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

                                   FORM 10-K/A
                                 AMENDMENT NO. 3
(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                       (I.R.S. Employer
    of incorporation or organization)                   Identification No.)

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

        Registrant's telephone number, including area code (702) 383-4719


          Securities registered pursuant to Section 12(b) of the Act:

<TABLE>
<CAPTION>
                                                               NAME OF EACH EXCHANGE ON
                 TITLE OF EACH CLASS                               WHICH REGISTERED
                 -------------------                           ------------------------
<S>                                                            <C>
       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").
<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 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.

                                        2
<PAGE>
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.

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.

                                        3
<PAGE>
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, Arizona Charlie's, Inc. ("Arizona Charlie's") and Fresca LLC
d.b.a. Arizona Charlie's East ("Fresca"), formed Stratosphere Development, LLC
("Development"), to provide development and construction management services for
construction related projects to the aforementioned properties. Development was
formed as a series Limited Liability Company under Delaware law with one or more
series of members and/or limited liability company interests having separate
rights, powers or duties with respect to specified property or obligations of
the limited liability company or profits and losses associated with specified
property or obligations. Development established three series of interests, each
of which has a single member. The Stratosphere Series, to which Stratosphere is
a member; the Arizona Charlie's Series, to which Arizona Charlie's is a member;
and the Fresca Series, to which Fresca is a member. Each member associated with
a series as it relates to such series has full, exclusive and complete
discretion to manage and control the business and affairs of Development as it
relates to such series, to make all decisions affecting the business and affairs
of Development as it relates to such series and to take all such actions as it
deems necessary, appropriate or convenient to or for the furtherance of purposes
of Development as it relates to such series. Each member associated with a
series is an agent of Development's business and the actions of the member taken
in such capacity and in accordance with the operating agreement shall bind
Development with respect to the series to which such member is associated.
Because of this structure, there is no voting provision in the operating
agreement. Each of the interests relate to specified assets, properties and
obligations of the limited liability company and only to such assets,
obligations and properties. The debts, liabilities and obligations incurred,
contracted for or otherwise existing with respect to a particular series shall
be enforceable against the assets of such series only, and not against the
assets of the limited liability company generally or any other series hereof.
However, no member shall not be individually liable under a judgment, decree or
order of a court, or any other manner, for a debt, obligation or liability of
the Company or of any Series except as provided by law or in an agreement signed
by such Member. Development's financial results that pertain to the Stratosphere
Interests are included in the accompanying consolidated financial statements.
The table below represents the combined financial statements of Stratosphere
Development as of December 31, 2001:

<TABLE>
<CAPTION>
                                      STRATOSPHERE         ARIZONA
                                      CORPORATION       CHARLIE'S, INC.        FRESCA LLC      COMBINED
                                      -----------       ---------------        ----------      --------
<S>                                   <C>               <C>                    <C>             <C>
BALANCE SHEET DATA
(In thousands)

ASSETS:
 Cash and cash equivalents               $263                $ 50                $185           $498
 Related party receivable                 -0-                 -0-                 366            366
                                      -----------       ---------------        ----------      --------
Total Assets                             $263                $ 50                $551           $864
                                      ===========       ===============        ==========      ========

LIABILITIES AND EQUITY:
 Accounts payable-construction           $-0-                $-0-                $501           $501
 Related party payable                     13                 -0-                 -0-             13
 Retained earnings                        250                  50                  50            350
                                      -----------       ---------------        ----------      --------
Total Liabilities and Equity             $263                $ 50                $551           $864
                                      ===========       ===============        ==========      ========

STATEMENT OF OPERATIONS DATA

REVENUES:
 Net revenues                            $161                $ 12                $ 50           $223
                                      -----------       ---------------        ----------      --------
 Net income (loss)                       $161                $ 12                $ 50           $223
                                      ===========       ===============        ==========      ========
</TABLE>


                                       4
<PAGE>
      The table below represents the combined financial statements of
Stratosphere Development as of December 31, 2000:

<TABLE>
<CAPTION>
                                         STRATOSPHERE         ARIZONA
                                         CORPORATION       CHARLIE'S, INC.      FRESCA LLC       COMBINED
                                         -----------       ---------------      ----------       --------
<S>                                      <C>               <C>                  <C>              <C>
BALANCE SHEET DATA
(In thousands)

ASSETS:
 Cash and cash equivalents                 $  696             $   25             $  -0-          $  721
 Related party receivable                   4,943                201                -0-           5,144
                                         -----------       ---------------      ----------       --------
Total Assets                               $5,639             $  226             $  -0-          $5,865
                                         ===========       ===============      ==========       ========

LIABILITIES AND EQUITY:
 Accounts payable-construction             $5,550             $  188             $  -0-          $5,738
 Related party payable                        -0-                -0-                -0-             -0-
 Retained earnings                             89                 38                -0-             127
                                         -----------       ---------------      ----------       --------
Total Liabilities and Equity               $5,639             $  226             $  -0-          $5,865
                                         ===========       ===============      ==========       ========

STATEMENT OF OPERATIONS DATA

REVENUES:
 Net revenues                              $   89             $   38             $  -0-          $  127
                                         -----------       ---------------      ----------       --------
 Net income (loss)                         $   89             $   38             $  -0-          $  127
                                         ===========       ===============      ==========       ========
</TABLE>

      The related party receivable and payable, net revenue and net income were
eliminated in combination with the Company.

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

MONORAIL

      In October and November 1999, the Clark County Board of County
Commissioners approved the overall Las Vegas Monorail project by action of
UC-1170-99 and DR-1438-99. The Board of County Commissioners approved the
proposed conceptual design of the monorail project and its associated facilities
(i.e. passenger terminals, power sub-stations, column and track location/design,
and the operations/maintenance/storage building). The approved Las Vegas
Monorail project will initially be a 3.9-mile dual-beam line between Tropicana
Avenue and Sahara Avenue, connecting seven stations to eight resorts, including
the Las Vegas Convention Center. Construction commenced on the Las Vegas
Monorail in September 2000 and is scheduled to conclude in March 2004. Changes
to the Las Vegas Monorail line may occur upon additional stations or other
factors. Las Vegas Monorail Company proposed an extension of the Las Vegas
Monorail to include stations at the Stratosphere and downtown Las Vegas and will
terminate at Cashman Center. However, the Las Vegas City Council has not
approved any application concerning said proposed extension. Moreover,
Stratosphere has presently withdrawn from said proposed extension pending
further negotiations with the Las Vegas Monorail Company. Thus, Stratosphere has
incurred no liability concerning the Las Vegas Monorail project.

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

                                       5
<PAGE>
      The casino/hotel industry is highly competitive. The Stratosphere competes
primarily with other Las Vegas Strip hotels and with a few major hotels in
downtown Las Vegas. 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
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. The
Paris Hotel and Casino also offers a freestanding Eiffel Tower replica with an
observation deck similar to that of the Company's Tower.

      The Stratosphere is located on the extreme north end of the Las Vegas
Strip in a City of Las Vegas Redevelopment Zone. The location is a constant
marketing challenge. The Company's market share of gaming revenues on the Las
Vegas Strip was 1.3% and 1.1% at December 31, 2001 and 2000, respectively. The
Company uses the Tower, other entertainment amenities and value pricing of its
hotel rooms, entertainment, and food and beverage products to entice
budget-minded, mid-market clientele to visit and stay at the Stratosphere. From
information gathered from the Nevada Gaming Abstract, the Company's market share
of Las Vegas Strip hotel revenues was .97% and 1.04% for fiscal years ended June
30, 2001 and 2000, respectively. Also from information obtained from the Nevada
Gaming Abstract, the Company has determined that its market share for Las Vegas
Strip food and beverage revenues was 1.84% and 1.88% for fiscal years ended June
30, 2001 and 2000, respectively. 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. The Tower competes with all other forms of
entertainment, recreational activities and other attractions in and near Las
Vegas. Future visitation to the Tower may be negatively impacted as visitors who
have previously visited the Stratosphere chose to experience other Las Vegas
casinos and hotels with greater name recognition, different attractions,
amenities and entertainment options. Management believes that its ability to
expand its target market is somewhat limited due to the lack of meeting,
convention and spa facilities.

      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.

                                       6
<PAGE>
      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.

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.

                                       7
<PAGE>
      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.

      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

                                       8
<PAGE>
purpose unless the voting securities were acquired and are held in the ordinary
course of business as an institutional investor and not for the purpose of
causing, directly or indirectly, the election of a majority of the members of
the Board of Directors of the Registered Corporation, any change in the
Registered Corporation's corporate charter, bylaws, management, policies or
operations, or any of its gaming affiliates, or any other action which the
Nevada Commission finds to be inconsistent with holding the Registered
Corporation's voting securities for investment purposes only. Activities which
are not deemed to be inconsistent with holding voting securities for investment
purposes only include: (i) voting on all matters voted on by stockholders; (ii)
making financial and other inquiries of management of the type normally made by
securities analysts for informational purposes and not to cause a change in its
management, policies or operations; and (iii) such other activities as the
Nevada Commission may determine to be consistent with such investment intent. If
the beneficial holder of voting securities who must be found suitable is a
corporation, partnership or trust, it must submit detailed business and
financial information including a list of beneficial owners. The applicant is
required to pay all costs of investigation.

      Any person who fails or refuses to apply for a finding of suitability or a
license within thirty days after being ordered to do so by the Nevada Commission
or the Chairman of the Nevada Board, may be found unsuitable. The same
restrictions apply to a record owner if the record owner, after request, fails
to identify the beneficial owner. Any stockholder found unsuitable and who
holds, directly or indirectly, any beneficial ownership of the voting securities
of the Company beyond such period of time as may be prescribed by the Nevada
Commission may be 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.

                                       9
<PAGE>
      The Nevada legislature has declared that some corporate acquisitions
opposed by management, repurchases of voting securities and corporate defense
tactics affecting Nevada corporate gaming licensees, and Registered Corporations
that are affiliated with those operations, may be injurious to stable and
productive corporate gaming. The Nevada Commission has established a regulatory
scheme to ameliorate the potentially adverse effects of these business practices
upon Nevada's gaming industry and to further Nevada's policy to: (i) assure the
financial stability of corporate gaming licensees and their affiliates; (ii)
preserve the beneficial aspects of conducting business in the corporate form;
and (iii) promote a neutral environment for the orderly governance of corporate
affairs. Approvals are, in certain circumstances, required from the Nevada
Commission before the Registered Corporation can make exceptional repurchases of
voting securities above the current market price thereof and before a corporate
acquisition opposed by management can be consummated. The Nevada Act also
requires prior approval of a plan of recapitalization proposed by the Registered
Corporation's Board of Directors in response to a tender offer made directly to
the Registered Corporation's stockholders for the purposes of acquiring control
of the Registered Corporation.

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

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

NEVADA LIQUOR REGULATIONS

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

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 assumes
the related party construction loan and lease purchase notes payable are granted
24 and 12 month extensions, respectively, as described below. The following
table reflects the Company's principal contractual cash obligations due over the
indicated periods and when they expire (in thousands):

                                       10
<PAGE>
<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 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 the real property occupied by Stratosphere. 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 the real property occupied by Stratosphere. 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 of 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

                                       11
<PAGE>
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).

      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 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.

                                       12
<PAGE>
ITEM 2. PROPERTIES

      The Stratosphere is located at 2000 Las Vegas Boulevard South on the Las
Vegas Strip. The Company currently owns approximately 31.2 acres of land on or
near the Las Vegas Strip. Approximately 20.7 acres of land is occupied by
Stratosphere and consists of a 97,000 square foot casino, a hotel with 2,444
rooms and suites, a 103,000 square foot retail center, a 650-seat showroom, a
3,600-seat outdoor events center, six theme restaurants, four bars and parking
for approximately 4,000 cars. Also included in the building complex is the
Stratosphere Tower (the "Tower"), the tallest freestanding observation tower in
the United States, standing at 1,149 feet above the Las Vegas Strip. The Tower
features dramatic views of the Las Vegas Strip, the "Big Shot" and "High Roller"
thrill rides, a revolving gourmet restaurant, a bar, conference and meeting
rooms and indoor and outdoor observation decks with two gift shops.
Approximately 10.5 acres of land are held as an investment for future use.

      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 the real property
occupied by Stratosphere. 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
of 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.

                                       13
<PAGE>
      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. Section 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' 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.

                                       14
<PAGE>
      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

                                       15
<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. The following table sets forth, for the
calendar quarters indicated, the high and low sale prices of the New Common
Stock on the Over the Counter Bulletin Board.

<TABLE>
<CAPTION>
                                   2001                       2000
                            High            Low        High            Low
                            ----            ---        ----            ---
<S>                       <C>             <C>            <C>            <C>
First quarter             44              40             47             21
Second quarter            43 1/2          40             47             21
Third quarter             44              36             43             31
Fourth quarter            45 3/32         33 17/64       43             39 1/2
</TABLE>



      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.

                                       16
<PAGE>
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.



<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,
Statement of Operations Data                 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>

*     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.




<TABLE>
<CAPTION>
                                                 Successor Company                              Predecessor Company
                                  -------------------------------------------------------------------------------------------
                                  December 31,    December 31,   December 26,    December 27,   September 27,    December 28,
Balance Sheet Data                  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 obligations            3,111           5,778           8,445           8,979          11,150               -(b)
  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.

                                       17
<PAGE>
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 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 the 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

                                       18
<PAGE>
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 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

                                       19
<PAGE>
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).

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
                                                  ---------           ---------           ---------
<S>                                               <C>                 <C>                 <C>
(In thousands)
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

                                       20
<PAGE>
      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 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. The Company's market share of gaming revenues on the Las Vegas Strip
was 1.3% and 1.1% at December 31, 2001 and 2000, respectively.

      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 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.

                                       21
<PAGE>
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 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

                                       22
<PAGE>
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
September 2001, the Las Vegas Planning Commission voted to not recommend
Stratosphere's plans for a new thrill ride, citing concerns for architectural
aesthetics and neighborhood opposition to the project. In November 2001, the
Company withdrew its application for the new thrill ride before it came to a
vote with the Las Vegas City Council. As a result, in December 2001, the Company
wrote-off $.5 million in expenses related to the development of the new thrill
ride. Such expenses consisted primarily of legal fees and engineering design
fees for the new thrill ride. The Company is currently reconfiguring the new
thrill ride plans to address architectural issues and neighborhood concerns. The
Company plans to resubmit the revised plans before the Las Vegas Planning
Commission in May 2002. Management is unable to predict if the Las Vegas
Planning Commission will recommend the revised thrill ride plans.
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.

      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.

                                       23
<PAGE>
      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 following table
assumes the related party construction loan and lease purchase notes payable are
granted 24 and 12 month extensions, respectively, as described below. The
following table reflects the Company's principal contractual cash obligations
due over the indicated periods and when they expire (in thousands):

                                       24
<PAGE>
<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 the real property occupied
by Stratosphere. 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 the real property occupied by Stratosphere. 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 of 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.


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

                                       25
<PAGE>
      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.

ITEM 8. FINANCIAL STATEMENTS


                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


<TABLE>
<S>                                                                                                                  <C>
            Report of Independent Auditors - December 31, 2001 and 2000.........................................     28

            Report of Independent Public Accountants - December 26, 1999........................................     29

            Consolidated Balance Sheets at December 31, 2001 and 2000...........................................     30
</TABLE>

                                       26
<PAGE>
<TABLE>
<S>                                                                                                                  <C>
            Consolidated Statements of Operations for the year ended December 31, 2001 and fiscal years
            ended December 31, 2000 and December 26, 1999........................................................    31

            Consolidated Statements of Shareholders' Equity for the year ended December 31, 2001 and
            fiscal years ended December 31, 2000 and December 26, 1999...........................................    32

            Consolidated Statements of Cash Flows for the year ended December 31, 2001 and fiscal years
            ended December 31, 2000 and December 26, 1999.........................................................   33

            Notes to Consolidated Financial Statements............................................................   34
</TABLE>

                                       27
<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

                                       28
<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 ANDERSEN LLP


Las Vegas, Nevada
February 11, 2000

                                       29
<PAGE>
                   STRATOSPHERE CORPORATION AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS
                           DECEMBER 31, 2001 AND 2000



<TABLE>
<CAPTION>
(In thousands, except share data)                                                   2001         2000
-------------------------------------------                                       --------    --------
<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.

                                       30
<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>
                                                                                        FISCAL YEAR            FISCAL YEAR
                                                                 YEAR ENDED                ENDED                 ENDED
                                                                 DECEMBER 31,           DECEMBER 31,           DECEMBER 26,
(In thousands, except per share data)                              2001                     2000                    1999
-------------------------------------                            ---------               ---------               ---------
<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>



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

                 See notes to consolidated financial statements.

                                       31
<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'
(In thousands)                                                     Stock         Capital          Deficit)         Equity
-----------------------------------------                        --------        --------        --------         --------
<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.

                                       32
<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



CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS


<TABLE>
<CAPTION>
                                                                                                     FISCAL YEAR       FISCAL YEAR
                                                                                     YEAR ENDED         ENDED             ENDED
                                                                                    DECEMBER 31,     DECEMBER 31,      DECEMBER 26,
(In thousands)                                                                          2001             2000              1999
---------------------------------------------------------                            --------         --------         --------
<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
                                                                                     ========         ========         ========

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 and 2000
Las Vegas Boulevard Retail Corporation. 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.

      In June 2000, the Company and two entities owned and controlled by Mr.
Carl C. Icahn, Arizona Charlie's, Inc. ("Arizona Charlie's") and Fresca LLC
d.b.a. Arizona Charlie's East ("Fresca"), formed 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 with three series of members
interests having separate rights, powers or duties with respect to specified
property or obligations of the limited liability company or profits and losses
associated with specified property or obligations. Each of the interests relate
to specified assets, properties and obligations of the limited liability company
and only to such assets, obligations and properties. Development's financial
results that pertain to the Stratosphere Interests are included in the
accompanying consolidated financial statements.

      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


                                       34
<PAGE>
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 historically reported the costs of such points as an expense. 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        FISCAL
                             YEAR ENDED    YEAR ENDED    YEAR 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.

      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>


                                       35
<PAGE>
      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 the 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.

(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


                                       36
<PAGE>
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.

(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>


                                       37
<PAGE>
(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>

(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>


                                       38
<PAGE>
      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.

(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.


                                       39
<PAGE>
      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. 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.

      The Company has not implemented a stock option plan.

(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           FISCAL
                YEAR ENDED      YEAR ENDED       YEAR 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>


                                       40
<PAGE>
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>
Temporary Differences                               2001          2000
                                                  --------      --------
<S>                                               <C>           <C>
 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.

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

<TABLE>
<CAPTION>
                                                                FISCAL          FISCAL
                                                YEAR ENDED     YEAR ENDED      YEAR 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,


                                       41
<PAGE>
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 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.


                                       42
<PAGE>
      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 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. Section 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


                                       43
<PAGE>
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' 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.


                                       44

<PAGE>
(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    DECEMBER
                                   2001         2001      31, 2001    31, 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    DECEMBER
                                  2000         2000       24, 2000    31, 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, 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)).


                                       45
<PAGE>
                                    PART III

ITEM 10.  DIRECTORS, EXECUTIVE OFFICERS AND SIGNIFICANT EMPLOYEES OF THE
REGISTRANT

   The following table sets forth the executive officers, directors and
significant employees 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
Richard P. Brown          54     Chief Operating Officer (significant employee)
Bobby Ray Harris          43     Senior Vice President of Operations (significant employee)
Siegfried G. Pumberger    60     Vice President of Food and Beverage (significant employee)
</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. Since 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.


                                       46
<PAGE>
   JUDGE JEROME M. BECKER serves as Chairman of the New York State Housing
Finance Agency, the New York State Affordable Housing Corporation, the New York
State Project Finance Agency and the New York State Municipal Bond Bank. Judge
Becker also serves as Vice-Chairman of the State of New York Mortgage Agency.
Judge Becker is a Director of the New York State Mortgage Loan Enforcement and
Administration Corporation, Director of the New York State Housing Trust Fund
Corporation and Member of the Homeless 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.

   RICHARD P. BROWN is a significant employee who has served as Chief Operating
Officer since January 2001. In this capacity, Mr. Brown will oversee the
strategic planning, daily operations and expansions for the Stratosphere,
Arizona Charlie's, Inc. and Fresca LLC d.b.a. Arizona Charlie's East. Mr. Brown
served as Executive Vice President of Marketing for the Stratosphere and Arizona
Charlie's, Inc. and Fresca LLC d.b.a. Arizona Charlie's East from March 2000
through January 2001. From 1994 until joining the Company in March 2000, Mr.
Brown served as Marketing Director for Harrah's Hotel and Casino-Laughlin. Prior
to that, from 1992-1993 Mr. Brown served as Marketing Director for the Flamingo
Hilton-Laughlin.

   BOBBY RAY HARRIS is a significant employee who has served as Senior Vice
President of Operations since April 2000. Mr. Harris joined the Stratosphere in
October 1995 as the Director of Marketing Services. He was subsequently promoted
to Director of Hotel Operations in August 1996 and then to Vice President of
Hotel and Tower Operations in February 1999. From 1993 until joining the
Stratosphere in October 1995, Mr. Harris served as Director of
Reservations/Ticketing/Environmental Services with the MGM Grand Hotel and
Casino in Las Vegas, Nevada. From 1991 until 1993, Mr. Harris served as Room
Reservations Manager at the Desert Inn in Las Vegas, Nevada.

   SIEGFRIED G. PUMBERGER is a significant employee who has served as Vice
President of Food and Beverage since April 2000. Mr. Pumberger served as
Corporate Vice President of Food and Beverage of Ameristar Casino's, Inc. in Las
Vegas, Nevada from February 1999 to December 1999. From September 1993 to
February 1999, Mr. Pumberger was the Vice President of Food and Beverage of
Grand Casino Biloxi, in Biloxi, Mississippi. Mr. Pumberger served in the
capacity of Director of Food and Beverage at Splendid China in Kissimmee,
Florida from June 1993 to September 1993; Main Street Station Hotel & Casino in
Las Vegas, Nevada from July 1991 to June 1992; Fairmont Hotel in San Francisco,
California from June 1990 to July 1991 and La Costa Resort & Spa in Carlsbad,
California from January 1988 to May 1990.

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


                                       47
<PAGE>
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.

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 and significant employees of the Company.

                           SUMMARY COMPENSATION TABLE


<TABLE>
<CAPTION>
                                                                        ANNUAL COMPENSATION

NAME AND PRINCIPAL POSITION                                YEAR               SALARY               BONUS
---------------------------                                ----               ------               -----
<S>                                                        <C>               <C>                  <C>
Carl C. Icahn                                              2001                    --                 --
  President                                                2000                    --                 --
                                                           1999                    --                 --

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 (significant employee)                    2001               202,771                 --
  Chief Operating Officer                                  2000               151,220             95,000
                                                           1999                    --                 --

Bobby Ray Harris (significant employee)                    2001               157,200                 --
  Senior Vice President of Operations                      2000               132,346             26,200
                                                           1999                99,486                 --

Siegfried G. Pumberger (significant employee)              2001               134,957                 --
  Vice President of Food and Beverage                      2000                88,963             26,200
                                                           1999                    --                 --

Michael G. Turngren (e) (significant employee)             2001                    --                 --
  Vice President of Casino Operations                      2000               120,630                 --
                                                           1999               125,000                 --
</TABLE>


                                       48
<PAGE>
(a)  Effective January 18, 2000, Mr. Cassella resigned as an officer and
     director to the Company. Mr. Carl C. Icahn has served in the capacity of
     President since October 1998 without compensation.

(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 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, as
determined by the Board of Directors. There are no agreements or understandings
in place with respect to his future compensation, if any.

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


                                       49
<PAGE>
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 are traded on the New York Stock Exchange. Mr. Icahn currently
     owns approximately 86% of the outstanding depository units of AREP. Also
     includes 783,320 shares held by Nybor, L.P. a limited partnership owned by
     Starfire Holding Corporation and Barberry Corporation, entities 100% owned
     and controlled by Carl C. Icahn.

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.


                                       50
<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>
          Report of Independent Auditors - December 31, 2001 and 2000 ........................................       28

          Report of Independent Public Accountants - December 26, 1999 .......................................       29

          Consolidated Balance Sheets at December 31, 2001 and 2000 ..........................................       30

          Consolidated Statements of Operations for the year ended December 31, 2001 and fiscal years ended
          December 31, 2000 and December 26, 1999 ............................................................       31

          Consolidated Statements of Shareholders Equity for the year ended December 31, 2001 and fiscal years
          ended December 31, 2000 and December 26, 1999 ......................................................       32

          Consolidated Statements of Cash Flows for the year ended December 31, 2001 and fiscal years ended
          December 31, 2000 and December 26, 1999 ............................................................       33

          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>
2(1)       Disclosure Statement to accompany the Company's Second Amended Plan of Reorganization.(d)

2(2)       The Company's Restated Second Amended Plan of Reorganization, dated February 26, 1998.(e)

3(1)       Certificate of Incorporation of the Company, as amended.(f)

3(2)       Bylaws of the Company, as amended and restated.(f)

3(3)       Articles of Incorporation of the Operating Subsidiary.(f)

3(4)       Bylaws of the Operating Subsidiary.(f)

10(1)      Owner Participation Agreement between the City of Las Vegas Downtown Redevelopment Agency and the Company.(b)

10(2)      Development and Lease Agreement, dated March 11, 1996 by and between Strato-Retail, LLC and the Company.(a)

10(3)      Participation Agreement, dated as of April 29, 1996 by and among Stratosphere Gaming Corp., First Security Trust
           Company of Nevada, The Persons Listed on Schedule II, Bank of Scotland, First Interstate Bank of Nevada, Societe
           Generale, Credit Lyonnais, Los Angeles Branch, BA Leasing & Capital Corporation and the Company.(b)

10(4)      Lease Agreement, dated as of April 29, 1996 by and between First Security Trust Company of Nevada and Stratosphere
           Gaming Corp.(b)
</TABLE>


                                       51
<PAGE>
<TABLE>
<S>        <C>
10(5)      Loan Agreement, dated as of April 29, 1996 by and among First Security Trust Company of Nevada, BA Leasing & Capital
           Corporation, Bank of Scotland, First Interstate Bank of Nevada, Societe Generale, Credit Lyonnais, Los Angeles Branch,
           and the Persons Listed on Schedule I.(b)
</TABLE>

<TABLE>
<CAPTION>
EXHIBIT    DESCRIPTION OF DOCUMENT
-------    -----------------------
<S>        <C>
10(6)      Promissory Notes from the Borrower to the Various Lenders.(b)

10(7)      Trust Agreement, dated as of April 29, 1996 between Stratosphere Gaming Corp., as Grantor, and First Security Trust
           Company of Nevada, as Trustee.(b)

10(8)      Security Agreement and Assignment of Lease, dated as of April 29, 1996 between First Security Trust Company of Nevada
           and BA Leasing & Capital Corporation.(b)

10(9)      Guaranty, dated as of April 29, 1996 by the Company in favor of the Beneficiaries named therein.(b)

10(10)     Subordination Agreement, entered into as of April 29, 1996 by and among Stratosphere Gaming Corp., the Company, Grand
           Casinos, Inc., First Security Trust Company of Nevada, and BA Leasing & Capital Corporation.(b)

10(11)     Standstill and Amendment Agreement, dated as of October 30, 1996 by and among Stratosphere Gaming Corp., First Security
           Trust Company of Nevada, Bank of Scotland, Wells Fargo Bank, National Association, Societe Generale, Credit Lyonnais,
           Los Angeles Branch, BA Leasing & Capital Corporation and the Company.(c)

10(12)     Senior Executive Retention Agreement, dated as of January 23, 1998 by and between Thomas Lettero and the Company.(e)

10(13)     Senior Executive Retention Agreement, dated as of January 23, 1998 by and between Andrew S. Blumen and the Company.(e)

10(14)     Executive Employment Agreement dated effective as of May 15, 1998 by and between Thomas A. Lettero and Stratosphere
           Corporation and Stratosphere Gaming Corporation.(f)

10(15)     Participation Agreement, dated as of May 28, 1999, among Stratosphere Gaming Corp., as Lessee, Stratosphere
           Corporation, as Guarantor, First Security Trust Company of Nevada, as Lessor and Trustee, The Persons Listed on
           Schedule II, as Lenders and Heller Financial Leasing, Inc., as Agent.(g)

10(16)     Exhibit A to Participation Agreement Form of Lease Agreement, dated as of May 28, 1999, between First Security Trust
           Company of Nevada, not in its individual capacity, except as expressly stated herein, but solely as Trustee, as Lessor,
           and Stratosphere Gaming Corp., as Lessee.(g)

10(17)     Exhibit B to Participation Agreement Form of Loan Agreement, dated as of May 28, 1999, among First Security Trust
           Company of Nevada, not in its individual capacity, except as expressly stated herein, but solely as Trustee, as
           Borrower, Heller Financial Leasing, Inc., as Agent, and The Persons Listed on Schedule I, as Lenders.(g)

10(18)     Exhibit C to Participation Agreement Form of Trust Agreement, dated as of May 28, 1999, between Stratosphere Gaming
           Corp., as Grantor, and First Security Trust Company of Nevada, as Trustee.(g)

10(19)     Exhibit D to Participation Agreement Form of Security Agreement and Assignment of Lease, dated as of May 28, 1999,
           between First Security Trust Company of Nevada, not in its individual capacity but solely as Trustee, and Heller
           Financial Leasing, Inc. as Agent.(g)

10(20)     Exhibit E to Participation Agreement Form of Guaranty, dated as of May 28, 1999, of Stratosphere Corporation in favor
           of The Beneficiaries Named Herein.(g)

10(21)     Exhibit G to Participation Agreement Landlord Waiver and Consent.(g)

10(22)     Exhibit H to Participation Agreement Form of Advance Request.(g)

10(23)     Exhibit I to Participation Agreement Form of Bill of Sale.(g)

10(24)     Exhibit J to Participation Agreement Form of Certificate of Acceptance of Lessee.(g)

10(25)     Exhibit K to Participation Agreement Form of Investor's Letter.(g)

10(26)     Exhibit M to Participation Agreement Form of Opinion of Counsel to Parent and Lessee.(g)
</TABLE>


                                       52
<PAGE>
<TABLE>
<S>        <C>
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)

10(29)     Operating Agreement of Stratosphere Development, LLC.

21         Subsidiaries.(f)

99.1       CEO Certification pursuant to 18 U.S.C. as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

99.2       CFO Certification pursuant to 18 U.S.C. as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
</TABLE>

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

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

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

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

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


                                       53
<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

Date:   October 9, 2002                By:       /s/ Richard Brown
                                       -----------------------------------------
                                       Name:   Richard Brown
                                               ---------------------------------
                                       Title:  President
                                               ---------------------------------

                                       By:       /s/ Denise Barton
                                       -----------------------------------------
                                       Name:   Denise Barton
                                               ---------------------------------
                                       Title:  Chief Financial Officer
                                               ---------------------------------


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

<TABLE>
<CAPTION>
                     Name                                             Title
                     ----                                             -----

<S>                                                           <C>
/c/ 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/ Denise Barton                                             Chief Financial Officer, Treasurer and Secretary
--------------------------------------------
Denise Barton
</TABLE>


                                       54
<PAGE>
                                 CERTIFICATIONS

I, Richard Brown, certify that:

1. I have reviewed this annual report of Stratosphere Corporation;


2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary in order
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
annual report;


3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report.


Dated: October 9, 2002




/s/ Richard Brown
--------------------------------
Richard Brown
Chief Executive Officer


I, Denise Barton, certify that:

1. I have reviewed this annual report of Stratosphere Corporation;


2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary in order
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
annual report;


3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report.


Dated: October 9, 2002




/s/ Denise Barton
--------------------------------
Denise Barton
Chief Financial Officer


                                       55