UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C., 20549
FORM 10-Q
(Mark One)
X Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the quarterly period
ended SEPTEMBER 30, 1996 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. 1-4385
DUNES HOTELS AND CASINOS INC.
(Exact name of registrant as specified in its charter)
NEW YORK 11-1687244
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4045 South Spencer Street, Suite 206, Las Vegas, Nevada 89119
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (702) 732-7474
NOT APPLICABLE
Former name, former address and former fiscal year, if changed
since last report
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
Applicable Only to Corporate Issuers
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date.
Outstanding at
Class October 1, 1996
Common Stock, $.50 par value 6,375,096 shares
This document consists of 27 pages with exhibits, 24 pages
without exhibits.
DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
FOR THE PERIOD ENDED SEPTEMBER 30, 1996
INDEX
PAGE
Part I. Financial Information
ITEM 1. FINANCIAL STATEMENTS
Consolidated Condensed Balance Sheets
September 30, 1996 and December 31, 1995 3
Consolidated Condensed Statements of Income
(Loss) for the three months ended September 30,
1996 and 1995 5
Consolidated Condensed Statements of Loss
for the nine months ended September 30,
1996 and 1995 6
Consolidated Condensed Statements of Cash Flows
for the nine months ended September 30,
1996 and 1995 7
Notes to Consolidated Condensed Financial
Statements, September 30, 1996 and 1995 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 18
Part II. Other Information
ITEM 1. LEGAL PROCEEDING 23
ITEM 3. DEFAULT UPON SENIOR SECURITIES 23
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 23
Signatures 24
DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
SEPTEMBER 30, 1996 AND DECEMBER 31, 1995
ASSETS
September December
30, 1996 31, 1995
(Unaudited)
(Dollars in thousands)
CASH AND CASH EQUIVALENTS $ 689 $ 495
MARKETABLE SECURITIES 529 511
RECEIVABLES
Trade, less allowance of $23 in 1995 398 256
Related party, less allowance of $1,566 in
1996 and 1995 982 1,127
Real estate sales 879 813
Other 259 410
INVENTORY OF REAL ESTATE HELD FOR SALE 8,654 9,512
INVENTORY, OTHER 38 89
PREPAID EXPENSES 164 142
PROPERTY AND EQUIPMENT, LESS ACCUMULATED DEPRECIATION
AND AMORTIZATION, 1996, $399; 1995, $325 1,701 1,754
INVESTMENTS 1,051 1,566
DEFERRED COSTS AND OTHER 2 52
$ 15,346 $ 16,727
(continued)
3
DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
SEPTEMBER 30, 1996 AND DECEMBER 31, 1995
LIABILITIES AND SHAREHOLDERS' EQUITY
September December
30, 1996 31, 1995
(Unaudited)
(Dollars in thousands)
ACCOUNTS PAYABLE $ 35 $ 100
ACCRUED EXPENSES 123 73
ACCRUED PREFERRED STOCK DIVIDENDS 1,083 1,028
DEFERRED INCOME 111 23
INCOME TAXES 254 327
SHORT-TERM DEBT 110 75
LONG-TERM DEBT 2,254 2,797
SHAREHOLDERS' EQUITY
Preferred stock - authorized 10,750,000 shares
($.50 par); issued 10,512 shares Series B
$7.50 cumulative preferred stock, aggregate
liquidation value $2,302 including dividends
in arrears 5 5
Common stock - authorized 25,000,000 shares
($.50 par); issued 7,799,780 shares,
outstanding 6,375,096 shares in 1996 and 1995 3,900 3,900
Capital in excess of par 25,881 25,881
Deficit (16,410) (15,482)
13,376 14,304
Treasury stock at cost; Preferred - Series B,
902 shares Common 1,424,684 shares in 1996
and 1995 2,000 2,000
Total shareholders' equity 11,376 12,304
$ 15,346 $ 16,727
4
DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME (LOSS)
THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
UNAUDITED
1996 1995
(Dollars in thousands
except per share)
OPERATING REVENUES:
Sales of real estate $ 165 $ 143
Cost and expenses of real estate sales 251 312
(86) (169)
Other operating revenue 661 184
Cost of other operating revenue 155 187
506 (3)
420 (172)
OPERATING EXPENSES:
Selling, administrative and general 288 306
Bad debts 20
Depreciation 25 16
313 342
INCOME (LOSS) BEFORE OTHER (CHARGES) CREDITS 107 (514)
OTHER (CHARGES) CREDITS
Interest and dividend income 114 207
Interest expense (55) (2)
Partnership income 40
Other (11) (18)
88 187
NET INCOME (LOSS) $ 195 $ (327)
NET INCOME (LOSS) PER COMMON SHARE $ 0.03 $ (0.05)
5
DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF LOSS
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
UNAUDITED
1996 1995
(Dollars in thousands
except per share)
OPERATING REVENUES:
Sales of real estate $ 608 $ 1,482
Cost and expenses of real estate sales 822 1,711
(214) (229)
Other operating revenue 1,099 617
Cost of other operating revenue 617 601
482 16
268 (213)
OPERATING EXPENSES:
Selling, administrative and general 853 974
Bad debts 145
Depreciation 74 48
927 1,167
LOSS BEFORE OTHER (CHARGES) CREDITS (659) (1,380)
OTHER (CHARGES) CREDITS
Interest and dividend income 276 500
Interest expense (140) (7)
Partnership loss (109) (450)
Write down of real estate held for sale (290)
Other 49 57
(214) 100
NET LOSS $ (873)$ (1,280)
NET LOSS PER COMMON SHARE $ (0.14)$ (0.20)
6
DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
UNAUDITED
1996 1995
(Dollars in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash provided by (used in) operating
activities $ 176 $ 1,253
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease (increase) in investments 516 (1,122)
Decrease (increase) in notes receivable 79
Increase in real estate held for sale (69) (427)
Sale of securities 213
Purchase of Treasury Stock (170)
526 (1,506)
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in long-term debt (543) (21)
Increase in short-term debt 35
(508) (21)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 194 (274)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 495 874
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 689 $ 600
7
DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996 AND 1995
UNAUDITED
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
CONSOLIDATION:
The accompanying consolidated condensed financial statements
include the accounts of the Company and its wholly-owned
subsidiaries Continental California Corporation
(Continental), Dunes, Inc., Dunes Hotel and Casino of
Atlantic City, Inc. (DAC), M&R Corporation (MRC), and MRC's
subsidiary M&R Investment Company, Inc. (MRI) and MRI's
subsidiaries SHF Acquisition Corporation (SHF) and Southlake
Acquisition Corporation (Southlake).
The Company did not consolidate Pine Ridge Joint Venture
(PRJV), a joint venture in which the Company has a 51%
interest at September 30, 1996, because the Company intends
to liquidate its interest in 1996. PRJV is accounted for on
the equity method. The Company did not consolidate
Steadfast Cattle Company (Steadfast), a limited liability
company in which the Company has a 50% interest. Steadfast
is accounted for on the equity method.
DESCRIPTION OF BUSINESS:
The Company considers its principal business to be the
acquisition, development and sale of real estate, and
related financing thereof. In that connection, the Company
has invested in a number of operating entities or
properties, the most significant of which is engaged in the
retail land sales business. Other enterprises, which are
held primarily for their real estate investment potential,
include operations in rice storage and drying and rentals.
Because these operations are continued primarily to minimize
the carrying costs of the underlying real estate
investments, pending their ultimate disposition, management
considers the Company to be engaged in only one business
segment, real estate-related investments.
The Company's real estate investments are concentrated in
Northern California and, to a lesser extent, near Las Vegas,
Nevada. Accordingly, ultimate realization of these
investments will be affected by changes in local conditions.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
BASIS OF PRESENTATION:
The financial information included herein is unaudited;
however, such information reflects all adjustments
(consisting solely of normal recurring adjustments) which
are, in the opinion of management, necessary for a fair
statement of results for the interim periods. The results
of operations for the nine months ended September 30, 1996,
are not necessarily indicative of the results to be expected
for the full year.
RECLASSIFICATIONS:
For the nine months ended September 30, 1996, the Company
has changed the format of its balance sheet from a
classified balance sheet to a non-classified balance sheet.
The Company believes that a non-classified balance sheet,
one that does not present current assets and current
liabilities, better reflects the status of the Company's
assets, liabilities and shareholders' equity. The format of
the December 31, 1995 balance sheet has been changed to
conform to the September 30, 1996 presentation.
COSTS AND EXPENSES OF REAL ESTATE SALES:
Costs and expenses relating to real estate sales include,
among other things, the cost of the real estate sold and
period costs which consist mainly of property taxes on the
unsold real estate, Homeowners association dues, utility
district dues and ongoing sales expenses such as sales
office expense and advertising.
2. FAIR VALUE OF FINANCIAL INSTRUMENTS:
Estimated fair value of the Company's financial instruments
(all of which are held for nontrading purposes) are as
follows:
Carrying Fair
Amount Value
(Dollars in thousands)
Cash, cash equivalents and
marketable securities 1,218 1,218 (a)
Notes receivable, real estate sales 879 879 (b)
Notes receivable, related parties,
net of allowance 982 (c)
Solano County Option 1,043 1,043 (d)
Long-term debt 2,254 (e)
(a) The carrying amount approximates fair value of cash,
cash equivalents and marketable securities. For
marketable securities, fair values are estimated based
on quoted market prices as of September 30, 1996.
(b) The fair value of the notes receivable are based on
their outstanding balances and their respective
interest rates. Notes receivable are collateralized by
first deeds of trust on the real estate sold. In the
event any purchaser were to default on the real estate
notes, the Company could institute foreclosure
proceedings and reacquire the property which serves as
the collateral for the note. The Company believes that
the fair value of the collateral is in excess of the
principal amount of the related note.
(c) It is not possible to determine the fair value of the
related party note. The ultimate collectibility of the
note is dependent upon Baby Grand Corp's ability to
refinance the existing first mortgage loan on the Maxim
Hotel and Casino. The related party note is more fully
described in detail in the Company's Form 10-K for the
year ended December 31, 1995. See "Item 1. Business -
Other Activities - Certain Loans - Baby Grand Corp."
2. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED):
(d) The fair value of the Solano County Option is estimated
based on an appraisal dated January 20, 1995, of the
real property to which the option relates and the
length of the option period which enables the Company
to have some flexibility as to when and if the option
should be exercisable. The Company can only recover
the fair value of the option (i) by exercising the
option and selling the property or (ii) selling the
option. However, if the fair value of the real
property should drop below the option purchase price,
the Company would not be able to recover all of its
investment in the Solano County Option.
(e) The fair value of long-term debt is not subject to
reasonable estimation because the debt arose
principally as a result of the settlement of a dispute.
The settlement is described in detail in the Company's
Form 10-K for the year ended December 31, 1995. See
"Item 1. Business - Resolution of SASA Dispute and The
San Diego Property."
3. INVENTORY OF REAL ESTATE HELD FOR DEVELOPMENT AND SALE:
1996 1995
(Dollars in thousands)
The Fairways at Rancho Murieta (3) 5,281 6,139
53 partially developed lots,
Las Vegas, Nevada 427 427
The White Ranch, 10,000 acres of
agricultural land (1) 2,800 2,800
Sam Hamburg Farm, 150 acres of
agricultural land (1 & 2) 146 146
$8,654 $9,512
(1) The White Ranch and Sam Hamburg Farm were previously
classified as Property and Equipment. The Company owns
a 50% interest in The White Ranch.
(2) See footnote 5b of Notes to Consolidated Condensed
Financial Statements regarding the chemical cleanup at
Sam Hamburg Farm.
3. INVENTORY OF REAL ESTATE HELD FOR DEVELOPMENT AND SALE
(CONTINUED):
(3) On July 12, 1996, the Company signed a letter agreeing
to modify the Purchase and Option Agreement (the New
Agreement) between the Company and Murieta Investors,
formerly West Coast Properties, LLC. The Purchase and
Option Agreement between West Coast Properties, LLC and
the Company is described in detail in the Company's
Form 10-K for the year ended December 31, 1995. See
Item 1. "Business - Real Estate and Related Activities
- The Fairways." The New Agreement provides that
Murieta Investors will purchase from the Company 6 lots
at The Fairways at $40,000 per lot plus payment of the
Park Fees applicable to the lots purchased. In
addition, the Company will receive 20% of the gross
sales price of each residential dwelling sold less
$40,000 (the Success Payments). Eight months after the
purchase of the initial 6 lots, Murieta Investors will
be entitled to purchase a second group of 6 lots. An
additional group of 6 lots may be purchased every 4
months thereafter until 40 lots have been purchased.
The initial payment for the second 6 lots purchased
will be $40,000, payment of the applicable Park Fees
and the Success Payments. The initial payment for all
subsequent lots purchased will be $45,000, payment of
the applicable Park Fees and the Success Payments.
Beginning with the purchase of the third group of 6
lots, the Success Payments will be 20% of the gross
sales price of each residential lot sold less $45,000.
4. RELATED PARTY TRANSACTIONS:
John B. Anderson, the Company's controlling stockholder and
Chairman of the Board of Directors of the Company, and
entities owned or controlled by him (Anderson Entities) own
approximately 68.5% of the Company's common stock as of
October 1, 1996.
From time to time the Company has made loans to various
Anderson Entities and to directors and executive officers of
the Company, details of which are more fully described in
the Company's report on Form 10-K for the year ended
December 31, 1995.
4. RELATED PARTY TRANSACTIONS (CONTINUED):
In connection with a tentative settlement agreement (the
Agreement) dated June 12, 1996, between the Federal Deposit
Insurance Corporation (the FDIC) and John B. Anderson, Edith
Anderson, Cedar Development Company, J.A. Inc. and J.B.A.
Investments, Inc. (the Anderson Parties) the Company loaned
$250,000 to an Anderson Party. The loan is evidenced by a
note dated June 12, 1996, which bears interest at the rate
of 12% per annum, payable monthly. A principal payment of
$100,000 was paid on July 1, 1996. The balance of the
principal and accrued and unpaid interest is due on
December 12, 1996. The loan was approved by the Company's
audit committee. On August 27, 1996 the Company was
informed that the FDIC rejected the Agreement. As a result
of the FDIC rejection the note may be unsecured. See Note
5e. The Company is unable to predict whether it will be able
to collect the unpaid principal and accrued and unpaid
interest on the Anderson Party note. As of September 30,
1996, the Company carries the note as fully collectible.
5. CONTINGENCIES:
a. The Company is involved in various legal proceedings
which are considered to be incidental to the ordinary
course of business. The Company believes that the
impact, if any, will not materially affect the
Company's operating results or consolidated financial
position.
b. SHF was advised of possible contamination on two sites
at Sam Hamburg Farm, a storage facility for diesel
fuels and an old airstrip which had been used for the
loading and fueling of aircraft applying agricultural
chemicals to the surrounding farm lands. The Company
has completed the cleanup related to the diesel storage
tanks at a cost of approximately $100,000. Clean up of
the airstrip has required major excavation of
contaminated earth and the treatment and disposal
thereof.
5. CONTINGENCIES (CONTINUED):
b. (continued)
The Company has disposed of a large amount of the
contaminated earth at an approved site for the storage
of toxic wastes. However 5,000 cubic yards of
contaminated earth (previously thought to be 4,000
cubic yards) still remain to be disposed of. The
Company, through its chemical and toxic clean-up
consultant, has been working with the California State
Environmental Protection Agency, in seeking alternate
means to the disposal in toxic dump sites of chemical
and toxic-laden soil. The State has participated in
the funding of several projects by a number of chemical
treatment firms in efforts to try other detoxification
methods on the soil. If on-site remediation can be
achieved, it is estimated that the cost will be between
$90,000 and $115,000. If the Company is required to
move the contaminated earth to an approved site for the
storage of toxic wastes, it is estimated that the cost
would be approximately $580,000.
On April 18, 1996, the Company received a letter from
the State of California, State Board of Equalization
(SBE) wherein the SBE alleges that the Company owes a
Hazardous Waste Disposal Fee (HWDF) of approximately
$49,700 and a Hazardous Waste Generator Fee and Waste
Reporting Surcharge Fee (HWGF) of approximately
$43,000. The fees relate to the toxic-laden soil that
was removed from Sam Hamburg Farm. In addition, the
Company may be liable for a 10% penalty on both fees
and interest at 11% from January 31, 1993. As of
September 30, 1996, the penalties and interest
approximate $52,000. In July 1996, the Company paid
both the HWDF and the HWGF. The Company is currently
negotiating with the SBE to have the interest reduced
and the penalties abated. No assurance can be given
that the Company will not have to pay the full amount
of the interest and penalties. As of September 30,
1996, the Company has not made an accrual for any
amounts, relating to the penalties and interest, that
may be due the SBE.
5. CONTINGENCIES (CONTINUED):
b. (continued)
Because of the ongoing testing, the State has not
imposed a disposal date upon the Company. The Company
is unable to predict when the ongoing testing will be
complete or what the outcome of these tests will be.
As of September 30, 1996, the Company has paid
approximately $540,000, including the hazardous waste
fees paid to the SBE and the $100,000 for the clean up
of the diesel storage tanks. The Company has not made
an accrual for the cost, if any, of removing the
contaminated earth pending the results of the various
ongoing test.
c. The Company has received a notice from the State of
California Franchise Tax Board (FTB) wherein the FTB
alleges that one of the Company's subsidiaries owes
California franchise taxes, penalties and interest of
approximately $616,000. Interest continues to accrue at
the rate of approximately 8% per annum. The FTB claims
that the Company is not permitted to file a unitary tax
return in California. The Company has retained legal
counsel to resolve the matter with the FTB. The matter
is currently being appealed to the California State
Board of Equalization.
d. The Company has been advised by the State of New
Jersey, Department of State, Division of Commercial
Recording that neither Dunes, Inc. nor DAC filed
reports required by state statutes for two consecutive
years. As a result, as of February 28, 1995, the state
of New Jersey revoked the active status of Dunes, Inc,
and DAC which can result in denial of their privilege
of doing business. The Company has no plans to resume
operations or pursue business opportunities in New
Jersey and does not intend to contest the action.
5. CONTINGENCIES (CONTINUED):
e. In June 1996, the Company was informed that the
Anderson Parties had reached a tentative settlement
agreement (the Agreement) regarding the Anderson
Parties obligations to the FDIC. The Agreement was
subject to the final approval of the FDIC. The
Anderson Parties obligations to the FDIC are described
in detail in the Company's report on Form 10-K for the
year ended December 31, 1995, "Item 3. Legal
Proceedings - Federal Deposit Insurance Corporation, et
al v. John B. Anderson et al." As described in Note
4 , the Company made a $250,000 loan to an Anderson
Party in connection with the Agreement of which
$150,000 remains outstanding. The Agreement provided
that the judgment, in the original principal amount of
approximately $33,700,000, held by the FDIC against the
Anderson Parties would be sold to the Anderson Party.
On August 27, 1996 the Company was informed that the
FDIC rejected the Agreement. The Company was further
informed that on August 28, 1996, the United States
District Court, District of Nevada, entered the Consent
Judgment appointing Ronald L. Durkin, C.P.A.(the
Receiver) as the permanent receiver over the assets of
Mr. Anderson and the Anderson Parties to the extent and
with the powers set forth in the Receivership Order.
Included in the assets over which the Receiver's powers
extend are Mr. Anderson's beneficial ownership of
4,367,013 shares, or approximately 68.5% of the common
stock of the Company. As a result of entry of the
Consent Judgment, a change in control of the Company
may have occurred. To the knowledge of the Company,
the Receiver has not taken any overt steps to assert
control, vote the shares, influence management of the
Company, or otherwise, although no assurance can be
given that such steps are not contemplated or imminent.
The entry of the Consent Judgment may jeopardize the
Anderson Parties ability to operate, including Baby
Grand Corp. which remains liable to the Company under
the Baby Grand Note (the BGC Note). The BGC Note is
described in detail in the Company's report on Form
10-K for the year ended December 31, 1995, "Item 1.
Business - Other Activities - Certain Loans." As of
September 30, 1996, there was outstanding principal and
accrued interest of approximately $2,548,000 under the
BGC Note which may be uncollectible. The Company is
unable to predict what effect the outcome of the
matters described above will have on the Company.
6. LOSS PER COMMON SHARE:
Loss per common share has been computed using the number of
shares outstanding (6,375,096) at September 30, 1996.
Dividends on the Company's Series B Preferred stock have not
been paid since the first quarter of 1982. The Company is
in arrears on such dividends in the amount of approximately
$1,083,000 as of September 30, 1996.
DUNES HOTELS AND CASINOS INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE PERIOD ENDED SEPTEMBER 30, 1996
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
STATEMENT ON FORWARD-LOOKING INFORMATION. Certain
information included herein contains statements that may be
considered forward-looking within the meaning of the Private
Securities Litigation Reform Act of 1995, such as statements
relating to anticipated expenses, capital spending and financing
sources and collectabilty of certain notes receivable. Such
forward-looking information involves important risks and
uncertainties that could significantly affect anticipated results
in the future and, accordingly, such results may differ from
those expressed in any forward-looking statements made herein.
These risks and uncertainties include, but are not limited to,
those relating to dependence on existing management, leverage and
debt service (including sensitivity to fluctuations in interest
rates), outcome of litigation, domestic or global economic
conditions and changes in federal or state tax laws or the
administration of such laws and the business prospects of third
persons which are indebted to the Company.
MATERIAL CHANGES IN FINANCIAL CONDITION. During the nine
months ended September 30, 1996, cash and cash equivalents
increased by $194,000 from $495,000 at December 31, 1995 to
$689,000 at September 30, 1996. The most significant source of
cash was the collection of the loan made to William Maddocks et
al. ($209,000). In addition to the cash received from Maddocks
et al, the Company also received a 91.90% interest in a note in
the principal amount of $243,340. The most significant uses of
cash during the nine months ended September 30, 1996, were the
payments of principal and interest totaling approximately
$680,000 pursuant to a promissory note to the Resolution Trust
Corporation (RTC).
The Company believes that its primary requirements for
liquidity for the remainder of the fiscal year will be to fund
ongoing expenses at The Fairways, which include, among other
things, association dues, water and sewer fees and property
taxes; to fund the required payments due on the promissory note
to the RTC; and to fund general and administrative expenses.
Additional liquidity requirements of approximately $800,000
consisting of construction costs and carrying costs, will be
required if the Company should decide to build a rice drying
facility in Davis, California. In order for the Company to
proceed with the construction of the rice drying facility it will
be necessary to obtain outside financing in the approximate
amount of $1,100,000. There is can be no assurance that such
financing will be available to the Company. However, if the
Company receives the required financing, construction of the rice
drying facility would not begin before January 1997.
The Company believes that the sources of required liquidity
will be cash generated from its existing storage and drying
facility, anticipated lot sales at The Fairways, collection of
notes resulting from sales at The Fairways, collection of rents
at the White Ranch, Success Payments related to the Murieta
Investors venture (formerly the WCP venture), payments on the
Baby Grand Corp. Note (the BGC Note), the sale of the North Las
Vegas Lots and the sale of certain industrial property in Las
Vegas. Based on known commitments, the Company believes that the
sources of cash described will be adequate to fund known
liquidity requirements. However, if the sources of required
liquidity prove to be insufficient to cover the Company's primary
liquidity requirements, it will be necessary to sell some of the
Company's non-income producing assets.
Sales at The Fairways, both in terms of numbers and sales
prices, have not met Company expectations. As a result, during
the nine month period ended September 30, 1996, the Company has
written down the carrying value of The Fairways by $290,000. The
Company, along with other developers at Rancho Murieta and the
community of Rancho Murieta, have begun an advertising campaign
to try to stimulate interest in the community of Rancho Murieta,
which includes The Fairways. In addition, the Company
anticipates that the Murieta Investors venture will stimulate
sales of Company owned lots.
As a result of the principal payments made on the promissory
note to the RTC, the Company's monthly interest payment to the
RTC has been reduced from $21,044 to $18,229. The note to the
RTC is described in detail in the Company's Form 10-K for the
year ended December 31, 1995. See "Item 1. Business - Resolution
of SASA Dispute and the San Diego Property."
In June 1996, the Company was informed that the Anderson
Parties had reached tentative settlement agreement (the
Agreement) regarding the Anderson Parties obligations to the
Federal Deposit Insurance Corporation (the FDIC). The Agreement
was subject to the final approval of the FDIC. The Anderson
Parties obligations to the FDIC are described in detail in the
Company's report on Form 10-K for the year ended December 31,
1995, Item 3. "Legal Proceedings - Federal Deposit Insurance
Corporation, et al v. John B. Anderson et al". As described in
Note 4 to Consolidated Condensed Financial Statements, the
Company made a $250,000 loan to an Anderson Party in connection
with the Agreement of which $150,000 of principal remains
outstanding. The loan was approved by the Company's audit
committee. The Agreement provided that the judgment in the
original principal amount of approximately $33,700,000 held by
the FDIC against the Anderson Parties would be sold to the
Anderson Party. On August 27,1996 the Company was informed that
the FDIC rejected the Agreement. As a result of the FDIC
rejection, the $150,000 note may be unsecured. The Company was
further informed that on August 28, 1996, the United States
District Court, District of Nevada, entered the Consent Judgment
appointing the Receiver over the assets of Mr. Anderson and the
Anderson Parties to the extent and with the powers set forth in
the Receivership Order. Included in the assets over which the
Receiver's powers extend are Mr. Anderson's beneficial ownership
of 4,367,013 shares, or approximately 68.5% of the common stock
of the Company. As a result of entry of Consent Judgment, a
change in control of the Company may have occurred. To the
knowledge of the Company, the Receiver has not taken any overt
steps to assert control, vote the shares, influence management of
the Company, or otherwise, although no assurances can be given
that such steps are not contemplated or imminent.
The entry of the Consent Judgment may jeopardize the
Anderson Parties ability to operate, including Baby Grand Corp.
which remains liable to the Company under the BGC Note. The BGC
Note is described in detail in the Company's report on Form 10-K
for the year ended December 31, 1995, Item 1. "Business - Other
Activities - Certain Loans." As of September 30, 1996, there was
outstanding approximately $2,548,000 on the BGC Note. In
addition, because the FDIC rejected the Agreement, the $150,000
due on the Anderson Party note, may be uncollectible. The
Company is unable to predict what effect the outcome of the
matters described above will have on the Company.
As more fully described in the Company's report on Form 10-K
for the year ended December 31, 1995, "Item 7. Managements's
Discussion and Analysis of Financial Condition and Results of
Operations," the Company invested in a cattle feeding operation
in Gonzales, California, known as Steadfast Cattle Company
(Steadfast). Because the operations of Steadfast were
unsuccessful, the Company has written off all of the advances
made to Steadfast. The Company also acquired cattle feeding
equipment at a cost of approximately $225,000, which equipment is
now being marketed for sale. No assurance can be given as to the
amount to be recovered through sale of the equipment.
The Company continues to have ongoing cash requirements
relating to the removal of 5,000 cubic yards (previously thought
to be 4,000 cubic yards) of contaminated earth at its Hamburg
Farm property. If the Company is required to dispose of the
contaminated earth, it is estimated that the cost will be
approximately $580,000. The Company, through its chemical and
toxic clean-up consultant, has been working with the California
State Environmental Protection Agency, in seeking alternate means
to the disposal in toxic dump sites of chemical and toxic-laden
soil. If on-site remediation can be achieved, it is estimated
that the cost will be between $90,000 and $115,000. Because of
the ongoing testing the State has not imposed a disposal date
upon the Company. The Company is unable to predict when the
ongoing testing will be completed or what the outcome of these
tests will be.
In July 1996, the Company paid to the State of California,
State Board of Equalization (SBE) approximately $92,700 in fees
relating to the removal of toxic waste at Sam Hamburg Farm. In
addition to the fees, the SBE imposed interest and penalties of
approximately $48,000 which as of September 30, 1996 approximates
$52,000. The Company is currently attempting to obtain a
reduction in the interest and to have the penalties abated.
There can be no assurance that the Company will receive a
reduction in the interest or that the penalties will be abated.
Because the Company operates predominantly in the
Sacramento, California area and the Las Vegas, Nevada area, the
Company's land sales and other operations could be affected by
adverse changes in economic conditions in those areas.
Certain of the matters discussed above are more fully
described in the Company's Annual Report on Form 10-K for the
year ended December 31, 1995. See "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of
Operations."
MATERIAL CHANGES IN RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1996, COMPARED WITH THE
THREE MONTHS ENDED SEPTEMBER 30, 1995. When compared with the
three months ended September 30,1996, sales of real estate
declined by $22,000 and the loss from real estate sales increased
by $83,000. Sales at The Fairways are still being affected in
large part by the weakened Sacramento real estate market. The
increase in the loss from real estate sales is largely
attributable to an overall decline in the price of custom home
lots. As a result of the foregoing, the Company previously
reduced the carrying value of The Fairway lots by $290,000.
Other operating revenue for the three months ended September 30,
1996, increased by $477,000 when compared with the three months
ended June 30, 1995. The increase in other operating revenue is
due in large part to an under accrual of rental income in the
prior quarters. The Company recognized income of $40,000 from
the Pine Ridge Joint Venture during the three months ended
September 30, 1996. The income resulted from miscellaneous
adjustments and refunds as a result of the winding down of the
joint venture. Total operating expenses and cost of other
operating revenue remained fairly constant when comparing the
quarters ending September 30, 1996 and September 30, 1995.
Interest and dividend income decreased by $93,000 when compared
with the quarter ended September 30, 1995. The decrease was due
in large part to greater principal payments made on real estate
and related party notes receivable and the write off of certain
related party notes receivable. Interest expense increased by
$53,000 when compared with the quarter ended September 30, 1995
because of the interest payments made on the RTC note.
NINE MONTHS ENDED SEPTEMBER 30, 1996, COMPARED WITH THE NINE
MONTHS ENDED SEPTEMBER 30, 1995. When compared with the nine
months ended September 30, 1995, sales of real estate declined by
$874,000. The loss from the sale of real estate decreased by
$30,000. The decline in real estate sales was due in large part
to the weakened Sacramento real estate market and the conclusion
of the Street of Dreams promotion. As a result of the
foregoing, the Company reduced the carrying value of The Fairway
lots by $290,000. General and administrative expenses decreased
by $121,000 when compared with the nine months ended September
30, 1995. The decrease consisted primarily of an increase in
salaries of $34,000 and a decrease in legal fees of $125,000.
Interest and dividend income decreased by $224,000 when compared
with the nine months ended September 30, 1995. The decrease was
due in large part to greater principal payments made on real
estate and related party notes receivable and the write off of
certain related party notes receivable. Interest expense
increased by $133,000 when compared with the nine months ended
September 30, 1995 because of the interest payments on the RTC
note.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDING
None.
ITEM 3. DEFAULT UPON SENIOR SECURITIES
Dividends in arrears. See Note 6 of Notes to Consolidated
Condensed Financial Statements.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
ITEM DESCRIPTION
27.01 Financial Data Schedule
(b) Reports on Form 8-K
Form 8-K, Item 5, Dated August 27, 1996, wherein the Company
reported the entry of the Consent Judgment and the appointment of
a receiver over the assets of Mr. Anderson and the Anderson
Parties.
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT
OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED THEREUNTO DULY AUTHORIZED.
DUNES HOTELS AND CASINOS INC.
Registrant
Date: November 14, 1996 By: /s/ James H. Dale
James H. Dale
Duly Authorized Officer
and Chief Financial
Officer
EXHIBIT INDEX
ITEM DESCRIPTION PAGE NO.
27.01 Financial Data Schedule. 26
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<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 689
<SECURITIES> 529
<RECEIVABLES> 2,518
<ALLOWANCES> 1,566
<INVENTORY> 38
<CURRENT-ASSETS> 0
<PP&E> 2,100
<DEPRECIATION> 399
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<COMMON> 3,900
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<TOTAL-REVENUES> 1,707
<CGS> 822
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<OTHER-EXPENSES> 927
<LOSS-PROVISION> 0
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<INCOME-PRETAX> (873)
<INCOME-TAX> 0
<INCOME-CONTINUING> (873)
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