 to
obtain this twenty-four (24) month extension and AREH has committed to providing
the extension upon receipt of the extension fee.

     On May 1, 2001, the Company delivered a $12.5 million promissory note to
AREH to replace the $12.5 million demand note used to acquire the property under
the Master Lease from Strato-Retail, LLC. The promissory note is secured by a
deed of trust on certain real property. In November 2001 the Company began
making principal payments on the loan in equal installments based on a twenty
(20) year amortization schedule and continuing through and including July 8,
2002, when the remaining balance shall be due. Interest accrues at a variable
rate per annum equal to the sum of (i) three hundred fifty (350) basis points
plus (ii) the 90 day LIBOR. This interest rate at December 31, 2001 was 7.01%.
The Company paid AREH one point or $125,000 on May 4, 2001 for this loan. A
twelve (12) month extension of the loan term may be obtained by the Company upon
the payment at an additional $125,000. Management intends to pay the additional
$125,000 to obtain this twelve (12) month extension and AREH has committed to
providing the extension upon receipt of the extension fee.

     On May 28, 1999, the Company entered into a $10.0 million capital lease
("New Capital Lease Obligation") in which certain existing gaming and other
equipment was financed over a thirty-six month period. Interest is calculated
based on the LIBOR rate for each period plus 2.5%. The current rate of interest
for the period ended December 31, 2001, was 4.66%. A $2.0 million balloon
payment is due upon conclusion of the thirty-six month term. The New Capital
Lease Obligation contains certain covenants that effectively would create an
event of default if the current controlling stockholder of the Company were to
cease to be the beneficial owner of at least 51% of the Company's Common Stock.
The covenants also restrict the Company from incurring more than $5.0 million in
additional debt without the consent of the creditors of the New Capital Lease
Obligation. In connection with the funding provided by AREH, on November 20,
2000, the Company obtained a waiver on the debt covenant restriction.

                                        24
<PAGE>

SHAREHOLDERS' EQUITY

     On October 4, 1999, AREH repurchased 985,286 shares of the Company from
entities owned or controlled by Carl C. Icahn. On March 24, 2000, AREH purchased
50,000 shares of the Company's common stock from NYBOR, an entity controlled by
Mr. Icahn. Upon completion of the transaction, Mr. Icahn continued to control
approximately 89.6% of the Company's 2,030,000 Common Stock shares outstanding.

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

CASH FLOW, WORKING CAPITAL AND CAPITAL EXPENDITURES

     The Company had unrestricted cash balances of $28.6 million as of December
31, 2001. 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 $14.4 million from operating activities, $2.5 million
from the sale of marketable debt securities and borrowed $45.8 million from
related parties during the twelve months ended December 31, 2001. These funds
were used to pay $50.6 million for construction of the Hotel Expansion and other
capital expenditures, $2.2 million for marketable securities, $2.7 million for
payments on the capital lease and $.7 million to repay notes to related parties.

     As of December 31, 2001 the Company had approximately $1.9 million accrued
for unsecured disputed claims related to the Restated Second Amended Plan. The
$1.9 million estimated accrual for unsecured disputed claims is included in
other accrued expenses on the accompanying December 31, 2001 Consolidated
Balance Sheet. Additional required payments, if any, will be made from
restricted cash and/or investment balances.

OTHER

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

PRIVATE SECURITIES LITIGATION REFORM ACT

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

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     The Company's debt obligations are subject to interest rate risk. The
interest rates under these obligations are based on LIBOR plus applicable
margins. As interest rates fluctuate, the Company will experience changes in
interest expense. The Company has not entered into any interest rate swap
agreements, or similar instruments, to protect against the risk of interest rate
fluctuations. The fair value of the Company's long-term debt approximates
carrying values. Assuming the current level of borrowings, if interest rates
increased 100 basis points, interest expense on the Company's debt obligations
at December 31, 2001 would increase $.7 million for fiscal year 2002.

                                        25
<PAGE>

ITEM 8.  FINANCIAL STATEMENTS

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<Table>
<Caption>
                                                              PAGE
                                                              ----
,
<S>                                                           <C>
Report of Independent Auditors -- December 31, 2001 and
  2000......................................................   27
Report of Independent Public Accountants -- December 26,
  1999......................................................   28
Consolidated Balance Sheets at December 31, 2001 and 2000...   29
Consolidated Statements of Operations for the year ended
  December 31, 2001 and fiscal years ended December 31, 2000
  and December 26, 1999.....................................   30
Consolidated Statements of Shareholders' Equity for the year
  ended December 31, 2001 and fiscal years ended December
  31, 2000 and December 26, 1999............................   31
Consolidated Statements of Cash Flows for the year ended
  December 31, 2001 and fiscal years ended December 31, 2000
  and December 26, 1999.....................................   32
Notes to Consolidated Financial Statements..................   34
</Table>

                                        26
<PAGE>

                         REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Shareholders
Stratosphere Corporation:

     We have audited the accompanying consolidated balance sheets of
Stratosphere Corporation (a Delaware Corporation) and subsidiaries as of
December 31, 2001 and 2000, and the related consolidated statements of
operations, shareholders' equity, and cash flows for each of the years in the
two-year period ended December 31, 2001. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

     We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. 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.

     In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Stratosphere
Corporation and subsidiaries as of December 31, 2001 and 2000, and the results
of their operations and their cash flows for each of the years in the two-year
period ended December 31, 2001, in conformity with accounting principles
generally accepted in the United States of America.

                                          KPMG LLP

Phoenix, Arizona
March 15, 2002

                                        27
<PAGE>

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors and Shareholders
of Stratosphere Corporation:

     We have audited the accompanying consolidated statements of operations,
shareholders' equity and cash flows of Stratosphere Corporation (a Delaware
corporation) and subsidiaries (the "Company") for the year ended December 26,
1999 prior to the reclassification (and, therefore, are not presented herein)
for the Company's adoption of EITF 00-22 "Accounting for 'Points' and Certain
Other Time-Based Sales Incentive Offers, and Offers for Free Products or
Services to Be Delivered in the Future" as described in Note 1 to the
reclassified consolidated financial statements. 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 audit.

     We conducted our audit in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides 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 Company's new basis of accounting and are not comparable to the predecessor
company's pre-reorganization consolidated financial statements.

     In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the results of Stratosphere
Corporations' operations and their cash flows for the year ended December 26,
1999, in conformity with accounting principles generally accepted in the United
States.

                                          ARTHUR ANDERSON LLP

Las Vegas, Nevada
February 11, 2000

                                        28
<PAGE>

                   STRATOSPHERE CORPORATION AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS
                           DECEMBER 31, 2001 AND 2000

<Table>
<Caption>
                                                                  2001            2000
                                                              ------------    ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                                           <C>             <C>
ASSETS
Current Assets:
  Cash and cash equivalents.................................    $ 28,622        $ 23,441
  Cash and cash equivalents-restricted......................       1,926           1,926
  Marketable securities.....................................       4,200           4,459
  Investments-restricted....................................         827             988
  Accounts receivable, net..................................       3,416           2,592
  Related party receivable..................................         608              73
  Other current assets......................................       4,348           5,191
                                                                --------        --------
Total Current Assets........................................      43,947          38,670
                                                                --------        --------
Property and Equipment, Net.................................     200,938         166,619
                                                                --------        --------
Other Assets:
  Debt issuance and deferred financing costs-net............         474             137
  Lessee incentive..........................................       1,616           1,950
  Other receivable..........................................       3,000           3,000
                                                                --------        --------
Total Other Assets..........................................       5,090           5,087
                                                                --------        --------
TOTAL ASSETS................................................    $249,975        $210,376
                                                                ========        ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
  Accounts payable-trade....................................    $  1,968        $  1,599
  Accounts payable-construction.............................       1,598           6,943
  Current portion of capital lease obligations..............       3,111           2,667
  Current portion of notes payable to related party.........       4,276             713
  Accrued payroll and related expenses......................       5,258           4,912
  Other accrued expenses....................................      13,478          12,744
                                                                --------        --------
Total Current Liabilities...................................      29,689          29,578
                                                                --------        --------
Long-Term Liabilities:
  Accrued lessee incentive..................................       1,605           1,950
  Capital lease obligations-less current portion............          --           3,111
  Notes payable to related party-less current portion.......      80,528          39,037
                                                                --------        --------
Total Long-Term Liabilities.................................      82,133          44,098
                                                                --------        --------
TOTAL LIABILITIES...........................................     111,822          73,676
                                                                --------        --------
Commitments and Contingencies (Notes 13 and 14)
Shareholders' Equity:
  Preferred stock, $.01 par value; authorized 3,000,000; no
    shares issued...........................................          --              --
  Common stock, $.01 par value; authorized 10,000,000
    shares;
    issued and outstanding 2,030,000........................          20              20
  Additional paid-in-capital................................     130,444         129,816
  Retained earnings.........................................       7,689           6,864
                                                                --------        --------
Total Shareholders' Equity..................................     138,153         136,700
                                                                --------        --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY..................    $249,975        $210,376
                                                                ========        ========
</Table>

                See notes to consolidated financial statements.
                                        29
<PAGE>

                   STRATOSPHERE CORPORATION AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF OPERATIONS
                    FOR THE YEAR ENDED DECEMBER 31, 2001 AND
           FISCAL YEARS ENDED DECEMBER 31, 2000 AND DECEMBER 26, 1999

<Table>
<Caption>
                                                                   2001           2000           1999
                                                               ------------   ------------   -------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                                            <C>            <C>            <C>
REVENUES:
  Casino....................................................     $ 61,531       $ 52,174       $ 47,817
  Hotel.....................................................       32,041         26,168         24,640
  Food and beverage.........................................       36,476         36,157         33,230
  Tower, retail and other income............................       26,487         28,612         26,893
                                                                 --------       --------       --------
Gross Revenues..............................................      156,535        143,111        132,580
  Less: Promotional allowances..............................       14,561         11,279         10,027
                                                                 --------       --------       --------
NET REVENUES................................................      141,974        131,832        122,553
                                                                 --------       --------       --------
COSTS AND EXPENSES:
  Casino....................................................       32,986         29,459         27,737
  Hotel.....................................................       12,755         10,644         10,416
  Food and beverage.........................................       26,580         25,920         24,872
  Other operating expenses..................................       12,830         13,291         11,580
  Depreciation and amortization.............................       11,257          8,582          8,337
  Selling, general and administrative.......................       41,008         36,561         36,419
                                                                 --------       --------       --------
    Total Costs and Expenses................................      137,416        124,457        119,361
                                                                 --------       --------       --------
INCOME FROM OPERATIONS......................................        4,558          7,375          3,192
                                                                 --------       --------       --------
OTHER INCOME (EXPENSE):
  Interest income...........................................          943          1,047            741
  Interest expense..........................................       (4,159)        (1,057)          (867)
  Loss on sale of assets....................................           (4)            (4)           (71)
                                                                 --------       --------       --------
    Total Other Expense, net................................       (3,220)           (14)          (197)
                                                                 --------       --------       --------
INCOME BEFORE INCOME TAXES..................................        1,338          7,361          2,995
PROVISION FOR INCOME TAXES..................................          513          2,533            775
                                                                 --------       --------       --------
NET INCOME..................................................     $    825       $  4,828       $  2,220
                                                                 ========       ========       ========
BASIC AND DILUTED INCOME PER COMMON SHARE...................     $   0.41       $   2.38       $   1.09
                                                                 ========       ========       ========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING..................        2,030          2,030          2,030
                                                                 ========       ========       ========
</Table>

                See notes to consolidated financial statements.
                                        30
<PAGE>

                   STRATOSPHERE CORPORATION AND SUBSIDIARIES

                CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                    FOR THE YEAR ENDED DECEMBER 31, 2001 AND
           FISCAL YEARS ENDED DECEMBER 31, 2000 AND DECEMBER 26, 1999

<Table>
<Caption>
                                                                                    RETAINED
                                                                     ADDITIONAL     EARNINGS         TOTAL
                                                            COMMON    PAID-IN     (ACCUMULATED   SHAREHOLDERS'
                                                            STOCK     CAPITAL       DEFICIT)        EQUITY
                                                            ------   ----------   ------------   -------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                                         <C>      <C>          <C>            <C>
Balances at December 27, 1998.............................   $20      $127,058       $ (184)       $126,894
Net income................................................    --            --        2,220           2,220
                                                             ---      --------       ------        --------
Balances at December 26, 1999.............................    20       127,058        2,036         129,114
Change in deferred tax asset valuation allowance related
  to
  book-tax differences existing at time of bankruptcy.....    --         2,758           --           2,758
Net income................................................    --            --        4,828           4,828
                                                             ---      --------       ------        --------
Balances at December 31, 2000.............................    20       129,816        6,864         136,700
Change in deferred tax asset valuation allowance related
  to book-tax differences existing at time of
  bankruptcy..............................................    --           628           --             628
Net income................................................    --            --          825             825
                                                             ---      --------       ------        --------
Balances at December 31, 2001.............................   $20      $130,444       $7,689        $138,153
                                                             ===      ========       ======        ========
</Table>

                See notes to consolidated financial statements.
                                        31
<PAGE>

                   STRATOSPHERE CORPORATION AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                    FOR THE YEAR ENDED DECEMBER 31, 2001 AND
           FISCAL YEARS ENDED DECEMBER 31, 2000 AND DECEMBER 26, 1999

<Table>
<Caption>
                                                                2001       2000      1999
(IN THOUSANDS)                                                --------   --------   -------
<S>                                                           <C>        <C>        <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income................................................  $    825   $  4,828   $ 2,220
  Adjustments to reconcile net income to net cash provided
     by (used in) operating activities:
       Depreciation and amortization........................    11,811      8,679     8,559
       Provision (recoveries) for doubtful accounts.........       (28)       137      (240)
       Loss on sale or disposal of assets...................         4          4        71
       Changes in operating assets and liabilities:
          Accounts and other receivable.....................      (795)    (1,315)    1,444
          Other current assets..............................       843         93       142
          Accounts payable-trade............................       369        396      (204)
          Accrued expenses..................................     1,363      1,775     1,033
                                                              --------   --------   -------
NET CASH PROVIDED BY OPERATING ACTIVITIES...................    14,392     14,597    13,025
                                                              --------   --------   -------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Decrease in cash and cash equivalents-restricted..........        --         --       292
  Purchase of marketable securities.........................    (2,200)    (1,000)   (4,459)
  Proceeds from the sale of marketable securities...........     2,459         --     1,000
  Decrease in investments-restricted........................       161      1,290     1,013
  Payments for property and equipment.......................   (49,985)   (16,790)   (6,596)
  Payments for construction in progress.....................      (646)   (28,135)       --
  Increase in related party receivable......................      (536)       (73)       --
  Cash proceeds from sale of property and equipment.........        40        124       551
                                                              --------   --------   -------
NET CASH USED IN INVESTING ACTIVITIES.......................   (50,707)   (44,584)   (8,199)
                                                              --------   --------   -------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Payments to creditors pursuant to plan of
     reorganization.........................................        --         --       (67)
  Payments on long-term debt................................        --        (77)     (155)
  Proceeds from related party notes payable.................    45,750     41,750        --
  Payments of related party notes payable...................      (696)    (2,000)       --
  Final payments on capital lease obligations -- original...        --         --    (8,979)
  Payments on capital lease obligations -- new..............    (2,667)    (2,667)   (1,556)
  Proceeds from capital lease obligations...................        --         --    10,000
  Increase in debt issuance and deferred financing costs....      (891)        --      (272)
                                                              --------   --------   -------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES.........    41,496     37,006    (1,029)
                                                              --------   --------   -------
Net increase in cash and cash equivalents...................     5,181      7,019     3,797
Cash and cash equivalents -- beginning of period............    23,441     16,422    12,624
                                                              --------   --------   -------
CASH AND CASH EQUIVALENTS -- END OF PERIOD..................  $ 28,622   $ 23,441   $16,422
                                                              ========   ========   =======
</Table>

                                        32
<PAGE>

<Table>
<Caption>
                                                                2001       2000      1999
(IN THOUSANDS)                                                --------   --------   -------
<S>                                                           <C>        <C>        <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
  Interest-net of capitalized interest of $1.9 million, $.5
     million and $-0- for the year ended December 31, 2001
     and fiscal years ended December 31, 2000 and December
     26, 1999, respectively.................................  $  3,245   $    656   $   750
  Income taxes..............................................  $     --   $    509   $   400
Non-Cash Investing and Financing Activities:
  Change in deferred tax asset valuation allowance related
     to book-tax differences existing at time of
     bankruptcy.............................................  $    628   $  2,758   $    --
  Decrease in land and building from donation of Bob Stupak
     Center.................................................  $     --   $     --   $  (350)
</Table>

                See notes to consolidated financial statements.
                                        33
<PAGE>

                   STRATOSPHERE CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                 DECEMBER 31, 2001, 2000 AND DECEMBER 26, 1999

(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, Stratosphere Leasing, LLC, 2000
Las Vegas Boulevard Retail Corporation and Stratosphere Development, LLC, an
entity controlled by Stratosphere Corporation, (collectively the "Company"). The
Company operates an integrated casino, hotel, retail 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.

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

     During the first quarter, 2001, the Emerging Issues Task Force reached a
consensus on the portion of Issue 00-22, "Accounting for 'Points' and Certain
Other Time-Based or Volume-Based Sales Incentive Offers, and Offers for Free
Products or Services to be Delivered in the Future," which addressed the income
statement classification of the value of the points redeemable for cash awarded
under point programs similar to the Company's Player's Club and Guaranteed
Refund programs. The consensus states the cost of these programs should be
reported as a contra-revenue, rather than an expense and is retroactive to
January 1, 2001, with prior year restatement required. The Company has adopted
the current consensus recommendations on Issue 00-22. Debate continues on a
number of other facets of Issue 00-22, which could have an impact on the
Company's financial statements. The Company historically reported the costs of
such points as an expense.
                                        34
<PAGE>

The Company reclassified these costs of $2.3 million, $.9 million and $.7
million for the fiscal years ended December 31, 2001, 2000 and December 26,
1999, respectively, as contra-revenues in the Consolidated Statements of
Operations.

     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):

<Table>
<Caption>
                                                                         FISCAL YEAR    FISCAL YEAR
                                                           YEAR ENDED       ENDED          ENDED
                                                          DECEMBER 31,   DECEMBER 31,   DECEMBER 26,
                                                              2001           2000           1999
                                                          ------------   ------------   ------------
<S>                                                       <C>            <C>            <C>
Food and Beverage.......................................     $4,140         $4,245         $4,075
Rooms...................................................      2,146          1,636          1,456
Other...................................................         53             48             85
                                                             ------         ------         ------
                                                             $6,339         $5,929         $5,616
                                                             ======         ======         ======
</Table>

CASH AND CASH EQUIVALENTS

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

MARKETABLE SECURITIES

     The Company's marketable securities represent investments in Moody's AA2
rated Portland, Oregon and Moody's and Standard and Poor's AAA rated New York
City bonds. These securities are currently reported at cost, which approximates
fair market value, and are considered available-for-sale.

INVESTMENTS RESTRICTED

     Investments-restricted consist primarily of funds pledged for Nevada sales
and use tax, unpaid sports book tickets and workers' compensation benefits.

INVENTORIES

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

PROPERTY AND EQUIPMENT

     Property and equipment purchased prior to September 27, 1998 are stated at
adjusted cost (see Note 2). Property and equipment purchased after September 27,
1998 are stated at cost. Capitalized lease assets are stated at the lower of the
present value of the future minimum lease payments or fair value at the
inception of the lease (see Notes 5 & 8). 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.

                                        35
<PAGE>

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

<Table>
<S>                                                            <C>
Buildings and improvements..................................   36-39 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 added to the asset
base and amortized over the related assets' estimated useful lives. The Company
recorded capitalized interest of $1,857,200 for 2001 and $457,781 during fiscal
year 2000. There was no capitalized interest during fiscal year 1999.

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

     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 estimates fair 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.

SALES, ADVERTISING AND PROMOTION

     Sales, advertising and promotion costs are expensed as incurred and totaled
$8,054,974, $6,419,864 and $6,438,065 for the twelve month periods ended
December 31, 2001, December 31, 2000 and December 26, 1999, respectively.

USE OF ESTIMATES

     The preparation of consolidated financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make a number of 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. Such estimates
and assumptions affect the reported amounts of revenues and expenses during the
reporting period. On an ongoing basis, management evaluates its estimates and
assumptions based upon historical experience and various other factors and
circumstances. Management believes its estimates and assumptions are reasonable
in the circumstances; however, actual results may differ from these estimates
under different future conditions.

EARNINGS PER SHARE

     The Company adopted Statement of Financial Accounting Standards No. 128
("SFAS 128") in 1997. Pursuant to the Restated Second Amended Plan 2,030,000 New
Common Stock shares were issued on the Effective Date. There were no potentially
dilutive securities as of December 31, 2001.

RECLASSIFICATIONS

     Certain reclassifications have been made to the prior years consolidated
financial statements to conform to the current fiscal year presentation.

FISCAL YEAR-END

     Beginning in year 2001, the Company adopted a calendar year reporting
period. Prior to 2001, the Company utilized a 52- or 53-week accounting period.
The Company's fiscal year was the 52- or 53-weeks ending on the last Sunday in
December. The fiscal year ended December 31, 2000 was a 53-week year. The change
in reporting period did not have a material effect on the presentation or
comparability of the financial statement amounts.

                                        36
<PAGE>

(2)  RESTRUCTURING

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

     As a result of the restructuring, the Company implemented the guidance
provided by the American Institute of Certified Public Accountants Statement of
Position 90-7 "Financial Reporting By Entities In Reorganization Under The
Bankruptcy Code" ("AICPA SOP 90-7") and as such, adopted "fresh start reporting"
as of September 27, 1998. The Company's emergence from its Chapter 11
proceedings resulted in a new reporting entity with no retained earnings or
accumulated deficit as of September 27, 1998.

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

(3)  ACCOUNTS RECEIVABLE

     Accounts receivable consists of the following as of December 31, 2001 and
2000 (in thousands):

<Table>
<Caption>
                                                               2001     2000
                                                              ------   ------
<S>                                                           <C>      <C>
Hotel and related...........................................  $1,734   $1,315
Gaming......................................................     419      346
Income taxes................................................     473      359
Other.......................................................   1,115      926
                                                              ------   ------
                                                               3,741    2,946
Less allowance for doubtful accounts........................    (325)    (354)
                                                              ------   ------
                                                              $3,416   $2,592
                                                              ======   ======
</Table>

     The Company recorded bad debt expense (recoveries) of ($28), $137 and
($240) for the fiscal years ended December 31, 2001, 2000 and December 26, 1999,
respectively.

                                        37
<PAGE>

(4)  OTHER CURRENT ASSETS

     Other current assets consist of the following as of December 31, 2001 and
2000 (in thousands):

<Table>
<Caption>
                                                               2001     2000
                                                              ------   ------
<S>                                                           <C>      <C>
Inventories.................................................  $1,749   $2,102
Prepaid expenses............................................   2,599    3,089
                                                              ------   ------
                                                              $4,348   $5,191
                                                              ======   ======
</Table>

(5)  PROPERTY AND EQUIPMENT -- NET

     Property and equipment consist of the following as of December 31, 2001 and
2000 (in thousands):

<Table>
<Caption>
                                                                2001       2000
                                                              --------   --------
<S>                                                           <C>        <C>
Land and improvements, including land held for
  development...............................................  $ 23,001   $ 21,510
Building and improvements...................................   153,551     83,412
Furniture, fixtures and equipment...........................    52,865     27,757
Construction in progress....................................       697     52,520
                                                              --------   --------
                                                               230,114    185,199
Less accumulated deprecation and amortization...............   (29,176)   (18,580)
                                                              --------   --------
                                                              $200,938   $166,619
                                                              ========   ========
</Table>

     Included in property and equipment at December 31, 2001 and 2000, are
assets recorded under capital leases of $17.2 million. Accumulated depreciation
and amortization at December 31, 2001 and December 31, 2000 includes amounts
recorded for capital leases of $11,554,195 and $4,480,032, respectively.

     In mid-1996, Stratosphere Corporation suspended construction of the
1,000-room hotel tower (the "Hotel Expansion"), which had reached a height of
approximately 14 stories. In April 2000, construction was resumed to complete
the unfinished hotel tower with a total construction budget of $65.0 million. In
June 2001 the Company completed construction of the new hotel tower that
includes 1,000 new guestrooms and amenities including a 67,000-square foot pool
and recreation area with a new snack and cocktail bar, private cabanas and a
large spa. "Lucky's Cafe" a 350-seat coffee shop, a new porte-cochere and valet
parking entrance, gift shop and new tour bus entrance and lobby have also been
completed. The Company refurbished and expanded the "Stratosphere Courtyard
Buffet" as well as remodeled "Montana's Steak House" and converted it into the
"Crazy Armadillo" featuring Tex-Mex cuisine and an oyster bar.

(6)  OTHER ACCRUED EXPENSES

     Other accrued expenses consist of the following as of December 31, 2001 and
2000 (in thousands):

<Table>
<Caption>
                                                               2001      2000
                                                              -------   -------
<S>                                                           <C>       <C>
Vacation packages...........................................  $ 2,714   $ 2,815
Accrued liabilities.........................................    4,234     3,203
Accrued restructuring costs.................................      536       825
Cash Reserve for unpaid bankruptcy claims...................    1,926     1,926
Accrued taxes...............................................      905       744
Accrued/unclaimed sports tickets/prizes.....................      390       605
Other.......................................................    2,773     2,626
                                                              -------   -------
                                                              $13,478   $12,744
                                                              =======   =======
</Table>

                                        38
<PAGE>

(7)  NOTES PAYABLE TO RELATED PARTY

     Long term debt consists of the following as of December 31, 2001 and 2000
(in thousands):

<Table>
<Caption>
                                                               2001      2000
                                                              -------   -------
<S>                                                           <C>       <C>
Construction loan note payable..............................  $72,408   $27,250
Lease purchase note payable.................................   12,396    12,500
                                                              -------   -------
                                                               84,804    39,750
Less current portion........................................   (4,276)     (713)
                                                              -------   -------
Long-term debt--less current portion........................  $80,528   $39,037
                                                              =======   =======
</Table>

     The future aggregate annual maturities of notes payable to related party at
December 31, 2001 are as follows (in thousands):

<Table>
<Caption>
YEARS ENDING DECEMBER 31,
-------------------------
<S>                                  <C>
          2002....................   $ 4,276
          2003....................    15,422
          2004....................    65,106
                                     -------
          Total...................   $84,804
                                     =======
</Table>

     On May 1, 2001, the Company delivered a $73.0 million promissory note for a
construction loan to American Real Estate Holdings ("AREH") in order to finance
the construction of the 1,000-room hotel tower, Lucky's Cafe and new pool area
(the "Hotel Expansion"). The promissory note is secured by a deed of trust on
certain real property. Demand notes bearing interest at 9.5% and totaling $48.0
million, as of April 18, 2001, were replaced by this note. Since May 1, 2001
AREH has provided additional advances of $25.0 million against the $73.0 million
note. In November 2001 the Company began making principal payments on the loan
in equal monthly installments based on a twenty (20) year amortization schedule
and continuing through and including June 2002 when the remaining balance shall
be due. Interest accrues at a variable rate per annum equal to the sum of (i)
three hundred (300) basis points plus (ii) the 90 day London Interbank Offered
Rate ("LIBOR"). This interest rate at December 31, 2001 was 6.51%. The Company
paid AREH one point or $730,000 on July 3, 2001 for this loan. A twenty-four
(24) month extension of the loan term may be obtained by the Company upon
payment of an additional $730,000. Management intends to pay the additional
$730,000 to obtain this twenty-four (24) month extension and AREH has committed
to providing the extension upon receipt of the extension fee.

     On May 1, 2001, the Company delivered a $12.5 million promissory note to
AREH to replace the $12.5 million demand note used to acquire the property under
the Master Lease from Strato-Retail, LLC. The promissory note is secured by a
deed of trust on certain real property. In November 2001 the Company began
making principal payments on the loan in equal installments based on a twenty
(20) year amortization schedule and continuing through and including July 8,
2002, when the remaining balance shall be due. Interest accrues at a variable
rate per annum equal to the sum of (i) three hundred fifty (350) basis points
plus (ii) the 90 day LIBOR. This interest rate at December 31, 2001 was 7.01%.
The Company paid AREH one point or $125,000 on May 4, 2001 for this loan. A
twelve (12) month extension of the loan term may be obtained by the Company upon
the payment at an additional $125,000. Management intends to pay the additional
$125,000 to obtain this twelve (12) month extension and AREH has committed to
providing the extension upon receipt of the extension fee.

                                        39
<PAGE>

(8)  LEASES, INCOME AND CAPITAL LEASE OBLIGATIONS

     In connection with the purchase of the Master Lease from Strato-Retail, the
Company assumed lessor responsibilities for various non-cancelable operating
leases for certain retail space. The future minimum lease income required under
these leases for years subsequent to December 31, 2001 is as follows (in
thousands):

<Table>
<Caption>
YEARS ENDING DECEMBER 31,
-------------------------
<S>                                   <C>
          2002.....................    $1,723
          2003.....................     1,650
          2004.....................     1,528
          2005.....................     1,415
          2006.....................       773
          Thereafter...............     1,246
                                       ------
                                       $8,335
                                       ======
</Table>

     Management is currently renegotiating the terms of various leases, which
will likely result in a reduction of the expected lease income stated above.

     The Company leases certain equipment under a non-cancelable capital lease
that is subject to expiration in fiscal year 2002. Future minimum lease
payments, excluding contingent rentals, due under the non-cancelable capital
lease for the year ending December 31, 2002, are $3,163,135, which includes
interest of $52,017 (based on a 4.66% rate), resulting in a capital lease
obligation of $3,111,118 at December 31, 2001.

     The Company had no operating leases as of December 31, 2001 and 2000. Rent
expense for operating leases was $593,847 for the fiscal year ended December 26,
1999.

(9)  SHAREHOLDERS' EQUITY

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

     On October 4, 1999, AREH repurchased 985,286 shares from entities owned or
controlled by Mr. Icahn. On March 24, 2000, AREH purchased 50,000 shares of the
Company's common stock from NYBOR. Upon completion of the transaction, Mr. Icahn
continues to control approximately 89.6% of the Company's Common Stock.

     On February 1, 2002, the Company announced that it entered into a merger
agreement under which AREP, through an affiliate, will acquire the remaining
shares of Stratosphere that AREP does not currently own. AREP currently owns
approximately 51% of Stratosphere and Mr. Icahn owns approximately 38.6%. The
initial determination to engage in the transaction at the prices set forth below
was previously announced by AREP in September 2000.

     Under the agreement the stockholders who are unaffiliated with Mr. Icahn
are to receive a cash price of $45.32 per share, and the Icahn related
stockholders (other than AREP) are to receive a cash price of $44.33 per share.
AREP is to pay an aggregate of approximately $44.3 million for the Stratosphere
shares. Mr. Icahn owns approximately 86% of the outstanding equity interests in
AREP.

     The Company has not implemented a stock option plan.

                                        40
<PAGE>

(10)  INCOME TAXES

     The income tax provision attributable to income from operations for the
fiscal years ended December 31, 2001, December 31, 2000 and December 26, 1999,
differed from the amounts computed by applying the federal income tax rate of
35% as a result of the following (in thousands):

<Table>
<Caption>
                                                                         FISCAL YEAR    FISCAL YEAR
                                                           YEAR ENDED       ENDED          ENDED
                                                          DECEMBER 31,   DECEMBER 31,   DECEMBER 26,
                                                              2001           2000           1999
                                                          ------------   ------------   ------------
<S>                                                       <C>            <C>            <C>
Current.................................................      $ --          $  358          $775
Deferred................................................       513           2,175            --
                                                              ----          ------          ----
                                                              $513          $2,533          $775
                                                              ====          ======          ====
</Table>

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 31, 2001 and 2000 (in thousands):

<Table>
<Caption>
                                                                 2001       2000
                                                               --------   --------
<S>                                                            <C>        <C>
TEMPORARY DIFFERENCES
Current:
  Allowance for doubtful accounts...........................   $    114   $    124
  Gaming related............................................        766        397
  Accrued vacation and employee related.....................        907        977
  Outstanding chip and token liability......................         (2)       (17)
  Deferred income...........................................         96       (836)
  Other.....................................................        640       (341)
                                                               --------   --------
                                                                  2,521        304
                                                               --------   --------
Long-term:
  Pre-opening costs.........................................         --        915
  Debt issuance costs.......................................         --        (10)
  Excess of tax over book basis of assets due primarily to
     write down of assets...................................     68,239     72,953
                                                               --------   --------
                                                                 68,239     73,858
                                                               --------   --------
Total Temporary Differences.................................     70,760     74,162
                                                               --------   --------
Carryforwards:
  Net Operating Loss (including Section 382 limitation).....      9,730      7,092
  Alternative minimum tax credit............................        450        306
  Other credits.............................................        431        304
                                                               --------   --------
Total Carryforwards.........................................     10,611      7,702
                                                               --------   --------
Total temporary differences and carryforwards...............     81,371     81,864
Valuation allowance.........................................    (81,371)   (81,864)
                                                               --------   --------
Total deferred tax assets (liabilities).....................   $     --   $     --
                                                               ========   ========
</Table>

     The Company recorded a valuation allowance at December 31, 2001 and 2000
relating to recorded net tax benefits because of the significant uncertainty as
to whether such benefits will ever be realized.

                                        41
<PAGE>

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

<Table>
<Caption>
                                                                         FISCAL YEAR    FISCAL YEAR
                                                           YEAR ENDED       ENDED          ENDED
                                                          DECEMBER 31,   DECEMBER 26,   DECEMBER 26,
                                                              2001           2000           1999
                                                          ------------   ------------   ------------
<S>                                                       <C>            <C>            <C>
Federal statutory rate..................................      35.0%          35.0%          35.0%
Permanent differences...................................       3.4%            .8%           2.0%
Decrease in federal income tax credits..................     (10.1)%         (2.2)%           --
Increase (decrease) in deferred tax asset valuation
  allowance.............................................      10.0%            .8%         (11.0)%
                                                             -----           ----          -----
                                                              38.3%          34.4%          26.0%
                                                             =====           ====          =====
</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.

     The net decrease in the valuation allowance was $493,000. This is comprised
of a $628,000 decrease credited directly to additional paid-in-capital in
accordance with SFAS 109 and the requirements for recording tax benefits
associated with emergence from bankruptcy, and an increase of $135,000
attributed to deferred tax expense relating to temporary differences originating
after emergence from bankruptcy.

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 31, 2001 and 2000, the Company had 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 commencing fiscal

                                        42
<PAGE>

year 1998 and for the five subsequent years. This limitation is applied to all
built-in losses which exist on the "change of ownership" date, including all
items giving rise to a deferred tax asset.

     For the years ended December 31, 2001 and 2000, a portion of the Company's
depreciation and other tax attributes in the amount of approximately $4.0
million that existed on the "change of ownership" date were limited under
Section 382. Pursuant to Section 382, the limited depreciation and other tax
attributes are treated as a net operating loss, which the Company may utilize in
subsequent years.

     The application of Section 382 also resulted in a reduction in the basis of
the Company's assets for purposes of the Alternative Minimum Tax ("AMT"). The
Company was not subject to AMT for the year ended December 31, 2001. However,
the Company was subject to AMT for the year ended December 31, 2000 of
approximately $.4 million. This AMT is expected to be carried forward as a
credit against any regular tax generated in future periods.

(11)  OTHER RELATED PARTY TRANSACTIONS

     Carl C. Icahn related entities own approximately 89.6% of the Company's
Common Stock as of December 31, 2001. On October 4, 1999, AREH repurchased
985,286 shares from entities owned or controlled by Mr. Icahn. On March 24,
2000, AREH purchased 50,000 shares of the Company's common stock from NYBOR.
Upon completion of the purchase, AREH owned 51% of the Company's Common Stock.
AREH is the subsidiary limited partnership of American Real Estate Partners,
L.P. ("AREP") a master limited partnership whose units are traded on the New
York Stock Exchange. Mr. Icahn currently owns approximately 86% of the
outstanding depository units of AREP.

     On February 1, 2002, the Company announced that it entered into a merger
agreement under which AREP, through an affiliate, will acquire the remaining
shares of Stratosphere that AREP does not currently own. AREP currently owns
approximately 51% of Stratosphere and Mr. Icahn owns approximately 38.6%. The
initial determination to engage in the transaction at the prices set forth below
was previously announced by AREP in September 2000.

     Under the agreement the stockholders who are unaffiliated with Mr. Icahn
are to receive a cash price of $45.32 per share, and the Icahn related
stockholders (other than AREP) are to receive a cash price of $44.33 per share.
AREP is to pay an aggregate of approximately $44.3 million for the Stratosphere
shares. Mr. Icahn owns approximately 86% of the outstanding equity interests in
AREP.

     Certain employees of the Company provide management and other
administrative services to the Arizona Charlie's, Inc. and Fresca, LLC d.b.a.
Arizona Charlie's East (entities indirectly owned 100% by Mr. Icahn). For the
twelve months ended December 31, 2001, the Company received $617,760 and
$719,937 from Arizona Charlie's, Inc. and Arizona Charlie's East, respectively,
for these same services. For the year ended December 31, 2000 and December 26,
1999, the Company received $240,000 and $236,000, respectively, from such
related parties for similar services provided in those years. Such fees are
reported net of the related expense.

     Pursuant to a wholesale tour and travel agreement with Lowestfare.com (a
company owned by Mr. Icahn), the Company received hotel revenues of $.6 million,
$.5 million and $.5 million for fiscal years ended December 31, 2001, December
31, 2000 and December 26, 1999, respectively.

(12)  EMPLOYEE BENEFIT PLAN

     Employees of the Company who are members of various unions are covered by
union-sponsored, collectively bargained, multi-employer health and welfare and
defined benefit pension plans. The Company recorded expenses for such plans of
$4,921,851; $4,622,104; and $4,293,974 for the twelve months ended December 31,
2001, December 31, 2000 and December 26, 1999, respectively. Sufficient
information is not available from the plans' sponsors to permit the Company to
determine the adequacy of the plans' funding status.

     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

                                        43
<PAGE>

prescribed limits, 50% of eligible employees' contributions up to 4% of their
individual earnings. The Company recorded charges for matching contributions of
$245,895; $195,387; and $191,114 for the twelve months ended December 31, 2001,
and fiscal years ended December 31, 2000 and December 26, 1999, respectively.

(13)  COMMITMENTS

     The Company and Mr. Richard Brown, Executive Vice President and Chief
Operating Officer of Stratosphere Gaming Corporation entered into a two-year
employment agreement effective March 20, 2000 (the "Brown Agreement"). The Brown
Agreement provides that Mr. Brown will serve as Executive Vice President of
Marketing for the Company and be paid a base annual compensation of $190,000.
The agreement also provides Mr. Brown receive a bonus of $20,000 for the first
year. Future annual bonuses can be 0% -- 100% of Mr. Brown's Base Salary as
determined by the Percentage Excess of EBITDA over EBITDA Base Rate, as defined.
The Brown Agreement further provides that if Mr. Brown is terminated without
"Cause" (as defined in the Brown Agreement) or there is a "Change of Control"
(as defined in the Brown Agreement), then Mr. Brown will receive an immediate
severance payment in the amount equal to the then current Base Salary. In 2001,
Mr. Brown's base annual compensation was increased to $217,000. In 2001, the
Company paid Mr. Brown a bonus of $95,000 for year 2000 operating results. The
Company has no bonus accrued for Mr. Brown as of December 31, 2001 for 2001
operating results.

(14)  CONTINGENCIES

     The Company's complaint for the avoidance of preferential transfers made to
McDonald's (the "Complaint") and the Company's objection to the proof of claim
filed by McDonald's Corporation came to trial June 24, 1999. On September 20,
1999, the Bankruptcy Court entered its Notice of Entry of Findings of Fact,
Conclusions of Law and Judgment Re Debtors' Complaint for Avoidance of
Preferential Transfer Pursuant to 11 U.S.C. sec. 547 and Order Re Objection To
McDonald's Proof of Claim ("Judgment"). The Judgment ordered that payments made
in January 1997, by the Company to McDonald's in the amount of $.7 million
("Judgment Amount"), were preferential payments pursuant to Section 547(b) of
the Bankruptcy Code and were thereby recoverable by the Company. Regarding the
Company's objection to the proof of claim filed by McDonald's, the Bankruptcy
Court held that McDonald's was not entitled to an administrative claim and that
it was not entitled to any claim for damages. On September 29, 1999, McDonald's
Corporation filed its notice of appeal to the Bankruptcy Appellate Panel for the
Ninth Circuit Court of Appeals and on November 6, 2000, the Bankruptcy Appellant
Panel issued its decision affirming the Bankruptcy Court's judgment. On or about
December 4, 2000, McDonald's Corporation filed its Notice of Appeal to the Ninth
Circuit Court of Appeals, where the matter was heard on November 7, 2001. On
November 29, 2001, the Court of Appeals affirmed the judgment. At December 31,
2001, the Judgment Amount was classified as an other receivable on the
Consolidated Balance Sheet. McDonald's paid Stratosphere approximately $753,000
on January 31, 2002 for the Judgment Amount including accrued interest.

     The Company has also filed a complaint for the avoidance of preferential
transfers made to Grand Casinos, Inc. ("Grand"). Included in the complaint are
approximately $5.9 million of payments made to Grand prior to the Company
beginning bankruptcy proceedings. The parties are conducting discovery and trial
has been set for May 2, 2002. At December 31, 2001, the Company classified
preferential transfers of $2.3 million as an other receivable on the
Consolidated Balance Sheet.

     On January 31, 2001, the Company was named in an action styled Disabled
Rights Action Committee v. Stratosphere Gaming Corp., Case No A430070, in the
Eighth Judicial District Court of the State of Nevada. The complaint alleges a
number of violations of the Americans with Disabilities Act ("ADA"), including
inadequate room selection, door widths and other similar items. Simultaneously
with the complaint, plaintiffs filed a Motion for Preliminary Injunction,
seeking to have construction halted on the new hotel tower until the property
fully complies with the ADA. The Company removed the action to the United States
District Court in Nevada, and it is now styled Disabled Rights Action Committee
v. Stratosphere Gaming Corp., Case No. CV-S-01-0162-RLH (PAL). The federal
district court held a hearing on plaintiffs' Motion for Preliminary Injunction
and denied the motion, focusing upon what the Court believed to be the
plaintiffs' lack of irreparable injury. The federal district court also granted
the Company's Motion to Dismiss the plaintiffs'
                                        44
<PAGE>

state law claims, leaving in place only the ADA claims. The Company and the
Plaintiffs then filed Motions for Summary Judgment. The District Court granted
and denied in part each of the parties' respective motions. The Court ordered
that the Company must make certain renovations to 532 rooms that were opened in
1996. The Court issued an injunction requiring that these renovations be
completed by August 9, 2002. The Company had already commenced these renovations
prior to the Court's Order and expects to meet the Court's deadline. The Company
believes the costs of these renovations will be approximately $450,000.

     On May 3, 2001, the Company was named in an action brought by Harrah's
Entertainment, Inc. and Harrah's Operating Company, Inc. (collectively
"Harrah's") alleging infringement of a purported patent covering a business
method allegedly developed by Harrah's. The use of an allegedly similar business
method by the Company in its advertising and promotions is said by plaintiff to
infringe upon its patent rights. In January 2002, the parties entered into a
sealed Consent Judgment resolving the dispute, which was the subject matter of
this action. In December 2001, the Company paid Harrah's the settlement for this
action.

     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.

(15)  QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

     Quarterly financial information for the fiscal years ended December 31,
2001 and December 31, 2000 is presented below. The sum of the individual
quarterly data may not equal the annual data due to rounding and fluctuations in
weighted average shares outstanding on a quarter-to-quarter basis.

<Table>
<Caption>
                                                  MARCH 31,   JUNE 30,   SEPTEMBER 31,   DECEMBER 31,
                                                    2001        2001         2001            2001
                                                  ---------   --------   -------------   ------------
<S>                                               <C>         <C>        <C>             <C>
Net revenues....................................   $32,853    $33,083    $      39,484     $36,553
Net income (loss)...............................     1,390        237               29        (831)
Basic and diluted income (loss) per common
  share.........................................   $  0.68    $  0.12    $        0.01     $ (0.41)
</Table>

<Table>
<Caption>
                                                  MARCH 26,   JUNE 25,   SEPTEMBER 24,   DECEMBER 31,
                                                    2000        2000         2000            2000
                                                  ---------   --------   -------------   ------------
<S>                                               <C>         <C>        <C>             <C>
Net revenues....................................   $33,897    $31,896       $31,360        $34,679
Net income......................................     1,617      1,166           678          1,366
Basic and diluted income per common share.......   $  0.80    $  0.57       $  0.33        $  0.67
</Table>

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

PREVIOUS INDEPENDENT ACCOUNTANTS

     On March 1, 2000, Stratosphere Corporation (the "Registrant") dismissed
Arthur Andersen LLP as its independent accountants effective May 31, 2000.
Arthur Andersen LLP will continue to provide accounting services to the
Registrant through May 31, 2000, including the report on the Registrant's
financial statements, for fiscal year ended December 26, 1999.

     The report of Arthur Andersen LLP on the financial statements for the
fiscal year ended December 27, 1998, contained no adverse opinion or disclaimer
of opinion and were not qualified or modified as to uncertainty, audit scope or
accounting principle. The report of Arthur Andersen LLP for the fiscal year
ended December 28, 1997, was modified as to the going concern uncertainty
related to the Registrant's filing for Chapter 11 bankruptcy protection on
January 27, 1997.

     The Registrant's Audit Committee and Board of Directors participated in and
approved the decision to change independent accountants.

     In connection with its audits for the two most recent fiscal years and
through March 1, 2000, there have been no disagreements with Arthur Andersen LLP
on any matter of accounting principles or practices,

                                        45
<PAGE>

financial statement disclosure, or auditing scope or procedure, which
disagreements if not resolved to the satisfaction of Arthur Andersen LLP would
have caused them to make reference thereto in their report on the financial
statements for such years.

     During the two most recent fiscal years and through March 1, 2000, there
were no reportable events (as defined in Regulation S-K Item 304(a)(1)(v)).

NEW INDEPENDENT ACCOUNTANTS

     The Registrant engaged KPMG LLP as its new independent accountants as of
March 1, 2000. During the two most recent fiscal years and through March 1,
2000, the Registrant has not consulted with KPMG LLP on items which (1) were or
should have been subject to SAS 50 or (2) concerned the subject matter of a
disagreement or reportable event with the former auditor (as described in
Regulation S-K Item 304(a)(2)).

                                        46
<PAGE>

                                    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.............................  66    Chairman of the Board
John P. Saldarelli........................  60    Director
Robert J. Mitchell........................  55    Director
Martin Hirsch.............................  47    Director
Judge Jerome M. Becker....................  66    Director
William F. Bischoff.......................  60    Senior Vice President, Chief Financial
                                                  Officer, Treasurer and Secretary
</Table>

     CARL C. ICAHN, has served as Chairman of the Board and a Director of
Starfire Holding Corporation ("Starfire", formerly Icahn Holding Corporation), a
privately-held holding company, and Chairman of the Board and a Director of
various subsidiaries of Starfire, including ACF Industries, Incorporated, a
privately-held railcar leasing and manufacturing company, since 1984. 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. Mr.
Icahn has been a Director of Cadus Pharmaceutical Corporation, a firm that holds
various biotechnology patents, since 1993. Since August 1998 he has also served
as Chairman of the Board of Lowestfare.com, LLC, an internet travel reservations
company. From October 1998, Mr. Icahn has been the President and a Director of
Stratosphere Corporation. Since September 29, 2000, Mr. Icahn has served as the
Chairman of the Board of GB Holdings, Inc., GB Property Funding, Inc. and Greate
Bay Hotel & Casino, Inc. which owns and operates the Sands Hotel in Atlantic
City, New Jersey.

     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, Incorporated, a privately-held railcar leasing and manufacturing
company, since March 1995 and was Treasurer of ACF from December 1994 to March
1995. Mr. Mitchell has also served as President and Treasurer of ACF Industries
Holding Corp., a privately-held holding company for ACF, since August 1993. Mr.
Mitchell is a Director of National Energy Group, Inc., a public company involved
in the exploration of oil and gas reserves, since August 1996. Mr. Mitchell also
serves as a Director of Stratosphere Corporation since October 14, 1998. Mr.
Mitchell received his BS Degree in Business Administration from St. Francis
College.

     MARTIN HIRSCH has served as a Vice President of American Property
Investors, Inc. ("API") since March 18, 1991, where he is involved in investing,
managing and disposing of real estate properties and securities. On March 23,
2000, Mr. Hirsch was elected to serve as Executive Vice President and Director
of Acquisitions of API. 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. In 1998, Mr. Hirsch was
appointed to the Board of Directors of National Energy Group, Inc., an
independent public energy company primarily engaged in the acquisition,
exploitation, development, exploration and production of oil and natural gas.
Mr. Hirsch has served as a Director of the Company since October 14, 1998.

     JUDGE JEROME M. BECKER serves as Chairman of the New York State Housing
Finance Agency, the New York State Affordable Housing Corporation, the New York
State Project Finance Agency and the New York State Municipal Bond Bank. Judge
Becker also serves as Vice-Chairman of the State of New York Mortgage

                                        47
<PAGE>

Agency. Judge Becker is a Director of the New York State Mortgage Loan
Enforcement and Administration Corporation, Director of the New York State
Housing Trust Fund Corporation and Member of the Homeless Housing Assistance
Corporation. He is also a Brigadier General in the New York Guard. Judge Becker
has formerly served as a Family Court Judge of the State of New York and as an
Acting Criminal Court Judge of the New York City Criminal Court. He also served
as Special District Attorney of Kings County (Brooklyn), Chairman of the New
York City Conditional Release Commission (Parole), Chairman of the New York City
Youth Board, Commissioner of the New York City Human Rights Commission and
Member of the New York City Board of Correction. Judge Becker is a member of the
New York State Bar having been admitted in 1962 and since has become a member of
the Washington DC, Colorado and Pennsylvania Bars. He is also admitted to
various federal courts including the United States Supreme Court. Judge Becker
has also practiced law privately having represented domestic and international
real estate interests. Judge Becker has served as a Director of the Company
since November 14, 1999.

     WILLIAM F. BISCHOFF has been Senior Vice President and Chief Financial
Officer since April 2000. Mr. Bischoff also served as Vice President and Chief
Financial Officer of Arizona Charlie's, Inc., an entity owned by Mr. Carl C.
Icahn, from March 1999 to April 2000. From August 1995 until March 1999, Mr.
Bischoff was the Controller of Golden Gate Hotel and Casino in Las Vegas,
Nevada. From May 1993 until August 1995, Mr. Bischoff worked as an Independent
Gaming Consultant and Certified Public Accountant. From July 1990 until May
1993, he served as Executive Vice President and Chief Financial Officer of
Western Acceptance Corporation, an insurance premium finance company in Las
Vegas, Nevada. Mr. Bischoff was employed with Caesars Palace in Las Vegas,
Nevada from October 1987 until July 1990 as Assistant Vice President of Casino
Administration.

OTHER MATTERS

     On January 5, 2001, Reliance Group Holdings, Inc. ("Reliance") commenced an
action in the United States District Court for the Southern District of New York
against Carl C. Icahn, Icahn associates Corp. and High River Limited Partnership
("High River") alleging that High River's tender offer for Reliance 9% senior
notes violated Section 14(e) of the Exchange Act of 1934. Reliance sought a
temporary restraining order and preliminary and permanent injunctive relief to
prevent defendants from purchasing the notes. The Court initially imposed a
temporary restraining order. Defendants then supplemented the tender offer
disclosures. The Court conducted a hearing on the disclosures and other matters
raised by Reliance. The Court then denied Reliance's motion for a preliminary
injunction and ordered dissolution of the temporary restraining order following
dissemination of the supplement. Reliance took an immediate appeal to the United
States Court of Appeals for the Second Circuit and sought a stay to restrain
defendants from purchasing notes during the pendency of the appeal. On January
30, 2001, the Court of Appeals denied plaintiffs' stay application. On January
30, 2001, Reliance also sought a further temporary restraining order from the
District Court. The Court considered the matter and reimposed its original
restraint until noon the next day, at which time the restraint against Mr. Icahn
and his affiliates was dissolved. On March 22, 2001, the Court of Appeals ruled
in favor of Mr. Icahn by affirming the judgment of the District Court.

                                        48
<PAGE>

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>
                                                                ANNUAL COMPENSATION
                                                              -----------------------
NAME AND PRINCIPAL POSITION                                   YEAR   SALARY    BONUS
---------------------------                                   ----   -------   ------
<S>                                                           <C>    <C>       <C>
DANIEL A. CASSELLA(a).......................................  2001        --       --
Chief Executive Officer                                       2000   196,520       --
                                                              1999   500,000       --
ANDREW BLUMEN(b)............................................  2001        --       --
General Counsel                                               2000        --       --
                                                              1999    67,920       --
THOMAS A. LETTERO(c)........................................  2001        --       --
Executive Vice President/Chief Financial                      2000   122,805       --
Officer, Treasurer and Secretary                              1999   302,553       --
THOMAS WILLER(d)............................................  2001        --       --
Vice President Marketing                                      2000   116,058       --
                                                              1999   180,000       --
WILLIAM F. BISCHOFF.........................................  2001   201,956       --
Senior Vice President/Chief Financial                         2000   142,907   18,700
Officer, Treasurer and Secretary                              1999        --       --
RICHARD P. BROWN............................................  2001   202,771       --
Chief Operating Officer                                       2000   151,220   95,000
                                                              1999        --       --
BOBBY RAY HARRIS............................................  2001   157,200       --
Senior Vice President of Operations                           2000   132,346   26,200
                                                              1999    99,486       --
SIEGFRIED G. PUMBERGER......................................  2001   134,957       --
Vice President of Food and Beverage                           2000    88,963   26,200
                                                              1999        --       --
MICHAEL G. TURNGREN(e)......................................  2001        --       --
Vice President of Casino Operations                           2000   120,630       --
                                                              1999   125,000       --
</Table>

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

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

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

(c) Effective March 7, 2000, Mr. Lettero resigned as an officer of the Company
    and its subsidiaries.

(d) Effective April 19, 2000, Mr. Willer resigned as Vice President of Marketing
    to the Company.

(e) Effective November 24, 2000, Mr. Turngren resigned as Vice President of
    Casino Operations to the Company.

                       OPTION GRANTS IN LAST FISCAL YEAR

     The Company has not implemented a stock option plan as of March 29, 2002.

EMPLOYMENT AGREEMENTS, SEPARATION AGREEMENT AND SEVERANCE AGREEMENTS

     The Company and Mr. Richard Brown, Executive Vice President and Chief
Operating Officer of Stratosphere Gaming Corporation entered into a two-year
employment agreement effective March 20, 2000 (the "Brown Agreement"). The Brown
Agreement provides that Mr. Brown will serve as Executive Vice

                                        49
<PAGE>

President of Marketing for the Company and be paid a base annual compensation of
$190,000. The agreement also provides Mr. Brown receive a bonus of $20,000 for
the first year. Future annual bonuses can be 0% -- 100% of Mr. Brown's Base
Salary as determined by the Percentage Excess of EBITDA over EBITDA Base Rate,
as defined. The Brown Agreement further provides that if Mr. Brown is terminated
without "Cause" (as defined in the Brown Agreement) or there is a "Change of
Control" (as defined in the Brown Agreement), then Mr. Brown will receive an
immediate severance payment in the amount equal to the then current Base Salary.
In 2001, Mr. Brown's base annual compensation was increased to $217,000. In
2001, the Company paid Mr. Brown a bonus of $95,000 for year 2000 operating
results. The Company has no bonus accrued for Mr. Brown as of December 31, 2001
for 2001 operating results.

DIRECTOR COMPENSATION

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

     On November 14, 1999, Judge Jerome M. Becker was elected as the sole
independent member to the Stratosphere Corporation Board of Directors. Judge
Becker was compensated $25,000 and $40,000 for his services during the twelve
months ended December 31, 2001 and December 31, 2000, respectively.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

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

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

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The following table sets forth as of December 31, 2001, certain information
regarding the beneficial ownership of shares of New Common Stock by each
director of the Company, each of the executive officers listed in the Summary
Compensation Table, each person known to the Company to be the beneficial owner
of more than 5% of the outstanding shares and all directors and executive
officers as a group. Except as otherwise indicated, each stockholder has sole
voting and investment power with respect to the shares beneficially owned.

<Table>
<Caption>
                                                              NUMBER OF
NAME                                                           SHARES       PERCENT
----                                                          ---------     -------
<S>                                                           <C>           <C>
Carl C. Icahn...............................................  1,818,600(a)   89.6
John P. Saldarelli..........................................         --        --
Robert J. Mitchell..........................................         --        --
Martin Hirsch...............................................         --        --
Jerome M. Becker............................................         --        --
William F. Bischoff.........................................         --        --
All directors and executive officers (as a group six
  persons)..................................................  1,818,600      89.6
</Table>

---------------
(a) Includes 1,035,280 shares held by American Real Estate Holdings Limited
    Partnership ("AREH") that were repurchased from entities owned or controlled
    by Carl C. Icahn. AREH is the subsidiary limited partnership of American
    Real Estate Partners, L.P. ("AREP") a master limited partnership whose units

                                        50
<PAGE>

are traded on the New York Stock Exchange. Mr. Icahn currently owns
approximately 86% of the outstanding depository units of AREP.

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

     Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission
(the "SEC") and the Nasdaq National Market System. Officers, directors and
greater than ten percent shareholders are required by SEC regulation to furnish
the Company with copies of all Section 16(a) forms they file. Based solely on
review of the copies of such forms furnished by the Company, or written
representations that no Forms 5 were required, the Company believes that during
the fiscal years ended December 31, 2001 and 2000 and December 26, 1999, all
Section 16(a) filing requirements applicable to its officers, directors and
greater than ten-percent beneficial owners were satisfied.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

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

     On January 1, 1999, the Company employed Albo Antenucci for construction
management services at a base annual salary of $75,000. Mr. Antenucci is the
Executive Vice President and Chief Operating Officer of American Property
Investors, Inc., the General Partner of both AREP and AREH. Mr. Antenucci
received approximately $72,000 of compensation for the fiscal year ended
December 26, 1999 and $47,885 of compensation in fiscal year 2000 through his
termination date of July 31, 2000.

     Certain employees of the Company provide management and other
administrative services to Arizona Charlie's, Inc. and Fresca, LLC d.b.a.
Arizona Charlie's East (entities indirectly owned 100% by Mr. Icahn). For the
twelve months ended December 31, 2001, the Company received $617,760 and
$719,937 from Arizona Charlie's, Inc. and Arizona Charlie's East, respectively,
for these same services. For the year ended December 31, 2000 and December 26,
1999, the Company received $240,000 and $236,000, respectively, from such
related parties for similar services provided in those years. Such fees are
reported net of the related expense.

     Pursuant to a wholesale tour and travel agreement with Lowestfare.com (a
company owned by Mr. Icahn), the Company received hotel revenues of $.6 million,
$.5 million and $.5 million for fiscal years ended December 31, 2001, December
31, 2000 and December 26, 1999, respectively.

                                        51
<PAGE>

                                    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>                                                            <C>
                 Report of Independent Auditors -- December 31, 2001 and
                 2000........................................................        27
                 Report of Independent Public Accountants -- December 26,
                 1999........................................................        28
                 Consolidated Balance Sheets at December 31, 2001 and 2000...        29
                 Consolidated Statements of Operations for the year ended
                 December 31, 2001 and fiscal years ended December 31, 2000
                 and December 26, 1999.......................................        30
                 Consolidated Statements of Shareholders Equity for the year
                 ended December 31, 2001 and fiscal years ended December 31,
                 2000 and December 26, 1999..................................        31
                 Consolidated Statements of Cash Flows for the year ended
                 December 31, 2001 and fiscal years ended December 31, 2000
                 and December 26, 1999.......................................        32
                 Notes to Consolidated Financial Statements..................        34
</Table>

     (a)(2)  Supplemental Financial Statement Schedules

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

     (a)(3)  Exhibits

<Table>
<Caption>
EXHIBIT          DESCRIPTION OF DOCUMENT
-------          -----------------------
<S>              <C>                                                           <C>
2(1)             Disclosure Statement to accompany the Company's Second Amended Plan of
                 Reorganization.(d)
2(2)             The Company's Restated Second Amended Plan of Reorganization, dated
                 February 26, 1998.(e)
3(1)             Certificate of Incorporation of the Company, as amended.(f)
3(2)             Bylaws of the Company, as amended and restated.(f)
3(3)             Articles of Incorporation of the Operating Subsidiary.(f)
3(4)             Bylaws of the Operating Subsidiary.(f)
10(1)            Owner Participation Agreement between the City of Las Vegas Downtown
                 Redevelopment Agency and the Company.(b)
10(2)            Development and Lease Agreement, dated March 11, 1996 by and between
                 Strato-Retail, LLC and the Company.(a)
10(3)            Participation Agreement, dated as of April 29, 1996 by and among
                 Stratosphere Gaming Corp., First Security Trust Company of Nevada, The
                 Persons Listed on Schedule II, Bank of Scotland, First Interstate Bank
                 of Nevada, Societe Generale, Credit Lyonnais, Los Angeles Branch, BA
                 Leasing & Capital Corporation and the Company.(b)
10(4)            Lease Agreement, dated as of April 29, 1996 by and between First
                 Security Trust Company of Nevada and Stratosphere Gaming Corp.(b)
10(5)            Loan Agreement, dated as of April 29, 1996 by and among First Security
                 Trust Company of Nevada, BA Leasing & Capital Corporation, Bank of
                 Scotland, First Interstate Bank of Nevada, Societe Generale, Credit
                 Lyonnais, Los Angeles Branch, and the Persons Listed on Schedule I.(b)
10(6)            Promissory Notes from the Borrower to the Various Lenders.(b)
10(7)            Trust Agreement, dated as of April 29, 1996 between Stratosphere Gaming
                 Corp., as Grantor, and First Security Trust Company of Nevada, as
                 Trustee.(b)
</Table>

                                        52
<PAGE>

<Table>
<Caption>
EXHIBIT          DESCRIPTION OF DOCUMENT
-------          -----------------------
<S>              <C>                                                           <C>
10(8)            Security Agreement and Assignment of Lease, dated as of April 29, 1996
                 between First Security Trust Company of Nevada and BA Leasing & Capital
                 Corporation.(b)
10(9)            Guaranty, dated as of April 29, 1996 by the Company in favor of the
                 Beneficiaries named therein.(b)
10(10)           Subordination Agreement, entered into as of April 29, 1996 by and among
                 Stratosphere Gaming Corp., the Company, Grand Casinos, Inc., First
                 Security Trust Company of Nevada, and BA Leasing & Capital
                 Corporation.(b)
10(11)           Standstill and Amendment Agreement, dated as of October 30, 1996 by and
                 among Stratosphere Gaming Corp., First Security Trust Company of
                 Nevada, Bank of Scotland, Wells Fargo Bank, National Association,
                 Societe Generale, Credit Lyonnais, Los Angeles Branch, BA Leasing &
                 Capital Corporation and the Company.(c)
10(12)           Senior Executive Retention Agreement, dated as of January 23, 1998 by
                 and between Thomas Lettero and the Company.(e)
10(13)           Senior Executive Retention Agreement, dated as of January 23, 1998 by
                 and between Andrew S. Blumen and the Company.(e)
10(14)           Executive Employment Agreement dated effective as of May 15, 1998 by
                 and between Thomas A. Lettero and Stratosphere Corporation and
                 Stratosphere Gaming Corporation.(f)
10(15)           Participation Agreement, dated as of May 28, 1999, among Stratosphere
                 Gaming Corp., as Lessee, Stratosphere Corporation, as Guarantor, First
                 Security Trust Company of Nevada, as Lessor and Trustee, The Persons
                 Listed on Schedule II, as Lenders and Heller Financial Leasing, Inc.,
                 as Agent.(g)
10(16)           Exhibit A to Participation Agreement Form of Lease Agreement, dated as
                 of May 28, 1999, between First Security Trust Company of Nevada, not in
                 its individual capacity, except as expressly stated herein, but solely
                 as Trustee, as Lessor, and Stratosphere Gaming Corp., as Lessee.(g)
10(17)           Exhibit B to Participation Agreement Form of Loan Agreement, dated as
                 of May 28, 1999, among First Security Trust Company of Nevada, not in
                 its individual capacity, except as expressly stated herein, but solely
                 as Trustee, as Borrower, Heller Financial Leasing, Inc., as Agent, and
                 The Persons Listed on Schedule I, as Lenders.(g)
10(18)           Exhibit C to Participation Agreement Form of Trust Agreement, dated as
                 of May 28, 1999, between Stratosphere Gaming Corp., as Grantor, and
                 First Security Trust Company of Nevada, as Trustee.(g)
10(19)           Exhibit D to Participation Agreement Form of Security Agreement and
                 Assignment of Lease, dated as of May 28, 1999, between First Security
                 Trust Company of Nevada, not in its individual capacity but solely as
                 Trustee, and Heller Financial Leasing, Inc. as Agent.(g)
10(20)           Exhibit E to Participation Agreement Form of Guaranty, dated as of May
                 28, 1999, of Stratosphere Corporation in favor of The Beneficiaries
                 Named Herein.(g)
10(21)           Exhibit G to Participation Agreement Landlord Waiver and Consent.(g)
10(22)           Exhibit H to Participation Agreement Form of Advance Request.(g)
10(23)           Exhibit I to Participation Agreement Form of Bill of Sale.(g)
10(24)           Exhibit J to Participation Agreement Form of Certificate of Acceptance
                 of Lessee.(g)
10(25)           Exhibit K to Participation Agreement Form of Investor's Letter.(g)
10(26)           Exhibit M to Participation Agreement Form of Opinion of Counsel to
                 Parent and Lessee.(g)
10(27)           Executive Employment Agreement dated effective as of March 20, 2000 by
                 and between Richard Brown and Stratosphere Corporation.(h)
10(28)           Sale of Tower Shops from Strato-Retail, LLC to Stratosphere Corporation
                 dated September 30, 2000.(i)
21               Subsidiaries.(f)
</Table>

                                        53
<PAGE>

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

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

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

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

(d)  Incorporated herein by reference to the Company's Quarterly Report on Form
     10-Q for the quarterly period ended September 30, 1997.

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

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

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

(h)  Incorporated herein by reference to the Company's Quarterly Report on Form
     10-Q for the quarterly period ended March 26, 2000.

(i)  Incorporated herein by reference to the Company's Form 8-K filed October
     12, 2000.

+     Relates to Executive Compensation.

     (b) Reports on Form 8-K.

     The Company filed no Reports on Form 8-K during the twelve months ended
December 31, 2001.

                                        54
<PAGE>

                                   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

<Table>
<S>                                           <C>

Date:  March 29, 2002                                         /s/ WILLIAM F. BISCHOFF
                                              By: ----------------------------------------------------
                                                             Name: William F. Bischoff
                                                          Title:  Chief Financial Officer
</Table>

     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 29, 2002.

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

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

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

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

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

           /s/ WILLIAM F. BISCHOFF               Chief Financial Officer, Treasurer and
---------------------------------------------    Secretary
             William F. Bischoff
</Table>

                                        55