UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549  

FORM 10-Q 

For the quarterly period ended March 31, 2010

or

For the transition period from              to             

Commission File Number 000-50635  

COLONY RESORTS LVH ACQUISITIONS, LLC

(Exact Name of Registrant as Specified in its Charter)  

702-732-5111

(Registrant’s Telephone Number, Including Area Code)  

Indicate by check mark whether the Registrant (1) has filed all reports required 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 whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes ¨    No  ¨

Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ¨ Yes x No

As of May 8, 2009 there were 1.5 Class A Membership Units outstanding and there were 1,500,000 Class B Membership Units outstanding.

___________

*Condensed from audited financial statements.

See notes to the unaudited condensed financial statements.

- 1 -

See notes to the unaudited condensed financial statements.

- 2 -

See notes to the unaudited condensed financial statements.

- 3 -

1.  ORGANIZATION AND BASIS OF PRESENTATION

Colony Resorts LVH Acquisitions, LLC, a Nevada limited liability company (the “Company”), was formed under the laws of the State of Nevada on December 18, 2003.  The Company owns and operates the Las Vegas Hilton, a casino resort located in Las Vegas, Nevada (the “Hotel”).  The Company licenses from HLT Existing Franchise Holding LLC (“Hilton”) the right to use the name “Hilton” and to participate in Hilton’s reservation system and Hilton’s HHonors Programs™.

The Company’s members consist of  (1) Colony Resorts LVH Holdings, LLC (“Holdings”), which is a wholly owned subsidiary of Colony Investors VI, L.P. (“Colony VI”), a discrete investment fund managed by an affiliate of Colony Capital LLC, (2) Colony Resorts LVH Co-Investment Partners, L.P. (“Co-Investment Partners”), (3) Colony Resorts LVH Coinvestment Voteco, LLC (“Coinvestment Voteco”) and (4) Colony Resorts LVH Voteco, LLC (“Voteco”), each of which purchased Class A or Class B Membership Units on June 18, 2004 in connection with the equity financing described in Note 5, (5) WH/LVH Managers Voteco, LLC (“Whitehall Voteco”) which acquired certain Class A Membership Units from Co-Investment Voteco on July 19, 2006 and (6) Nicholas L. Ribis (“Mr. Ribis”) who acquired certain Class A and Class B Membership Units from Voteco and Holdings, respectively, on November 21, 2006.

Prior to June 18, 2004, the Company had conducted no business other than in connection with the execution of the Purchase and Sale Agreement, relating to the acquisition of substantially all of the assets and certain liabilities of LVH Corporation, a Nevada corporation (“LVH”) (the “Acquisition”). LVH was a wholly owned subsidiary of Caesars Entertainment, Inc., formerly Park Place Entertainment Corporation (“Caesars”) that prior to the Acquisition operated the Hotel. Commencing June 18, 2004, the operations, assets and liabilities of the Hotel are included in the Company’s financial statements.

Interim Financial Statements

The accompanying condensed financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations. The Company believes that the disclosures are adequate to make the information presented not misleading. In the opinion of management, all adjustments (which include normal recurring adjustments) necessary for the fair presentation of the financial position, results of operations and cash flows for the interim periods have been made. The results for the three-months ended March 31, 2010, are not necessarily indicative of results to be expected for the full fiscal year.

These financial statements should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 2009, included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009.

Use of Estimates

The preparation of the unaudited condensed financial statements in accordance with accounting principles generally accepted in the United States of America requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses; including related disclosure of contingent assets and liabilities. On an on-going basis, management evaluates those estimates, including those related to asset impairments, accruals for slot and table game marketing points, compensation and related benefits, revenue recognition, allowance for doubtful accounts, and contingencies and litigation. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

Reclassification

Certain reclassifications have been made to the 2010 and 2009 financial statements due to clarification on the presentation of certain gaming related expenses.  These reclassifications had no effect on net income or loss or on working capital or members’ equity.

- 4 -

Recent Accounting Pronouncements

In the third quarter of 2009, the Company adopted the Accounting Standards Codification (“ASC”).  The ASC is the single official source of authoritative, nongovernmental GAAP, other than guidance issued by the SEC.  The adoption of the ASC did not have a material impact on the financial Statements included herein.

In June 2009, Topic 810 was expanded.  Among other items, the related sections of Topic 810 respond to concerns about the application of certain key provisions of FIN 46(R), including those regarding the transparency of the involvement with variable interest entities.  The related sections of Topic 810 are effective for calendar year companies beginning on January 1, 2010.  The related sections did not have a significant impact on the Company’s financial positions, results of operations, cash flows or disclosures.

In January 2010, the FASB issued Accounting Standards Update (“ASU”) No. 2010-06, “Improving Disclosures about Fair Value Measurements” an amendment to ASC Topic 820, “Fair Value Measurements and Disclosures.”  This amendment requires an entity to: (i) disclose separately the amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements and describe the reasons for the transfers and (ii) present separate information for Level 3 activity pertaining to gross purchases, sales, issuances, and settlements.  ASU No. 2010-06 is effective for the Company for interim and annual reporting beginning after December 15, 2009, with one new disclosure effective after December 15, 2010. The Company has adopted this ASU in full with respect to the interim period ended March 31, 2010, and the adoption did not have a significant impact on the Company’s financial positions, results of operations, cash flows or disclosure.

A variety of proposed or otherwise potential accounting standards are currently under review and study by standard-setting organizations and certain regulatory agencies.  Because of the tentative and preliminary nature of such proposed standards, we have not yet determined the effect, if any, that the implementation of any such proposed or revised standards would have on our unaudited Condensed Financial Statements.

2.  GOING CONCERN

The accompanying financial statements are prepared assuming that the Company will continue as a going concern.

The Company’s ability to meet debt requirements including interest payments, fund operations and make capital improvements depends on its ability to generate cash flow in the future and/or negotiate the terms of its debt. If adverse economic conditions persist, worsen or fail to improve significantly, the Company could experience further decreases in revenues due to reduced consumer spending levels, which would cause the Company to not generate sufficient cash to fund its liquidity needs or fail to satisfy the terms of its debt. The Company cannot assure that its business will generate sufficient cash flow from its operations in an amount necessary to enable it to pay its indebtedness or to fund its other liquidity needs.

As shown in the financial statements, the Company generated net losses of $2.1 million for the three months ended March 31, 2010.  At March 31, 2010, the Company had cash and cash equivalents of $8.2 million and an accumulated deficit of $60.0 million.  Additionally, the Company had a working capital deficiency of $6.1 million as of March 31, 2010.

The Company is evaluating a range of financial and strategic alternatives in addressing trends in the Company’s operating results and financial position. These alternatives include refinancing, restructuring the Company’s financial obligations or the infusion of capital by ownership.

The conditions and events described above raise substantial doubt about the Company’s ability to continue as a going concern.  The accompanying financial statements do not include any adjustment to reflect the possible future effects on the recoverability and classification of assets or the amount and classification of liabilities that may result from the outcome of this uncertainty.

3. TERM LOAN

On May 11, 2006, the Company entered into a Loan Agreement with Goldman Sachs Commercial Mortgage Capital, L.P. (the “Term Loan”).  The Term Loan was for an initial principal amount of $209.2 million and for an initial term of two years.  The Company has drawn an additional $40.8 million against the Term Loan, the maximum funding of the Term Loan.  Covenants under the term loan restrict the Company’s future borrowing capacity.

- 5 -

COLONY RESORTS LVH ACQUISITIONS, LLC

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

- 6 -

As of March 31, 2010, Voteco owns 0.585 Class A Units, Co-Investment Voteco owns 0.30 Class A Units, Whitehall Voteco owns 0.60 Class A Units and Mr. Ribis owns 0.015 Class A Units.  In addition, as of March 31, 2010, Holdings owns 585,000 Class B Units, Co-Investment Partners owns 900,000 Class B Units and Mr. Ribis owns 15,000 Class B Units.  Pursuant to the Operating Agreement, holders of Class A Units are entitled to one vote per unit in all matters to be voted on by voting members of the Company.  Holders of Class B Units are not entitled to vote, except as otherwise expressly required by law.

At the time of the closing of the Acquisition, a Transfer Restriction Agreement was executed by and among Thomas J. Barrack, Jr. (“Mr. Barrack”), Mr. Ribis, Co-Investment Partners and Co-Investment Voteco (the “Co-Investment Transfer Restriction Agreement”) and a Transfer Restriction Agreement was executed by and among Mr. Barrack, Voteco and Holdings (the “Voteco Transfer Restriction Agreement”).  At the time of the transfer of certain Class A Units to Whitehall Voteco from Co-Investment Voteco, a Transfer Restriction Agreement was executed by and among Stuart Rothenberg (“Mr. Rothenberg”), Brahm Cramer (“Mr. Cramer”) and Jonathan Langer (“Mr. Langer”) and together with Mr. Rothenberg and Mr. Cramer, the “Whitehall Voteco Members”, Whitehall Voteco and Co-Investment Partners (the “Whitehall Voteco Transfer Restriction Agreement”).  As of March 9, 2009, Mr. Rothenberg resigned from Whitehall Voteco.  As of March 11, 2009, Mr. Cramer resigned as a manager of Whitehall Voteco.  As of December 31, 2009, Mr Langer resigned as a manager of Whitehall Voteco. 

The Company’s Class A Units issued to Co-Investment Voteco are subject to the Co-Investment Transfer Restriction Agreement, which provides, among other things, that:

·         Co-Investment Partners has the right to acquire Class A Units from Co-Investment Voteco on each occasion that Class B Units held by Co-Investment Partners would be transferred to a proposed purchaser who, in connection with such proposed sale, has obtained all licenses, permits, registrations, authorizations, consents, waivers, orders, findings of suitability or other approvals required to be obtained from, and has made all findings, notices or declarations required to be made with, all gaming authorities under all applicable gaming laws;

·         A specific purchase price, as determined in accordance with the Co-Investment Transfer Restriction Agreement, will be paid to acquire the Class A Units from Coinvestment Voteco; and

·         Co-Investment Voteco will not transfer ownership of Class A Units owned by it except pursuant to such option of Co-Investment Partners.

The Company’s Class A Units issued to Voteco are subject to the Voteco Transfer Restriction Agreement, which provides, among other things, that:

·         Holdings has the right to acquire Class A Units from Voteco on each occasion that Class B Units held by Holdings would be transferred to a proposed purchaser who, in connection with such proposed sale, has obtained all licenses, permits, registrations, authorizations, consents, waivers, orders, findings of suitability or other approvals required to be obtained from, and has made all findings, notices or declarations required to be made with, all gaming authorities under all applicable gaming laws;

·         A specific purchase price, as determined in accordance with the Voteco Transfer Restriction Agreement, will be paid to acquire the Class A Units from Voteco; and

·         Voteco will not transfer ownership of Class A Units owned by it except pursuant to such option of Holdings.

The Company’s Class A Units issued to Whitehall Voteco are subject to the Whitehall Voteco Transfer Restriction Agreement, which provides, among other things, that:

- 7 -

·         Co-Investment Partners has the right to acquire Class A Units from Whitehall Voteco on each occasion that Class B Units held by Co-Investment Partners would be transferred to a proposed purchaser who, in connection with such proposed sale, has obtained all licenses, permits, registrations, authorizations, consents, waivers, orders, findings of suitability or other approvals required to be obtained from, and has made all findings, notices or declarations required to be made with, all gaming authorities under all applicable gaming laws;

·         A specific purchase price, as determined in accordance with the Whitehall Voteco Transfer Restriction Agreement, will be paid to acquire the Class A Units from Whitehall Voteco; and

·         Whitehall Voteco will not transfer ownership of Class A Units owned by it except pursuant to such option of Co-Investment Partners.

It is currently anticipated that any future holders of the Company’s Membership Units will become a party to the Operating Agreement.

7.  2004 INCENTIVE PLAN

In connection with the acquisition of the Hotel, the Company’s board and members approved the Company’s 2004 Incentive Plan (the “Plan”).  As of June 18, 2004, the Company had a total of 0.167 Class A Units and 166,667 Class B units reserved for issuance under the Plan.  The Plan was amended by the board on May 16, 2006 in order to (1) comply with Section 409A of the Internal Revenue Code of 1986, as amended from time to time, and (2) eliminate the provision that excludes the value attributable to the Development Parcels (as defined in the Plan).

Subsequent to the closing of the acquisition of the Hotel, the Company granted 0.167 options of Class A Units and 166,667 options of Class B Units to certain executives, in accordance with the Plan.  The options have a 10 year life, vest over three years and have an exercise price of $100 per unit in both classes which was equal to, or greater than, the fair market value of the membership units at the date of grant.  As a result of the amendment on May 16, 2006 which eliminated the exclusion of the value of the Development Parcels (as defined in the Plan), the options increased in value.

Effective January 1, 2006, the Company adopted the provisions of  Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment” (SFAS No. 123(R)) (ASC Topic 718 and 505) requiring that compensation cost relating to share-based payment transactions be recognized in the financial statements.  The cost is measured at the grant date, based on the calculated fair value of the award, and is recognized as an expense over the employee’s estimated requisite service period (generally the vesting period of equity award) on a straight-line basis.  Estimates are revised if key elements of the options change.  The cumulative effect on compensation cost as a result of changes to key elements or forfeiture estimates are recognized in the period of the change.  The amendment on May 16, 2006 triggered a revaluation of the options.  The increase in value was recorded on a straight-line basis over the remaining vesting period of the options. 

Prior to January 1, 2006, the Company accounted for share-based compensation to employees in accordance with Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (APB No.25), and related interpretations.  The Company adopted SFAS No. 123(R) using the modified prospective method and accordingly, financial statement amounts for prior periods presented in the Form 10-K have not been restated to reflect the fair value method of recognizing compensation cost relating to these options.

The fair value of the option awards is estimated on the date of grant using an appraisal of the value of the Company and its membership units.  In September 2009 the number of options available for distribution was increased by the Company’s Board.  During 2009 the board of directors authorized and issued an additional 0.167 Class A Membership Units and an additional 16,667 Class B Membership Units. 

There was approximately $53,202 of compensation cost related to the 16,667 options recognized in general and administrative expenses for the three months ended March 31, 2010.  The estimated fair value of the options at the date of grant was $19.15 per membership unit and was computed using the Black-Scholes-Merton option pricing model with the following weighted average assumptions: risk free interest rate of 3.66%; no expected dividend yields; and expected vesting periods of 36 months.  The following table sets forth the assumptions used to determine compensation cost for these options consistent with the requirements of ASC Topic 718.

- 8 -

8.  COMMITMENTS AND CONTINGENCIES

Letters of Credit

Beginning in 2005 and annually thereafter, the Company was required to deliver irrevocable standby letters of credit in connection with its workers’ compensation insurance policies issued by its insurance carriers. In March 2009, the Company changed credit card processors, which required the Company to deliver an irrevocable standby letter of credit to the new processing bank. The letters of credit are secured by certificates of deposits in the same notional amounts as the corresponding letters of credit. The initial expiration dates of these letters of credit are for one year and are automatically extended for 90 days from their expiration date unless the issuing bank notifies the Company sixty days prior to such expiration dates that the letters of credit will not be renewed. As of March 31, 2010 and December 31, 2009, the certificates of deposit which secure the letters of credit totaled $3,538,750 and are included in restricted cash. As of March 31, 2010 and December 31, 2009, there were no amounts outstanding on the letters of credit.

Litigation

In the normal course of business, the Company is subject to various litigation, claims and assessments.  The Company is not currently a party to any material litigation and, it is not aware of any material action, suit or proceeding against it that has been threatened by any person.

Sales and Use Tax on Complimentary Meals

In March 2008, the Nevada Supreme Court ruled, in the matter captioned Sparks Nugget, Inc. vs. The State of Nevada Ex Rel. Department of Taxation, that food and non-alcoholic beverages purchased for use in providing complimentary meals to customers and to employees was exempt from sales and use tax. In July 2008, the Court denied the State’s motion for rehearing. For the three year period ended February 2008, the Company paid use tax on these items and has filed for refunds for the periods March 2005 through February 2008.  The amount subject to these refunds, excluding interest, is approximately $1.1 million. As of March 31, 2010, the Company had not recorded a receivable related to this matter.

- 9 -

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements relating to future events and future performance of the Company within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including, without limitation, statements regarding the Company’s expectations, beliefs, intentions or future strategies that are signified by the words “expects,” “anticipates,” “intends,” “believes” or similar language. Actual results could differ materially from those anticipated in such forward-looking statements.

All forward-looking statements included in this document are based on information available to the Company on the date hereof, and the Company assumes no obligation to update any forward-looking statements. The Company cautions investors that its business and financial performance are subject to substantial risks and uncertainties.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with the financial statements, the related notes to financial statements and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009 and the unaudited interim condensed financial statements and notes thereto included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Overview

The following discussion of the Company’s results of operations compares the three months ended March 31, 2010 to the three months ended March 31, 2009.

Casino revenue is derived primarily from patrons wagering on slot machines, table games and other gaming activities. Table games generally include Blackjack or Twenty One, Craps, Baccarat and Roulette. Other gaming activities include the Race and Sports Book. Casino revenue is defined as the win from gaming activities, computed as the difference between gaming wins and losses, not the total amounts wagered. “Table game volume,” “table game drop” (terms which are used interchangeably), and “slot handle” are casino industry specific terms that are used to identify the amount wagered by patrons for a casino table game or slot machine, respectively. “Table game hold” and “slot hold” represent the percentage of the total amount wagered by patrons that the casino has won. Hold is derived by dividing the amount won by the casino by the amount wagered by patrons. Casino revenue is recognized at the end of each gaming day.

Casino revenues vary from time to time due to general economic conditions, popularity of entertainment offerings, table game hold, slot hold, and occupancy percentages in the hotels. Casino revenues also vary depending upon the amount of gaming activity as well as variations in the odds for different games of chance. The Hotel also uses technology, such as cashless wagering on slot machines, to increase revenues and/or decrease expenses. Casino revenues, room revenues, food and beverage revenues and other revenues vary due to general economic conditions and competition.

Room revenue is derived from rooms and suites rented to guests. “Average daily rate” is an industry specific term used to define the average amount of revenue per rented room per day. “Occupancy percentage” defines the total percentage of rooms occupied, and is computed by dividing the number of rooms occupied by the total number of rooms available. Room revenue is recognized at the time the room is provided to the guest.

Food and beverage revenues are derived from food and beverage sales in the food outlets of the Hotel, including restaurants, room service and banquets. Food and beverage revenue is recognized at the time the food and/or beverage is provided to the guest.

Other revenue includes retail sales, entertainment sales, telephone and other miscellaneous income at the Hotel. Such revenue is recognized at the time the goods or services are provided to the guest.

- 10 -

Summary Financial Information

The Hotel offers hotel, gaming, dining, entertainment, retail and spa amenities at one location in Las Vegas and under one operating segment.  Approximately 32% of the Hotel’s gross revenue is derived from gaming, while 35% is derived from room revenue.  Room revenue is significant because of the Hotel’s location next to the Las Vegas Convention Center and its related emphasis on the group, convention, and trade show business.

The following table summarizes the Hotel’s results of operations (in thousands):

Comparison of the Three Months Ended March 31, 2010 with the Three Months Ended March 31, 2009

     Revenue Information

The breakdown of the Property’s net revenue is as follows (dollars in thousands):

 Casino

Casino revenue decreased $4.1 million, or 17.4%, to $19.6 million for the quarter ended March 31, 2010, compared to $23.8 million for the quarter ended March 31, 2009. The decrease in casino revenue was primarily due to a decrease in slot drop during the period and an unfavorable hold variance in the sports book.  The downturn in the economy has reduced the amount wagered by slot guests during the first quarter ended March 31, 2010 compared to the first quarter ended March 31, 2009.  Table game volume was also lower for the quarter ended March 31, 2010 when compared to the quarter ended March 31, 2009, but the decrease was partially offset by a higher hold percentage in the quarter ended March 31, 2010.  Other gaming revenue decreased approximately $2.0 million for the quarter ended March 31, 2010 compared to the quarter ended March 31, 2009.  The decrease was primarily due to the unusually high Super Bowl results in 2009.

The Casino operating department margin was 23.5% for the quarter ended March 31, 2010 compared to an operating department margin of 30.9% for the quarter ended March 31, 2009. The decrease in operating efficiency was primarily a result of proportionately higher labor and benefits compared with lower revenues quarter to quarter.

Rooms

For the quarter ended March 31, 2010, room revenue was $20.8 million, a decrease of $1.9 million from the quarter ended March 31, 2009. The decrease is primarily attributable to a decrease in average daily rate (ADR) offset by an increase in occupied room nights for the quarter ended March 31, 2010 compared to ADR and occupied room nights for the quarter ended March 31, 2009. 

The Room operating department margin decreased to 65.1% for the three months ended March 31, 2010 compared to 69.6% for the three months ended March 31, 2009.  The decrease in operating margin was primarily a result of relatively fixed labor and benefits compared with lower revenues.

- 11 -

Food and Beverage

Food and beverage revenue for the quarter ended March 31, 2010 was $16.1 million which was relatively unchanged compared to $16.5 million for the quarter ended March 31, 2009. The slight decrease in  revenue was primarily due to a higher leisure guest count during the quarter ended March 31, 2010 compared to the quarter ended March 31, 2009.

Food and beverage operating margins decreased from 35.5% during the quarter ended March 31, 2009 to 31.8% during the quarter ended March 31, 2010.  Reduced margins are the result of lower banquet and catering revenues during the quarter ended March 31, 2010 compared to the quarter ended March 31, 2009. 

Other

Other revenue includes retail sales, entertainment sales and miscellaneous income. Other revenue was approximately $3.5 million for the quarter ended March 31, 2010 compared to $3.9 million for the quarter ended March 31, 2009.  The slight decrease was due to lower entertainment ticket prices for the quarter ended March 31, 2010 compared to the quarter ended March 31, 2009. 

Operating Cost and Expense Information

The breakdown of the Property’s operating costs and expenses is as follows (dollars in thousands):

Operating Expenses

Operating expenses decreased $2.2 million for the quarter ended March 31, 2010 compared to the quarter ended March 31, 2009.  The decrease is primarily due to reduced casino marketing expenses, lower entertainment artist fees and decreased bad debt quarter over quarter.

Depreciation and amortization was relatively flat for the quarter ended March 31, 2010 compared to the quarter ended March 31, 2009.  

Interest Expense

For the quarter ended March 31, 2010, interest expense totaled $3.1 million. For the quarter ended March 31, 2009, interest expense totaled $2.3 million.   The increase was due to higher interest rate spread for the months in the quarter ended March 31, 2010 compared to the months in the quarter ended March 31, 2009.

Liquidity and Capital Resources

Cash flows of the Company for the three months ended March 31, 2010 compared to the three months ended March 31, 2009 consisted of the following:

Cash Flow - Operating Activities

Cash flow used in operations was $3.3 million for the three months ended March 31, 2010 compared to cash provided from operations of $5.9 million for the three months ended March 31, 2009 a decrease of $9.2 million.  The decrease in operating cash flow was primarily from lower operating results for the first quarter of 2010 compared to the first quarter of 2009.  Payments to affiliates also reduced operating cash flow between the two periods. 

As of March 31, 2010, the Company had cash and equivalents of $8.2 million of which $4.2 million was cash in the casino to fund daily casino operations. For the remainder of 2010, the Company anticipates that cash requirements will exceed cash expected to be generated from operations.  The Company is evaluating a range of financial and strategic alternatives to address its cash requirements.

- 12 -

Cash Flows - Investing Activities

For the quarter ended March 31, 2010, the Company expended approximately $696 thousand on capital projects for the three months and expects to spend nominal amounts on capital expenditure projects in 2010.  Any additional 2010 capital expenditure projects will be financed from existing cash balances and 2010 operating cash flow. 

The Company also restricted $1.7 million of cash.  Restrictions on cash balances are due to gaming regulations, term loan requirements and restrictions imposed by certain vendors.

Cash Flows - Financing Activities

The Company had no cash transactions that were classified as financing activities for the three months ended March 31, 2010. The Term Loan has a balance of $230 million and  no additional funding is available. 

Interest on the Term Loan accrues at a rate of one month LIBOR plus 3.5%.  The LIBOR rate has a minimum of 1.5%.  The Term Loan provides for no amortization during the term. The Term Loan is collateralized by a first priority deed of trust on the Hotel.

Pursuant to the terms of the Term Loan, the Company purchased an interest rate cap with LIBOR strike rate of 5.75% for the first two years of the Term Loan and an interest rate cap with LIBOR strike rate of 6.25% for any extension periods.  The value of the interest rate cap as of March 31, 2010 was zero.

The Term Loan had an original expiration date of May 10, 2008.  Upon the satisfaction of certain conditions, the Term Loan provided for three, one year extensions.  The Company exercised the first extension option in 2008.  On August 14, 2009 the Company and Goldman Sachs Mortgage Company (the Lender) executed the First Amendment to Loan Agreement and Omnibus Loan Modification Agreement.  The agreement extended the Term Loan due date for two years.  Also as part of the loan modification, the Company was required to obtain a new extension rate cap agreement, pay an extension fee and out-of-pocket expenses incurred by the lender and meet certain debt yield benchmarks.  The Company paid $20 million in principal during 2009 as part of the negotiated extension.  The loan now has a due date of June 1, 2011.

Other Factors Affecting Liquidity

Covenants under the term loan restrict the Company’s future borrowing capacity. However, subject to certain conditions, the term loan does permit the Company to incur additional debt to fund working capital. If circumstances warrant, the Company may seek to obtain a working capital line of credit.

The Company's independent registered public accounting firm included an explanatory paragraph that expresses substantial doubt as to the Company's ability to continue as a going concern in their audit reports contained in this Annual Report on Form 10-K for the year ended December 31, 2009.  The Company cannot provide any assurance that it will in fact operate its business profitably, maintain existing financings, or obtain sufficient financing in the future to sustain its business in the event the Company is not successful in its efforts to generate sufficient revenue and operating cash flow.

The Company’s ability to continue as a going concern will be determined by its ability to obtain additional funding or restructure or negotiate waivers on the Company’s existing indebtedness and to generate sufficient revenue to cover operating expenses.  The accompanying condensed financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts of liabilities that might be necessary should the Company be unable to continue in existence.

The Company is evaluating a range of financial and strategic alternatives in addressing trends in the Company’s operating results and financial position.  These alternatives include refinancing, restructuring the Company’s financial obligations or the infusion of capital by ownership.

- 13 -

Contractual Obligation and Other Commitments

The following table summarizes the Company’s contractual obligations and commitments (amount in thousands):

Off-Balance Sheet Arrangements

The Company is not currently subject to any off-balance sheet arrangements which it believes will have a material adverse impact on its financial condition.

Debt Instruments

The following table provides information about the Company’s long-term debt at March 31, 2010 (amounts in thousands):

The Term Loan originated May 11, 2006 and had an initial principal amount of $209.2 million with interest accruing at a rate of one month LIBOR plus 2.9%.  The Company extended the loan effective August 2009.  As part of the extension agreement, the Company was required to make principal payments totaling $20 million, pay fees totaling $1.5 million, purchase an interest rate cap and pay out-of-pocket expenses to the Lender.  Interest on the extension accrues at LIBOR plus 3.5% through May 2010 and LIBOR plus 4.0% from June 2010 through May 2011. The LIBOR rate has a floor of 1.5%. 

- 14 -

Litigation Contingencies and Available Resources

In the normal course of business, the Company is subject to various litigation, claims and assessments. The Company is not currently a party to any material litigation and it is not aware of any material action, suit or proceedings against it that has been threatened by any person.

Critical Accounting Policies

Significant Accounting Policies and Estimates

The Company prepares its financial statements in conformity with accounting principles generally accepted in the United States. Certain of its accounting policies, including the determination of slot club promotion liability, the estimated useful lives assigned to its assets, asset impairment, insurance reserves, and allowance for doubtful accounts require that it apply significant judgment in defining the appropriate assumptions for calculating financial estimates. By their nature, these judgments are subject to an inherent degree of uncertainty. The Company’s judgments are based on its historical experience, terms of existing contracts, observance of trends in the gaming industry and information available from other outside sources. There can be no assurance that actual results will not differ from the Company’s estimates. To provide an understanding of the methodology the Company applies, its significant accounting policies and basis of presentation are discussed below, as well as where appropriate in this discussion and analysis and in the notes to the Company’s financial statements.

Slot Club Promotions

The Company’s Slot Club allows customers to redeem points earned from their gaming activity for cash and complimentary food, beverage, rooms, entertainment and merchandise.  At the time redeemed, the retail value of complimentaries is recorded as revenue with a corresponding offsetting amount included in promotional allowances.  The cost associated with complimentary food, beverage, rooms, entertainment and merchandise redeemed is recorded in casino costs and expenses.  The Company also records a liability for the estimated cost of the outstanding points that it believes will ultimately be redeemed.  

Self-Insurance Reserve

The Company is self insured up to certain stop loss amounts for workers’ compensation and guest liability claims. In estimating this accrual, the Company considers historical loss experience and makes judgments about the expected levels of costs per claim. The Company believes its estimates of future liability are reasonable based upon its methodology; however, changes in accident frequency and severity and other factors could materially affect the estimate for this liability.

Derivative Investments and Hedging Activities

The Company seeks to manage its market risk, including interest rate risk associated with variable rate borrowings, through balancing fixed-rate and variable-rate borrowings with the use of derivative financial instruments. The Company accounts for derivative financial instruments in accordance with Accounting Standards Codification Topic 815. The fair value of derivative financial instruments are recognized as assets or liabilities at each balance sheet date, with changes in fair value affecting net income (loss) or comprehensive income (loss) as applicable. The Company’s current interest rate swaps do not qualify for hedge accounting.  Accordingly, changes in the fair value of the interest rate swaps are presented as an increase (decrease) in fair value of swaps in the accompanying Statements of Operations.

Allowance for Doubtful Accounting Reserves

The Company’s receivables balances relate primarily to its hotel and casino operations. The Company reserves an estimated amount for receivables that may not be collected. The Company estimates the allowance for doubtful accounts by applying standard reserve percentages to aged account balances under a specific dollar amount and specifically analyzing the collectability of each account with a balance over the specified dollar amount, based on the age of the account, the customer’s financial condition, collection history and any other known information.

- 15 -

Property and Equipment

Property and equipment are stated at cost. Depreciation and amortization are computed using the straight-line method over the estimated useful lives of the assets, while costs of normal repairs and maintenance are charged to expense as incurred.

Reclassification

Certain reclassifications have been made to the 2010 and 2009 financial statements due to clarification on the presentation of certain gaming related expenses.  These reclassifications had no effect on net income or loss or on working capital or members’ equity.

Recent Accounting Pronouncements

In the third quarter of 2009, the Company adopted the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”).  The ASC is the single official source of authoritative, nongovernmental GAAP, other than guidance issued by the SEC.  The adoption of the ASC did not have a material impact on the financial statements included herein.

In June 2009, the FASB issued amendments related to Topic 810. Among other items, the related sections of Topic 810 respond to concerns about the application of certain key provisions of FIN 46(R), including those regarding the transparency of the involvement with variable interest entities.  The related sections of Topic 810 are effective for calendar year companies beginning on January 1, 2010 and were adopted by the Company as of that date.  The adoption did not have a material impact on the financial position, results of operations, cash flows, or disclosures of the Company.

In January 2010, the FASB issued Accounting Standards Update (“ASU”) No. 2010-06, “Improving Disclosures about Fair Value Measurements” an amendment to ASC Topic 820, “Fair Value Measurements and Disclosures.”  This amendment requires an entity to: (i) disclose separately the amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements and describe the reasons for the transfers and (ii) present separate information for Level 3 activity pertaining to gross purchases, sales, issuances, and settlements.  ASU No. 2010-06 is effective for the Company for interim and annual reporting beginning after December 15, 2009, with one new disclosure effective after December 15, 2010. The Company has adopted this ASU in full with respect to the interim period ended March 31, 2010, and the adoption did not have a significant impact on the Company’s financial positions, results of operations, cash flows or disclosure.

A variety of proposed or otherwise potential accounting standards are currently under review and study by standard-setting organizations and certain regulatory agencies.  Because of the tentative and preliminary nature of such proposed standards, we have not yet determined the effect, if any, that the implementation of any such proposed or revised standards would have on our unaudited Condensed Financial Statements.

- 16 -

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk is the risk of loss from adverse changes in market rates and prices, such as interest rates, foreign currency exchange rates and commodity prices.  The Company’s primary exposure to market risk is interest rate risk associated with its variable rate long-term debt.   If LIBOR were to increase 100 basis points and there were no additional borrowings, interest expense would increase approximately $2.3 million annually.  The Company attempts to manage its interest rate risk by entering into interest rate cap agreements.  The Company does not hold or issue financial instruments for trading purposes and does not enter into derivative transactions that would be considered speculative positions.  The derivative financial instruments consist exclusively of interest rate cap agreements.  Differentials resulting from these agreements are recorded on an accrual basis as an adjustment to interest expenses.

To manage counterparty credit risk in interest rate cap agreements, the Company only enters into agreements with highly rated institutions that can be expected to perform under terms of such agreements.

- 17 -

ITEM 4. CONTROLS AND PROCEDURES

Our management, including our Executive Vice President of Finance and our Chief Executive Officer and General Manager, conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13(a) – 15(e) and 15(d) – 15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report. Based on this evaluation, our principal executive and principal financial officers concluded our disclosure controls and procedures are effective in alerting them in a timely manner to material information required to be included in our SEC reports. There has been no change in our internal control over financial  reporting (as defined in Rules 13(a) – 15(e) and 15(d) – 15(e) under the Securities Exchange Act of 1934, as amended) that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial  reporting.

- 18 -

PART II. OTHER INFORMATION

ITEM 6. EXHIBITS

- 19 -

- 20 -

- 21 -

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

- 22 -