The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2007 and our consolidated financial statements and related notes appearing elsewhere in this report. In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including but not limited to, those set forth under "Forward Looking Statements" and elsewhere in this report and in "Risk Factors" in our Annual Report on Form 10-K.

Overview

We own and operate the Hard Rock Hotel and Casino in Las Vegas, which we believe is a premier destination entertainment resort with a rock music theme. The Hard Rock consists of, among other amenities, an eleven-story hotel tower with 646 stylishly furnished hotel rooms, an approximately 30,000 square-foot uniquely styled circular casino, a retail store, jewelry store, a lingerie store, a nightclub, a banquet facility, a concert hall, a beach club, quality restaurants, cocktail lounges and a spa. We believe that we have successfully differentiated the resort in the Las Vegas market by targeting a predominantly youthful and "hip" customer base, which consists primarily of rock music fans and youthful individuals, as well as actors, musicians and other members of the entertainment industry.

For the quarter ended March 31, 2008, Hard Rock's gross revenues were derived 30% from gaming operations, 36% from food and beverage, 22% from lodging and 12% from retail and other sales. Our business strategy is to provide our guests with an energetic and exciting gaming and entertainment environment with the services and amenities of a luxury boutique hotel. In March 2007, we announced a large-scale expansion project at the Hard Rock. The expansion is expected to include the addition of approximately 875 guest rooms, including an all-suite tower with upgraded amenities, approximately 60,000 square feet of meeting and convention space, and approximately 30,000 square feet of casino space. The project also includes an expansion of the hotel's pool, several new food and beverage outlets, a new and larger "The Joint" live entertainment venue, a new spa and exercise facility and additional retail space. Renovations to the existing property began during 2007 and include upgrades to existing suites, restaurants and bars, retail shops, and common areas, and a new ultra lounge and poker room. These renovations are scheduled to be completed by the end of the third quarter 2008. We expect the expansion to be complete by late 2009. We currently have budgeted approximately $750 million to complete the expansion project. Because of the substantial costs we expect to incur during the expansion project, our financial condition, results of operations and liquidity for periods during the project are not expected to be comparable to our financial condition, results of operations and liquidity for periods before or after completion of the project.

We completed the acquisition of the Hard Rock and related assets on February 2, 2007. The following discussion and analysis covers periods both prior and subsequent to the acquisition. Our Predecessor's historical consolidated financial statements included herein for the period from January 1, 2007 to February 2, 2007 represent the financial condition, results of operations and liquidity of the Predecessor prior to the closing of the acquisition. Our historical consolidated financial statements included herein for the period following the closing of the acquisition represent our financial condition, results of operation and liquidity after the closing of the acquisition. As a result of various factors, the financial condition, results of operations and liquidity for the periods beginning on or after February 2, 2007 may not be comparable to the information prior to that date. For comparative purposes, below we have included a comparison of our results of operations for the quarter ended March 31, 2008 to our and our Predecessor's combined results of operations for the quarter ended March 31, 2007. While the Company believes that a comparison of the results of operations for these two periods provides useful information regarding the changes in operating data between the periods, not all of the data is comparable due to the impact that the acquisition and the financing for the acquisition have had on the amount of interest expense and depreciation and amortization we incur following the closing.

Prior to the time we satisfied all conditions to the necessary gaming approvals, we were prohibited from receiving any revenues of the casino at the Hard Rock. As such, we leased our casino to a licensed third party, Golden HRC, LLC (the "Casino Operator"), pursuant to a definitive lease agreement entered into by HRHI and the Casino Operator on November 6, 2006 with a term beginning on February 2, 2007 (the "Casino Sublease"). Under the Casino Sublease, the Casino Operator conducted the gaming operations at the casino. The Casino Sublease

provided for base rent equal to $1.725 million per month. In addition to the base rent, the Casino Operator was required to pay for certain rent-related costs. According to the Casino Sublease, the Casino Operator would withhold, as an expense, from the revenue arising from operations at the casino, a sum in the amount of $275,000 per month. On January 24, 2008, we received a license from the Nevada Gaming Commission to serve as the operator of the gaming facilities at the Hard Rock, which became effective on February 14, 2008. On March 1, 2008, we assumed the gaming operations at the Hard Rock and terminated the Casino Sublease.

We evaluate our variable interests in accordance with FIN 46R, to determine if they are variable interests in variable interest entities. FIN 46R requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. The gaming operations at our casino were operated by the Casino Operator, which purchased the gaming assets located at the premises with a Gaming Asset Note in an amount equal to approximately $6.8 million. Upon termination of the Casino Sublease on February 29, 2008, the Casino Operator relinquished all of the gaming assets to us and, in return, we forgave the remaining balance on the Gaming Asset Note. In addition, where and to the extent that the monthly Casino EBITDAR (as defined in the Casino Sublease) for the previous month fell below the base rent under the Casino Sublease, the Casino Operator would provide us with the difference between the base rent and the Casino EBITDAR in monthly Shortfall Notes. In contrast, where and to the extent that monthly Casino EBITDAR exceeded the base rent, the Casino Operator would establish a reserve account for excess cash flow, which would be applied toward satisfying certain amounts due under the Shortfall Notes. Once the Casino Operator paid out such amounts as become due under the Shortfall Notes, 75.0% of any surplus fund reserves remaining would be earmarked for repayment of the Gaming Asset Note and a Working Capital Note, according to the terms contained in the Casino Sublease. On March 1, 2008, we assumed the gaming operations at the Hard Rock and the Casino Sublease was terminated. Upon termination of the Casino Sublease, there were no excess funds remaining in the surplus fund reserve. We believe that we were the primary beneficiary of the gaming operations because we were ultimately responsible for a majority of the operations' losses and were entitled to a majority of the operations' residual returns. Therefore, the gaming operations conducted by the Casino Operator were consolidated in our financial statements.

As is customary for companies in the gaming industry, we present average occupancy rate and average daily rate for the Hard Rock including rooms provided on a complimentary basis. Operators of hotels in the non-gaming lodging industry generally do not follow this practice, and instead present average occupancy rate and average daily rate net of rooms provided on a complimentary basis. We calculate (i) average daily rate by dividing total daily lodging revenue by total daily rooms rented and (ii) average occupancy rate by dividing total rooms occupied by total number of rooms available. We account for lodging revenue on a daily basis. Rooms provided on a complimentary basis include rooms provided free of charge or at a discount to the rate normally charged to customers as an incentive to use the casino. Complimentary rooms reduce average daily rate for a given period to the extent the provision of such rooms reduces the amount of revenue we would otherwise receive. We do not separately account for the number of occupied rooms that are provided on a complimentary basis, and obtaining such information would require unreasonable effort and expense within the meaning of Rule 12b-21 under the Exchange Act.

The following are key gaming industry specific measurements we use to evaluate casino revenues: "Table game drop," "slot machine handle" and "race and sports book write" are used to identify the amount wagered by patrons for a casino table game, slot machine or racing events and sports games, respectively. "Drop" and "Handle" are abbreviations for table game drop and slot machine handle. "Table game hold percentage," "slot machine hold percentage" and "race and sports book hold percentage" represent the percentage of the total amount wagered by patrons that the casino has won. Such hold percentages are derived by dividing the amount won by the casino by the amount wagered by patrons. Based on historical experience, in the normal course of business we expect table games hold percentage for any period to be within the range of 12% to 16%, slot machine hold percentage for any period to be within the range of 4% to 7% and race and sports book hold percentage to be within the range of 4% to 9%.

Results of Operations

The following table presents our consolidated operating results for the quarter
ended March 31, 2008 and March 31, 2007, and the change in these results between
the two periods.



                                        Quarter Ended         Quarter Ended
                                        Mar 31, 2008          Mar 31, 2007          Change ($)        Change (%)
                                                                    (in thousands)
INCOME STATEMENT DATA:
REVENUES:
Casino                                 $        13,677       $        13,627       $         50              0.4 %
Lodging                                         10,157                10,768               (611 )           -5.7 %
Food and beverage                               15,998                16,731               (733 )           -4.4 %
Retail                                           1,376                 1,377                 (1 )           -0.1 %
Other                                            4,172                 3,197                975             30.5 %
Less: promotional allowances                    (4,760 )              (3,568 )           (1,192 )           33.4 %

Net revenues                                    40,620                42,132             (1,512 )           -3.6 %

COSTS AND EXPENSES:
Casino                                           9,047                 8,952                (95 )           -1.1 %
Lodging                                          2,285                 2,536                251              9.9 %
Food and beverage                                9,382                 9,348                (34 )           -0.4 %
Retail                                             671                   853                182             21.3 %
Other                                            3,526                 2,731               (795 )          -29.1 %
Marketing                                        1,114                   987               (127 )          -12.9 %
Management fee-related party                     1,766                 2,857              1,091             38.2 %
General and administrative                       9,310                 7,048             (2,262 )          -32.1 %
Merger costs                                        -                  1,723              1,723            100.0 %
Depreciation and amortization                    5,042                 4,243               (799 )          -18.8 %
Loss on disposal of assets                           5                     2                 (3 )         -150.0 %
Pre-opening                                      1,350                   143             (1,207 )         -844.1 %
Acquisition and transition related
costs                                               -                  1,287              1,287            100.0 %

Total costs and expenses                        43,498                42,710               (788 )           -1.8 %


(LOSS) FROM OPERATIONS                          (2,878 )                (578 )           (2,300 )         -397.9 %
Interest income                                    150                    89                 61             68.5 %
Interest expense, net of
capitalized interest                            19,850                17,204             (2,646 )          -15.4 %

(Loss) before income tax benefit               (22,578 )             (17,693 )           (4,885 )           27.6 %
Income tax (benefit)                                -                 (3,799 )           (3,799 )          100.0 %

Net (loss)                                     (22,578 )             (13,894 )           (8,684 )           62.5 %
Other Comprehensive Loss:
Unrealized loss on interest rate
swap, net of tax                                    (2 )                  -                  (2 )            0.0 %

Comprehensive (loss)                   $       (22,580 )     $       (13,894 )     $     (8,686 )           62.5 %

Results of Operations for the Quarter Ended March 31, 2008 Compared to the Results of Operations for the Quarter Ended March 31, 2007

Net Revenues. Net revenues decreased 3.6% for the quarter ended March 31, 2008 to $40.6 million compared to $42.1 million for the quarter ended March 31, 2007. The $1.5 million decrease in net revenues was primarily attributable to a $0.6 million or 5.7% decrease in lodging revenue, a $0.7 million or 4.4% decrease in food and beverage revenue and a $1.2 million or 33.4% increase in promotional allowances related to items furnished to customers on a complimentary basis. These decreases in revenue were partially offset by a $1.0 million or 30.5% increase in other revenues, while casino revenue and retail revenues remained flat year over year.

Casino Revenues. Although casino revenues were flat year over year, there was a $0.2 million or 5.9% decrease in slot revenue and a $0.2 million or 54.2% increase in race and sports revenue with table games revenues remaining flat. Although table games revenues were flat quarter over quarter, there was an increase in table games hold percentage and a decrease in table games drop. Management believes that table games drop declined because of a decrease in "hosted play" (i.e., players attracted to the Hard Rock's casino by our casino hosts). Table games hold percentage increased 210 basis points to 14.9% from 12.8%, which was within the expected range of 12% to 16%. Table games drop decreased $9.2 million or 13% to $61.3 million from $70.5 million. The average number of table games in operations was reduced from 86 tables in 2007 to 83 tables in 2008. The net result of these changes in drop and hold percentage was an increase in win per table game per day to $1,205 from $1,164, an increase of $41 or 3.5%. We have historically reported table games hold percentage using the gross method, while casinos on the Las Vegas Strip report hold percentage using the net method (which reduces the table game drop by marker repayments made in the gaming pit area). For the purpose of comparison to properties on the Las Vegas Strip, our net hold percentage for the quarter ended March 31, 2008 was 17.5% compared to 14.5% for the quarter ended March 31, 2007. Slot machine revenues decreased $0.5 million from $4.8 million to $4.3 million. Slot machine handle decreased $9.2 million from $88.1 million to $78.9 million. However, slot machine hold percentage remained flat. Management believes that relocating the high limit slot room and reducing the number of machines on the casino floor, as a result of our expansion, decreased slot machine handle for the quarter ended March 31, 2008. Slot machine hold percentage remained flat at 5.4%, which was within the expected range of 4% to 7%. The average number of slot machines in operation decreased to 502 from 555, a decrease of 53 machines or 9.6%. The net result of these changes in handle, hold percentage and average number of slot machines in operation was a decrease in win per slot machine per day of $93.94 from $95.83, a decrease of $1.89 or 2.0%. Race and sports book revenue increased $0.2 million due to a decrease in race and sports book write and an increase in hold percentage. The race and sports book write decreased $0.2 million to $7.3 million in the quarter ended March 31, 2008 from $7.4 million in the quarter ended March 31, 2007. Race and sports book hold percentage increased 3.0 percentage points to 8.9% from 5.9%, which was within the expected range of 4% to 9%.

Lodging Revenues. The $0.6 million decrease in lodging revenues to $10.2 million was primarily due to a decrease in average daily rate to $184 from $197, which management believes resulted from poor economic conditions and a general softening of rates within the Las Vegas market. Hotel occupancy decreased slightly to 94.0% from 94.1% between periods.

Food and Beverage Revenues. The $0.7 million decrease in food and beverage revenues was due primarily to a $0.6 million decrease in Las Vegas Lounge, due to closing the outlet in order to make room for Wasted Space, a $0.2 million decrease in Pink Taco, a $0.2 million decrease in Beach Club and a $0.4 million decrease in Mr Lucky's, AJ's Steakhouse, Banquets, Starbucks, Center Bar and Sports Deluxe Bar, which was closed to accommodate our high-limit slot machine room that had to be moved to make room for Wasted Space. These decreases were partially offset by a $0.4 million increase in Ago versus Simon Kitchen and Bar in 2007, a $0.3 million increase in Body English, due to opening an additional day each Wednesday, Room Service and the Joint Bar. Management believes that the closure of existing outlets to accommodate the expansion and future outlets, such as Wasted Space has had a negative impact on patron visitation of its food and beverage outlets.

Retail Revenues. We believe the flat retail revenues quarter over quarter was due in part to continued general market decline in the themed merchandise segment and the addition of other retail operations in Las Vegas.

Other Revenues. Other revenue increased approximately $1.0 million due to a $1.0 million increase in entertainment revenue. Management believes the entertainment revenue increased due to additional patron volume attracted to the Hard Rock by its concert and other entertainment events. The Hard Rock hosted twelve entertainment events in the first quarter of 2007 and nineteen in the first quarter of 2008.

Promotional Allowances. Promotional allowances increased $1.2 million or 33.4% over the prior period for the quarter ended March 31, 2008. Promotional allowances increased as a percentage of total revenues to 10.5% from 7.8% between periods. This increase is due to additional promotional allowances offered by Body English and increased promotional activity by Casino Marketing.

Casino Expenses. Casino expenses increased $0.1 million or 1.1% to $9.0 million from $8.9 million. The increase was primarily due to a $0.2 million increase in payroll and related expenses, $0.1 million increase in promotional events and activities, which was partially offset by a $0.1 million decrease in bad debt expense, a $0.1 million decrease in customer discounts and other miscellaneous operating supplies. The Company's provision and allowance for doubtful accounts are based on estimates by management of the collectability of the receivable balances at each period end. Management's estimates consider, among other factors, the age of the receivables, the type or source of the receivables and the results of collection efforts to date, especially with regard to significant accounts.

Lodging Expenses. Lodging costs and expenses decreased 9.9% or $0.3 million to $2.3 million for the quarter ended March 31, 2008. Lodging expenses in relation to lodging revenues decreased to 22.5% from 23.6% in the prior period due primarily to approximately $0.1 million related to a decrease in labor and related expenses, $0.1 million decrease in credit card fees and a $0.1 million decrease in other miscellaneous operating supplies.

Food and Beverage Costs And Expenses. Food and beverage costs and expenses increased slightly by 0.4% or $34 thousand over the prior period for the quarter ended March 31, 2008. Food and beverage costs and expenses in relation to food and beverage revenues increased to 58.6% from 55.9% in the prior year due primarily to decreases in food and beverage revenues of 4.4% to $16.0 million from $16.7 million. Management believes these revenue decreases were primarily derived from the closing of outlets to accommodate our expansion plans. Payroll and related expenses are flat to the prior year at $5.3 million for the period ending March 31, 2008 and 2007 respectively. Professional services for Disc Jockeys and special events are up 50.0% from the prior year to $0.9 million from $0.6 million, this increase was partially offset by a decrease of $0.6 million in other operating supplies.

Retail Costs and Expenses. Retail costs and expenses decreased 21.3% or $0.2 million from the prior period for the quarter ended March 31, 2008. Retail costs and expenses in relation to retail revenues decreased to 48.8% from 61.9% in the prior period due to improved controls and a more focused buying effort.

Other Costs and Expenses. Other costs and expenses increased 29.1% or $0.8 million over the prior period for the quarter ended March 31, 2008. Other costs and expenses in relation to other income decreased to 84.5% from 85.4%. Concert and event costs were up $0.8 million over the prior period for the quarter ended March 31, 2008, as a result of hosting seven more concerts and events.

Marketing, General and Administrative. Marketing, general and administrative expenses increased 32.1% or $2.4 million over the prior period for the quarter ended March 31, 2008. Marketing, general and administrative expenses in relation to gross revenues increased to 23.0% from 17.6%. The $2.4 million increase in these expenses was primarily due to a $1.9 million increase in legal and professional services to acquire our gaming license, a $1.1 million increase in legal and professional services associated with our Form 10 registration and ongoing public filing requirements, a $0.9 million increase in legal and professional services associated with the protection and development of our intellectual property, Sarbanes Oxley compliance work and joint venture costs. These costs were slightly offset by a $0.7 million refund in use taxes related to meals served in our employee dining room, a decrease of $0.4 million in the early retirement of debt, which the Predecessor paid in January, 2007 and a $0.4 million decrease in other miscellaneous expenses.

Management Fee-Related Party. Management fee-related party expenses decreased $1.1 million or 38.2% to $1.8 million from $2.9 million. As compensation for its services, Morgans Management receives a management fee equal to four percent of defined non-gaming revenues including casino rents and all other rental income and a chain service expense reimbursement, which reimbursement is subject to a cap of one and one half percent of defined non-gaming revenues including casino rents and all other income. In contrast, the Predecessor paid Mr. Morton and his affiliates a supervisory fee equal to two percent of annual gross revenues (as defined), net of complimentary for each year, plus additional reimbursable expenses.

Merger Costs. The Predecessor expensed $1.7 million for the quarter ended March 31, 2007 related to the acquisition of the Hard Rock. The amount expensed for the quarter ended March 31, 2007 consisted of $1.1 million for bonuses to executives, $0.5 million for stay bonuses and related taxes, and $0.1 million in fees for legal advisors.

Depreciation and Amortization. Depreciation and amortization expense increased by $0.8 million to $5.0 million for the quarter ended March 31, 2008 from $4.2 million for the quarter ended March 31, 2007. The increase in depreciation is based upon the estimated fair value of the assets acquired in the acquisition of the Hard Rock.

Interest Expense. Interest expense increased $2.6 million to $19.9 million from $17.2 million, an increase of 15.4%. This increase reflects the interest expense resulting from the incurrence and retirement of debt related to the acquisition of the Hard Rock and the increase in deferred financing amortization in connection with the acquisition. The deferred financing amortization occurs over the 36-month life of the loans at approximately $1.3 million per month. The Company incurred approximately $58.3 million of new debt under the CMBS facility during the quarter ended March 31, 2008. Payments of the new debt under the CMBS facility are based upon LIBOR plus a spread of 4.25%.

Loss on Disposal of Assets. During the quarter ended March 31, 2008, the Company recorded $5.0 thousand loss on the disposal of assets, which was related to the retirement of computer equipment. During the quarter ended March 31, 2007, the Company recorded a $2.0 thousand loss on the disposal of assets, which was related to the disposal of two vehicles.

Pre-opening Expenses. Pre-opening expenses increased $1.2 million to $1.4 million for the quarter ended March 31, 2008 from $0.1 million for the quarter ended March 31, 2007. The increase is primarily related to $0.9 million on the opening of Ago and $0.3 million toward the opening of Wasted Space, estimated to open in June 2008.

Acquisition and Transition Related Costs. The Company expensed $1.3 million in acquisition and transition related costs in connection with the acquisition of the Hard Rock during the quarter ended March 31, 2007, which consisted of $0.7 million in payroll and related expenses, $0.2 million in celebrity acquisition costs, $0.2 million in fees to gaming related professional advisors and $0.2 million in legal fees and other expenses.

Income Taxes. The Company reported no income tax benefit for the quarter ended March 31, 2008 because it maintains a full valuation allowance to offset net deferred tax assets due to the uncertainty of future earnings as required under SFAS 109 and as further discussed below. As a result of the purchase allocation on February 1, 2007, the Company had net deferred tax liabilities of assets of $17.5 million, which was $2.3 million in excess of deferred tax liabilities on . . .