10-K/A 1 c71056a2e10vkza.txt AMENDMENT NO. 2 TO FORM 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K/A AMENDMENT NO. 2 (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) 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) Registrant's telephone number, including area code (702) 383-4719 Securities registered pursuant to Section 12(b) of the Act: NAME OF EACH EXCHANGE ON TITLE OF EACH CLASS WHICH REGISTERED ------------------- ------------------------ Common Stock, par value $0.01 per share OTC Bulletin Board 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"). 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 2 650-seat Broadway Showroom, an 3,600-seat Outdoor Events Center, a 120-seat entertainment lounge and parking for approximately 4,000 cars. Stratosphere opened for business on April 29, 1996. THE TOWER At 1,149 feet in height, the Tower is the tallest free-standing observation tower in the United States and the tallest free-standing structure west of the Mississippi River. From the indoor and outdoor observation decks, lounge and restaurant, Tower visitors have dramatic views of the Las Vegas Strip, downtown and the surrounding Las Vegas Valley. Visitors travel to the observation decks in four high speed, double-decked elevators, which travel at 1,800 feet per minute, and which have an aggregate capacity of 128 visitors. The Pod is a 12-story 105,000 square foot building that begins at the 771-foot level of the Tower. The Pod, which has a maximum capacity of 2,700 visitors at any one time, has an indoor and outdoor observation deck and is currently open from 10:00 a.m. to 1:00 a.m. Sunday through Thursday and 10:00 a.m. to 2:00 a.m. on Friday and Saturday. The Pod's third and fourth levels contain conference and meeting rooms that are rented out for business or social occasions. Level six contains a 360-seat revolving restaurant. Levels seven, eight and nine feature a 220-seat cocktail lounge, indoor and outdoor observation decks, respectively. The indoor observation deck contains two gift shops, freestanding vending featuring souvenirs and food products designed to capitalize on the unique nature of the Tower and two virtual reality games. Level twelve is the staging area for the Thrill Rides. The first ride, the "Big Shot," propels riders from the 921-foot level of the Pod approximately 180 feet straight up the mast of the Tower, in a harnessed seat, and allows for a controlled free fall back to the landing platform. The second ride, a roller coaster, the "High Roller," begins at the 909-foot level and transports up to 36 passengers at a time along tracks wrapped around the top portion of the Pod. THE CASINO AREA Stratosphere's casino contains approximately 97,000 square feet of gaming space, with approximately 1,474 slot machines, 48 table games, a race and sports book and keno lounge. Five themed restaurants, four bars, two of which feature live entertainment and a deli are located adjacent to the casino. These facilities have been designed for convenient access to the casino. Although the Company does not emphasize credit play, credit is available to high-stakes wagerers on a discretionary basis. Slot and table game customers are able to join frequent players' club, which awards benefits including cash and complimentary room, food and beverage based upon the customer's level of play. RETAIL AND ENTERTAINMENT CENTER The Retail Center, located on the second floor of the base building, occupies approximately 160,000 square feet, of which 57,000 square feet remains undeveloped. The Retail Center offers various "fast food" restaurants and shops. Adjacent to the Retail Center is the 650-seat showroom that currently offers afternoon and evening shows, which are designed to appeal to the wide spectrum of value-minded visitors who come to Las Vegas. In September 2001, the Company completed construction of a new 3,600-seat Outdoor Events Center which features mid-level mainstream concert and boxing events. 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 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 these 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. It is intended that 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, and, unless otherwise provided in the limited liability company agreement, none of the debts, liabilities, obligations and expenses incurred, contracted for or otherwise existing with respect to the limited liability company generally or any other series hereof shall be enforceable against the assets of such series. Development's financial results that pertain to the Stratosphere Interests are included in the accompanying consolidated financial statements. The table below represents the Stratosphere Interest in Development as of December 31, 2001 and 2000:

4 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 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 5 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. 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. 6 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. 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. 7 If the Nevada Gaming Authorities were to find an officer, director or key employee unsuitable for licensing or unsuitable to continue having a relationship with the Company or SGC, the companies involved would have to sever all relationships with such person. In addition, the Nevada Commission may require the Company or SGC to terminate the employment of any person who refuses to file appropriate applications. Determinations of suitability or of questions pertaining to licensing are not subject to judicial review in Nevada. The Company and SGC are required to submit detailed financial and operating reports to the Nevada Commission. Substantially all material loans, liens, sales of securities and similar financing transactions by the Company and SGC are required to be reported to or approved by the Nevada Commission. If it were determined that the Nevada Act was violated by SGC, the gaming licenses it holds could be limited, conditioned, suspended or revoked, subject to compliance with certain statutory and regulatory procedures. In addition, the Company, SGC and the persons involved could be subject to substantial fines for each separate violation of the Nevada Act at the discretion of the Nevada Commission. Further, a supervisor could be appointed by the Nevada Commission to operate the Company's gaming property and, under certain circumstances, earnings generated during the supervisor's appointment (except for reasonable rental value of the premises) could be forfeited to the state of Nevada. Limitation, conditioning or suspension of the licenses of SGC could (and revocation of any gaming license of SGC would) materially adversely affect the Company. Any beneficial holder of a Registered Corporation's voting securities, regardless of the number of shares owned, may be required to file an application, be investigated and have his suitability as a beneficial holder of the Registered Corporation's voting securities determined if the Nevada Commission has reason to believe that such ownership would otherwise be inconsistent with the declared policies of the state of Nevada. The applicant must pay all costs of investigation incurred by the Nevada Gaming Authorities in conducting any such investigation. The Nevada Act requires any person who acquires beneficial ownership of more than 5% of a Registered Corporation's voting securities to report the acquisition to the Nevada Commission. The Nevada Act requires that beneficial owners of more than 10% of a Registered Corporation's voting securities apply to the Nevada Commission for a finding of suitability within thirty days after the Chairman of the Nevada Board mails the written notice requiring such filing. Mr. Icahn has been approved as a shareholder and controlling shareholder. Under certain circumstances, an "institutional investor," as defined in the Nevada Act, which acquires more than 10%, but not more than 15%, of a Registered Corporation's voting securities, or more than 10% of a Registered Corporation's voting securities as a result of a proceeding under the United States Bankruptcy Code, may apply to the Nevada Commission for a waiver of such finding of suitability if such institutional investor holds the voting securities for investment purposes only. An institutional investor shall not be deemed to hold voting securities for investment purpose unless the voting securities were acquired and are held in the ordinary course of business as an institutional investor and not for the purpose of causing, directly or indirectly, the election of a majority of the members of the Board of Directors of the Registered Corporation, any change in the Registered Corporation's corporate charter, bylaws, management, policies or operations, or any of its gaming affiliates, or any other action which the Nevada Commission finds to be inconsistent with holding the Registered Corporation's voting securities for investment purposes only. Activities which are not deemed to be inconsistent with holding voting securities for investment purposes only include: (i) voting on all matters voted on by stockholders; (ii) making financial and other inquiries of management of the type normally made by securities analysts for informational purposes and not to cause a change in its management, policies or operations; and (iii) such other activities as the Nevada Commission may determine to be consistent with such investment intent. If the beneficial holder of voting securities who must be found suitable is a corporation, partnership or trust, it must submit detailed business and financial information including a list of beneficial owners. The applicant is required to pay all costs of investigation. Any person who fails or refuses to apply for a finding of suitability or a license within thirty days after being ordered to do so by the Nevada Commission or the Chairman of the Nevada Board, may be found unsuitable. The same restrictions apply to a record owner if the record owner, after request, fails to identify the beneficial owner. Any stockholder found unsuitable and who holds, directly or indirectly, any beneficial 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. 8 The Nevada Commission may, in its discretion, require the holder of any debt security of a Registered Corporation to file applications, be investigated and be found suitable to own the debt security of a Registered Corporation if it has reason to believe that such ownership would otherwise be inconsistent with the declared policies of the state of Nevada. If the Nevada Commission determines that a person is unsuitable to own such security, then pursuant to the Nevada Act, the Registered Corporation can be sanctioned, including the cost of its approvals, if without the prior approval of the Nevada Commission, it: (i) pays to the unsuitable person any dividend, interest, or any distribution whatsoever; (ii) recognizes any voting right by such unsuitable person in connection with such securities; (iii) pays the unsuitable person remuneration in any form; or (iv) makes any payment to the unsuitable person by way of principal, redemption, conversion, exchange, liquidation, or similar transaction. The Company is required to maintain a current stock ledger in Nevada which may be examined by the Nevada Gaming Authorities at any time. If any securities are held in trust by an agent or by a nominee, the record holder may be required to disclose the identity of the beneficial owner to the Nevada Gaming Authorities. A failure to make such disclosure may be grounds for finding the record holder unsuitable. The Company will also be required to render maximum assistance in determining the identity of the beneficial owner. The Nevada Commission has the power to require the stock certificates of the Company to bear a legend indicating that the securities are subject to the Nevada Act. However, to date, the Nevada Commission has not imposed such a requirement on the Company. The Company may not make a public offering of its securities without the prior approval of the Nevada Commission if the securities or proceeds therefrom are intended to be used to construct, acquire or finance gaming facilities in Nevada, or to retire or extend obligations incurred for such purposes. Approval of a public offering does not constitute a finding, recommendation or approval by the Nevada Commission or the Nevada Board as to the accuracy or adequacy of the prospectus or the investment merits of the securities offered. Any representation to the contrary is unlawful. Changes in control of a Registered Corporation through merger, consolidation, stock or asset acquisitions, management or consulting agreements, or any act or conduct by a person whereby he obtains control, may not occur without the prior approval of the Nevada Commission. Entities seeking to acquire control of a Registered Corporation must satisfy the Nevada Board and Nevada Commission in a variety of stringent standards prior to assuming control of such Registered Corporation. The Nevada Commission may also require controlling stockholders, officers, directors and other persons having a material relationship or involvement with the entity proposing to acquire control, to be investigated and licensed as part of the approval process relating to the transaction. The acquisition of control of the Company, as a result of the Restated Second Amended Plan, received the prior approval of the Nevada Commission upon the recommendation of the Nevada Board. The Nevada legislature has declared that some corporate acquisitions opposed by management, repurchases of voting securities and corporate defense tactics affecting Nevada corporate gaming licensees, and Registered Corporations that are affiliated with those operations, may be injurious to stable and productive corporate gaming. The Nevada Commission has established a regulatory scheme to ameliorate the potentially adverse effects of these business practices upon Nevada's gaming industry and to further Nevada's policy to: (i) assure the financial stability of corporate gaming licensees and their affiliates; (ii) preserve the beneficial aspects of conducting business in the corporate form; and (iii) promote a neutral environment for the orderly governance of corporate affairs. Approvals are, in certain circumstances, required from the Nevada 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. 9 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):

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. 10 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 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 11 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. 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 12 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. 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. 13 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. ss. 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. On May 3, 2001, the Company was named in an action brought by Harrah's Entertainment, Inc. and Harrah's Operating Company, Inc. (collectively "Harrah's") alleging infringement of a purported patent covering a business method allegedly developed by Harrah's. The use of an allegedly similar business method by the Company in its advertising and promotions is said by plaintiff to infringe upon its patent rights. In January 2002, the parties entered into a sealed Consent Judgment resolving the dispute, which was the subject matter of this action. In December 2001, the Company paid Harrah's the settlement for this action. In addition, in the ordinary course of business, the Company is party to various legal actions. In management's opinion, the ultimate outcome of such legal actions will not have a material effect on the results of operations or the financial position of the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None 14 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.

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. 15 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.

* 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.

(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. 16 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion contains trend information and other forward-looking statements that involve a number of risks and uncertainties. The actual results of the Company could differ materially from the Company's historical results of operations and those discussed in the forward-looking statements. OVERVIEW The Company operates an integrated casino, hotel, 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 17 period. On an ongoing basis, management evaluates its estimates and assumptions based upon historical experience and various other factors and circumstances. Management believes its estimates and assumptions are reasonable in the circumstances; however, actual results may differ from these estimates under different future conditions. CASINO REVENUES AND PROMOTIONAL ALLOWANCES During the first quarter, 2001, the Emerging Issues Task Force reached a consensus on the portion of Issue 00-22, "Accounting for `Points' and Certain Other Time-Based or Volume-Based Sales Incentive Offers, and Offers for Free Products or Services to be Delivered in the Future," which addressed the income statement classification of the value of the points redeemable for cash awarded under point programs similar to the Company's Player's Club and Guaranteed Refund programs. The consensus states the cost of these programs should be reported as a contra-revenue, rather than an expense and is retroactive to January 1, 2001, with prior year restatement required. The Company has adopted the current consensus recommendations on Issue 00-22. Debate continues on a number of other facets of Issue 00-22, which could have an impact on the presentation of the Company's financial statements. The Company recognizes revenues in accordance with industry practice. Casino revenue is the net win from gaming activities (the difference between gaming wins and losses). Casino revenues are net of accruals for anticipated payouts of progressive and certain other slot machine jackpots. Revenues include the retail 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 18 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). 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.

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. 19 COMPARISON OF OPERATING RESULTS FOR THE FISCAL YEAR 2001 AND 2000 Revenues Casino revenues increased $9.3 million (18%) from $52.2 million in fiscal year 2000 to $61.5 million for the twelve months ended December 31, 2001. The primary factors for increased revenues are as follows. Revenues from table games increased $4.4 million (36%) from $12.1 million in fiscal year 2000 to $16.5 million for the twelve months ended December 31, 2001. The Company's win percentage for table games increased by 2.7% (17%) from 15.8% for fiscal year 2000 to 18.5% for the twelve months ended December 31, 2001. The increased win percentage and increased customer play resulting from the completion 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 20 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. 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 21 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 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. 22 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. 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. 23 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):

26 REPORT OF INDEPENDENT AUDITORS The Board of Directors and Shareholders Stratosphere Corporation: We have audited the accompanying consolidated balance sheets of Stratosphere Corporation (a Delaware Corporation) and subsidiaries as of December 31, 2001 and 2000, and the related consolidated statements of operations, shareholders' equity, and cash flows for each of the years in the two-year period ended December 31, 2001. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Stratosphere Corporation and subsidiaries as of December 31, 2001 and 2000, and the results of their operations and their cash flows for each of the years in the two-year period ended December 31, 2001, in conformity with accounting principles generally accepted in the United States of America. KPMG LLP Phoenix, Arizona March 15, 2002 27 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 28 STRATOSPHERE CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2001 AND 2000

See notes to consolidated financial statements 29 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

See notes to consolidated financial statements. 30 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

See notes to consolidated financial statements. 31 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

See notes to consolidated financial statements. 32 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 33 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):

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: Buildings and improvements........................................36-39 years Furniture, fixtures and equipment..................................3-15 years Land improvements....................................................15 years 34 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 Reorganization filed by the Debtors (the "Restated Second Amended Plan"). On October 14, 1998, the Restated Second 35 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):

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):

36 (5) PROPERTY AND EQUIPMENT - NET Property and equipment consist of the following as of December 31, 2001 and 2000 (in thousands):

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):

(7) NOTES PAYABLE TO RELATED PARTY Long term debt consists of the following as of December 31, 2001 and 2000 (in thousands):

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

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):

Management is currently renegotiating the terms of various leases, which will likely result in a reduction of the expected lease income stated above. The Company leases certain equipment under a non-cancelable capital lease that is subject to expiration in fiscal year 2002. Future minimum lease payments, excluding contingent rentals, due under the non-cancelable capital lease for the year ending December 31, 2002, are $3,163,135, which includes interest of $52,017 (based on a 4.66% rate), resulting in a capital lease obligation of $3,111,118 at December 31, 2001. The Company had no operating leases as of December 31, 2001 and 2000. Rent expense for operating leases was $593,847 for the fiscal year ended December 26, 1999. 38 (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):

39 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):

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:

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, 40 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. 41 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. ss. 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 42 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. 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. 43 (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.

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)). 44 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:

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. 45 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 46 supplement. Reliance took an immediate appeal to the United States Court of Appeals for the Second Circuit and sought a stay to restrain defendants from purchasing notes during the pendency of the appeal. On January 30, 2001, the Court of Appeals denied plaintiffs' stay application. On January 30, 2001, Reliance also sought a further temporary restraining order from the District Court. The Court considered the matter and reimposed its original restraint until noon the next day, at which time the restraint against Mr. Icahn and his affiliates was dissolved. On March 22, 2001, the Court of Appeals ruled in favor of Mr. Icahn by affirming the judgment of the District Court. 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

47 (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 48 the outstanding shares and all directors and executive officers as a group. Except as otherwise indicated, each stockholder has sole voting and investment power with respect to the shares beneficially owned.

------------- (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. 49 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a)(1) Consolidated Financial Statements: Included in Part II: Report of Independent Auditors - December 31, 2001 and 2000....................................... 27 Report of Independent Public Accountants - December 26, 1999...................................... 28 Consolidated Balance Sheets at December 31, 2001 and 2000......................................... 29 Consolidated Statements of Operations for the year ended December 31, 2001 and fiscal years ended December 31, 2000 and December 26, 1999............................................... 30 Consolidated Statements of Shareholders Equity for the year ended December 31, 2001 and fiscal years ended December 31, 2000 and December 26, 1999......................................................................................... 31 Consolidated Statements of Cash Flows for the year ended December 31, 2001 and fiscal years ended December 31, 2000 and December 26, 1999............................................... 32 Notes to Consolidated Financial Statements........................................................ 33

(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 EXHIBIT DESCRIPTION OF DOCUMENT 2(1) Disclosure Statement to accompany the Company's Second Amended Plan of Reorganization.(d) 2(2) The Company's Restated Second Amended Plan of Reorganization, dated February 26, 1998.(e) 3(1) Certificate of Incorporation of the Company, as amended.(f) 3(2) Bylaws of the Company, as amended and restated.(f) 3(3) Articles of Incorporation of the Operating Subsidiary.(f) 3(4) Bylaws of the Operating Subsidiary.(f) 10(1) Owner Participation Agreement between the City of Las Vegas Downtown Redevelopment Agency and the Company.(b) 10(2) Development and Lease Agreement, dated March 11, 1996 by and between Strato-Retail, LLC and the Company.(a) 10(3) Participation Agreement, dated as of April 29, 1996 by and among Stratosphere Gaming Corp., First Security Trust Company of Nevada, The Persons Listed on Schedule II, Bank of Scotland, First Interstate Bank of Nevada, Societe Generale, Credit Lyonnais, Los Angeles Branch, BA Leasing & Capital Corporation and the Company.(b) 10(4) Lease Agreement, dated as of April 29, 1996 by and between First Security Trust Company of Nevada and Stratosphere Gaming Corp.(b) 10(5) Loan Agreement, dated as of April 29, 1996 by and among First Security Trust Company of Nevada, BA Leasing & Capital Corporation, Bank of Scotland, First Interstate Bank of Nevada, Societe Generale, Credit Lyonnais, Los Angeles Branch, and the Persons Listed on Schedule I.(b) 50 EXHIBIT DESCRIPTION OF DOCUMENT 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) 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) 51 10(29) Operating Agreement of Stratosphere Development, LLC. 21 Subsidiaries.(f) ------------------- (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. 52 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: August 9, 2002 By: /s/ Carl C. Icahn ------------------------------------ Name: Carl C. Icahn ------------------------------ Title: President --------------------------- By: /s/ William F. Bischoff ------------------------------------ Name: William F. Bischoff ------------------------------ Title: Chief Financial Officer --------------------------- In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on March 29, 2002.

STRATOSPHERE CORP 10-K/A