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, 1997 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
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4600 Northgate Boulevard, Suite 130, Sacramento, California 95834
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (916) 929-2295
-----------------
- -------------------------------------------------------------------
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 31, 1997
- ---------------------------- ----------------
Common Stock, $.50 par value 6,375,096 shares
<PAGE>
DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
FOR THE PERIOD ENDED SEPTEMBER 30, 1997
INDEX
Page
Part I. Financial Information
Item 1. Financial Statements
Consolidated Condensed Balance Sheets
September 30, 1997 and December 31, 1996 3
Consolidated Condensed Statements of Income
(Loss) for the three months ended September
30, 1997 and 1996 5
Consolidated Condensed Statements of Income
(Loss) for the nine months ended September
30, 1997 and 1996 7
Consolidated Condensed Statements of Cash Flows
for the nine months ended September 30, 1997
and 1996 9
Notes to Consolidated Condensed Financial
Statements, September 30, 1997 and 1996 10
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 20
Part II. Other Information
Item 1. Legal Proceedings 30
Item 3. Defaults Upon Senior Securities 30
Item 5. Other Events 30
Item 6. Exhibits and Reports on Form 8-K 30
Signatures 31
2
<PAGE>
<TABLE>
<CAPTION>
DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
SEPTEMBER 30, 1997 AND DECEMBER 31, 1996
ASSETS
September December
30, 1997 31, 1996
------------ ------------
(Unaudited)
(Dollars in thousands)
<S> <C> <C>
Cash and cash equivalents $ 3,092 $ 1,283
Marketable securities 1,678 527
Receivables
Trade, less allowance 1997, $60; 1996, $141 96 133
Related party, less allowance of $1,899 in 1997 and 1996 112 397
Real estate sales, less allowance of $64 in 1997 452 928
Other 20 47
Inventory of real estate held for sale 4,441 10,919
Inventory, other 38
Prepaid expenses 148 116
Property and equipment including capitalized lease equipment
of $1,804 in 1997 less accumlated depreciation and
amortiztion1997, $482; 1996, $424 3,341 1,678
Investments 644 1,049
Deferred costs and other 5 11
------------ ------------
$ 14,029 $ 17,126
============ ============
</TABLE>
(continued)
3
<PAGE>
<TABLE>
<CAPTION>
DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS (CONTINUED)
SEPTEMBER 30, 1997 AND DECEMBER 31, 1996
LIABILITIES AND SHAREHOLDERS' EQUITY
September December
30, 1997 31, 1996
------------- ------------
(Unaudited)
(Dollars in thousands)
<S> <C> <C>
Accounts payable $ 183 $ 98
Accrued expenses 240 246
Deferred income 99 70
Income taxes 307 247
Short-term debt 98 69
Long-term debt including capitalized lease obligations of $991 in 1997 2,244 1,955
Accrued preferred stock dividends 1,155 1,101
------------- ------------
Total liabilities 4,326 3,786
Minority interest 234 2,897
Shareholders' equity
Preferred stock - authorized 10,750,000 shares ($.50 par);
issued 10,512 shares Series B $7.50 cumulative
preferred stock, outstanding 9,250 shares in 1997 and 1996,
aggrerate liquidation value $2,355 including dividends in arrears 5 5
Common stock - authorized 25,000,000 shares ($.50 par);
issued 7,799,780 shares, outstanding 6,375,096
shares in 1997 and 1996 3,900 3,900
Capital in excess of par 25,881 25,881
Deficit (18,317) (17,343)
------------- ------------
11,469 12,443
Treasury stock at cost; Preferred - Series B, 902 shares
Common 1,424,684 shares in 1997 and 1996 2,000 2,000
------------- ------------
Total shareholders' equity 9,469 10,443
------------- ------------
$ 14,029 $ 17,126
============= ============
</TABLE>
See accompanying notes to consolidated condensed financial statements
4
<PAGE>
<TABLE>
<CAPTION>
DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME (LOSS)
THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
UNAUDITED
1997 1996
------------ -----------
(Dollars in thousands, except
per share)
<S> <C> <C>
Operating revenues:
Sales of real estate $ 6,627 $ 165
Cost of real estate sold 6,144 189
------------ -----------
483 (24)
------------ -----------
Rental income - agricultural properties 120 435
Cost and expense of rental income 12 12
------------ -----------
108 423
------------ -----------
Rice drying and storage revenues 342 271
Cost of rice drying and storage 153 142
------------ -----------
189 129
------------ -----------
Miscellaneous income - net 18 2
------------ -----------
798 530
------------ -----------
Operating expenses:
Selling, administrative and general
Corporate 267 288
Real estate operations 72 61
Bad debts, net of recoveries (24) 45
Loss on real estate investments 400
Depreciation 17 25
------------ -----------
732 419
------------ -----------
Income before other credits (charges) and
minority interest 66 111
------------ -----------
Other credits (charges):
Interest and dividend income 83 114
Interest expense (17) (55)
Partnership income 40
Securities gains (losses), net 24
Other 16 (15)
------------ -----------
106 84
------------ -----------
</TABLE>
(continued)
5
<PAGE>
<TABLE>
<CAPTION>
DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME (LOSS) (CONTINUED)
THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
UNAUDITED
1997 1996
----------- ----------
(Dollars in thousands, except
per share)
<S> <C> <C>
Income before minority interest 172 195
Minority interest in income of the White Ranch (234)
----------- -----------
Net income (loss) $ (62) $ 195
=========== ===========
Income (loss) per common share: $ (0.01) $ 0.03
=========== ===========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
6
<PAGE>
<TABLE>
<CAPTION>
DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME (LOSS)
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
UNAUDITED
1997 1996
------------ -----------
(Dollars in thousands, except
per share)
<S> <C> <C>
Operating revenues:
Sales of real estate $ 7,074 $ 608
Cost of real estate sold 6,572 665
------------ -----------
502 (57)
------------ -----------
Rental income - agricultural properties 425 758
Cost and expense of rental income 95 247
------------ -----------
330 511
------------ -----------
Rice drying and storage revenues 412 341
Cost of rice drying and storage 344 370
------------ -----------
68 (29)
------------ -----------
Miscellaneous income - net 55 47
------------ -----------
955 472
------------ -----------
Operating expenses:
Selling, administrative and general
Corporate 825 853
Real estate operations 165 155
Bad debts, net of recoveries 100
Loss on real estate investments 400 290
Depreciation 52 74
------------ -----------
1,542 1,372
Loss before other credits (charges), income ------------ -----------
taxes and minority interest (587) (900)
------------ -----------
Other credits (charges):
Interest and dividend income 199 276
Interest expense (103) (140)
Partnership income (loss) (109)
Securities gains 40
Other (97)
------------ -----------
39 27
------------ -----------
</TABLE>
(continued)
7
<PAGE>
<TABLE>
<CAPTION>
DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME (LOSS) (CONTINUED)
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
UNAUDITED
1997 1996
----------- -----------
(Dollars in thousands, except
per share)
<S> <C> <C>
Loss before income taxes and minority interest (548) (873)
Income taxes (53)
------------ -----------
Loss before minority interest (601) (873)
Minority interest in income of the White Ranch (319)
------------ -----------
Net income (loss) $ (920) $ (873)
============ ===========
Income (loss) per common share: $ (0.14) $ (0.14)
============ ===========
</TABLE>
See accompanying notes to consolidated condensed financial statements
8
<PAGE>
<TABLE>
<CAPTION>
DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
UNAUDITED
1997 1996
------------- ------------
(Dollars in thousands)
<S> <C> <C>
Cash flows from operating activities:
Net cash provided by operating activities $ 3,498 $ 176
------------- ------------
Cash flows from investing activities:
Decrease (increase) in investments (1,151) 516
Decrease (increase) in notes receivable 788 79
Increase in real estate held for sale (69)
Purchase of equipment (1,804)
------------- ------------
(2,167) 526
------------- ------------
Cash flows from financing activities:
Increase in long-term debt 1,152
Payments on long-term debt (703) (543)
Increase in short-term debt 29 35
------------- ------------
478 (508)
------------- ------------
Increase in cash and cash equivalents 1,809 194
Cash and cash equivalents, beginning of period 1,283 495
------------- ------------
Cash and cash equivalents, end of period $ 3,092 $ 689
============= ============
</TABLE>
See accompanying notes to consolidated condensed financial statements
9
<PAGE>
DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997 AND 1996
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), 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).
Description of business:
The Company operates in two principal business segments:
Real estate investments (development and sale of
residential lots and rental of agricultural land) and
agricultural (rice drying and storage).
The Company's real estate segment sells completed
residential lots primarily to builders of custom homes and
to the general public located in and around the greater
Sacramento, California area. The agricultural properties
are leased to farmers in the area where the agricultural
properties are located.
The agricultural segment dries harvested rice over a two
month period (approximately September 15 to November 15)
and stores, for a fee, the dried rice (or other grains)
until it is removed by the owner. The Company dries and
stores rice principally for one customer, Farmers Rice Co-
operative (Farmers). Farmers accounts for approximately
98% of the Company's rice drying and storage revenues. If
the Company were to lose Farmers as a customer, it would
have a material adverse effect on the Company's drying and
storage operation. (See Note 5 of Notes to Consolidated
Condensed Financial Statements)
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
Consolidated Condensed Financial Statements should be read
in conjunction with the Company's Annual Report on Form 10-
K for the year ended December 31, 1996.
10
<PAGE>
DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997 AND 1996
UNAUDITED
1. Summary of significant accounting policies (continued):
The results of operations for the nine months ended
September 30, 1997, are not necessarily indicative of
the results to be expected for the full year.
Capitalized interest:
The Company follows the policy of capitalizing interest as a
component of the cost of property and equipment constructed
for its own use. For the nine months ended September 30,
1997, the Company capitalized approximately $15,000 of
interest in connection with the construction of the rice
drying facility (the Drying Facility). The capitalization
rate that was used was 12% which is the rate applicable to
the debt related to the construction of the Drying
Facility.
Earnings per share:
In February 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 128,
"Earnings Per Share" (SFAS No. 128) which establishes a new
accounting standard for the computation and reporting on
net income (loss) per share. SFAS NO. 128 is effective for
financial statements issued for periods ending after
December 15, 1997, and early adoption is prohibited. The
Company expects that there will be no material effect upon
implementing SFAS 128 on its net income (loss) per share
computations.
Reclassifications:
For the nine months ended September 30, 1996, the Company
has changed the format of its Consolidated Condensed
Statement of Income (Loss) to conform to the September 30,
1997 presentation. The Company believes this change better
reflects the revenues and expenses of the segments within
which the Company operates.
11
<PAGE>
DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997 AND 1996
UNAUDITED
2. Fair value of financial instruments:
Estimated fair value of the Company's financial instruments
(all of which are held for non-trading purposes) are as
follows:
<TABLE>
<CAPTION>
Carrying Fair
Amount Value
---------- ----------
(Dollars in thousands)
<S> <C> <C>
Cash and cash equivalents $ 3,092 $ 3,092 (a)
Marketable securities 1,678 1,678 (a)
Notes receivable, real estate
sales, net of allowance of $64 452 452 (b)
Note receivable, related party,
net of allowance 112 (c)
Solano County Option, net of
allowance of $400 644 644 (d)
Long-term debt (2,244) (992)(e)
</TABLE>
(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, 1997.
(b) The fair value of the notes receivable are based on
their outstanding balances (net of allowances of
$64,000), interest rates and the fair value, based on
comparable sales in the area, of the real property
which serves as collateral for the note. 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.
(c) It is not possible to determine the fair value of the
Baby Grand Corp. note (the BGC Note) because the
Company is unable to predict whether Baby Grand Corp.
will be able to pay its first lien note on its due
date, which is the same date that the BGC Note payable
to the Company comes due. See Footnote 6d of Notes to
Consolidated Condensed Financial Statements. The BGC
Note is more fully described in detail in the
Company's Form 10-K for the year ended December
31,1996, see "Item 1. Business - Other Activities -
Certain Loans - Baby Grand Corp."; Form 8-K, "Item
12
<PAGE>
DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997 AND 1996
UNAUDITED
2. Fair value of financial instruments (continued):
5. Other Events," dated February 4, 1997; Form 8-K,
"Item 5. Other Events," dated March 26, 1997; and Form
8- K, "Item 5. Other Events," dated July 8, 1997.
(d) The fair value of the Solano County Option is
estimated based on the amount for which management
believes that the property under option could be sold.
The Company originally paid $1,000,000 to acquire the
option to purchase the Solano County property for
$3,000,000. It is management's belief that the
Solano County Property could currently be sold for
$2,600,000. Based on a sales price of $2,600,000 the
Company would only recover $600,000 of its original
option payment. Therefore the Company has written down
its investment in the Salono County option by
$400,000. The owner of the property under option has
informed the Company that it is two payments in
arrears, which approximates $150,000, including
interest, on the first mortgage lien which had a
balance due of approximately $1,356,000 as of December
31, 1996. The Company and the owner are continuing to
attempt to negotiate a solution. If the Company and
the owner are unable to arrive at a solution, the
Company may make the payments to the mortgage lien
holder in order to protect its investment in the
Solano County Option. The Company is unable to
predict what the outcome of this matter will be. The
Solano County Option is more fully described in the
Company's Form 10-K for the year ended December 31,
1996, see "Item 1. Business - Real Estate Segment -
Solano County Option."
(e) The fair value of long-term debt payable to Beal Bank
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, 1996, see "Item 1. Business - Resolution of SASA
Dispute." The fair value of the capitalized lease
obligation is based on current rates at which the
Company could borrow funds with similar remaining
maturities.
13
<PAGE>
DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997 AND 1996
UNAUDITED
3. Inventory of real estate held for development and sale:
<TABLE>
<CAPTION>
1997 1996
-------- --------
(Dollars in thousands)
<S> <C> <C>
The Fairways (a) $ 4,255 $ 4,664
Residential lots, North Las Vegas (b) - 469
White Ranch (c) - 5,600
Sam Hamburg Farm (d) 146 146
Other 40 40
-------- --------
$ 4,441 $10,919
======== ========
</TABLE>
(a) On October 7, 1996, the Company entered into a
Purchase and Option Agreement regarding the sale of
certain lots at The Fairways. The Purchase and
Option Agreement is described in the Company's report
on Form 10-K for the year ended December 31, 1996,
see "Item 1. Business - Real Estate Segment - The
Fairways."
(b) On July 3, 1997, the Company completed the sale of the
57 residential lots in North Las Vegas, Nevada. Net
proceeds to the Company were approximately $573,000 of
which $318,000 was paid to Beal Bank, the purchaser of
the Company's obligation to San Antonio Savings
Association (the SASA Obligation). In addition, the
Company received a note and deed of trust in the amount
of $72,597 representing reimbursement of water fees
previously paid. The note was paid in full on July 21,
1997.
(c) On July 15, 1997, the Company completed the sale of
the White Ranch. Net proceeds from the sale were
approximately $5,965,000 of which approximately
$2,982,500 was paid to the Company. The balance of the
proceeds were paid to the other 50% owner of the White
Ranch.
(d) See footnote 6b of Notes to Consolidated Condensed
Financial Statements regarding the chemical cleanup at
Sam Hamburg Farm.
14
<PAGE>
DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997 AND 1996
UNAUDITED
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 4,280,000 shares or 67.2% of the Company's
outstanding common stock as of October 31, 1997. Of those
shares, 3,000,000 or 47.1% of the Company's outstanding
common stock are subject to the rights and claims of the
Federal Deposit Insurance Corporation (the FDIC). See
footnote 6d of Notes to Consolidated Condensed Financial
Statements.
In August 1997, the Company entered into a verbal agreement
to use the West Sacramento drying facility for the purpose
of drying long-grain rice during the 1997 rice drying
season. Rental for the West Sacramento drying facility was
$20,000 plus 50% of the rice drying and storage profit after
deduction of the $20,000 rent payment.
On October 16, 1997, the Company loaned James H. Dale, the
president of MRI, $85,000. The loan is for three years with
interest at 9% payable monthly. The loan is collateralized
by a first deed of trust on real property and a conditional
assignment of Mr. Dale's directors fees.
5. Property and equipment:
On May 29, 1997, SHF signed a contract (the Contract) in
the amount of $1,651,800 with Tolson Construction Company
(the Contractor) for the construction of the Drying
Facility adjacent to the rice storage facility in Yolo
County, California. The Contract does not include certain
costs such as permits, landscaping, paving, utility lines,
interest costs, etc. These additional costs are estimated
to be between $200,000 and $250,000. As of October 31,
1997, SHF had paid approximately $1,491,400 to the
Contractor in accordance with the contract and
approximately $312,000 to other parties for the additional
costs. In connection with the financing of the Drying
Facility construction, SHF entered into the following
agreements with ICON Cash Flow Partners, L.P., Series E
(ICON, LP) and ICON Financial Corp. (ICON): (1) A
promissory note (the Note) dated April 3, 1997, between
ICON, LP and SHF in the principal amount of $1,150,000, with
interest thereon at the rate of 12% per annum. Interest is
payable on the first day of the month following the first
advance and on the first day of the month thereafter.
Upon completion of the Drying Facility advances made under
the Note will be rolled into the equipment lease financing
as of the Base Lease
15
<PAGE>
5. Property and equipment (continued):
Commencement Date (the last day of the month following the
date the Drying Facility is declared complete by both SHF
and ICON LP). As of October 31, 1997, SHF had drawn
approximately $991,000 against the Note. (2) A Master
Equipment Lease (the Lease) dated April 3, 1997, between
ICON and SHF. Beginning with the Base Lease Commencement
Date, ICON will lease to SHF the Drying Facility for a
period of five years. At the end of the five year period,
SHF will have the right to purchase not less than all of
the Drying Facility for $1.00. The monthly rental under the
Lease will be approximately 2.202% of the funded Drying
Facility cost (estimated to be approximately $25,000 per
month). In addition to being collateralized by the Drying
Facility, SHF has provided additional collateral in the form
of a Deed of Trust on certain parcels of property,
including the parcel on which the storage facility is
located. Both the Note and the Lease are guaranteed by MRI
and the Company (collectively the Guarantors). Before the
Guarantors are liable for any deficiency, ICON or ICON,
LP must first proceed against the Drying Facility and the
additional collateral. Both the Lease and the Note contain
certain events of defaults, one of which relates to any
material adverse change in the business or financial
condition of SHF or the Guarantors (defined as a
reduction of Tangible Net Worth of 20% or more) and another
relates to the loss of Farmers as a customer. These events
of defaults only apply during the period the Note remains
unpaid. The Drying Facility commenced operations on
approximately September 15, 1997.
6. Contingencies:
a. As of September 30, 1997, there were no material legal
proceedings pending against the Company. However, see
footnote 6d of Notes to Consolidated Condensed
Financial Statements regarding legal proceedings, not
involving the Company, that may have a material adverse
effect on the Company.
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 relating to the diesel
storage tank at a cost of approximately $100,000.
16
<PAGE>
DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997 AND 1996
UNAUDITED
6. Contingencies (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 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 of the contaminated earth in
toxic dump sites. 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. Because of the ongoing testing,
the State has not imposed a disposal date upon the
Company. Cost of disposal is estimated at $100 per
cubic yard. However, if on-site remediation can be
achieved, it is estimated that the aggregate cost of
disposal will be between $90,000 and $115,000. 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, 1997, the Company has paid
approximately $500,000, including the $100,000
expended for the cleanup relating to the diesel storage
tank, and accrued an estimated $174,000 relating to the
balance of the clean-up of the contaminated earth. That
estimate could change as the remediation work takes
place.
c. The Company received a notice from the California
Franchise Tax Board (FTB) wherein the FTB alleges that
one of the Company's subsidiaries owes California
franchise tax, penalties and interest of approximately
$563,800. The tax arose out of a gain in 1988
resulting from a foreclosure sale of certain real
property owned by the subsidiary. The FTB contends
that the gain is non-business income to the subsidiary
and therefore should be allocated 100% to California
without the benefit of any of the losses of the
Company. The Company has exhausted all of its appeals
with the FTB and therefore this matter has been
referred to the California State Board of Equalization
(SBE). On June 12, 1997, the Company filed its Reply
Brief with the SBE wherein the Company requested, based
on reasons stated in the Reply Brief, that the SBE
reverse the FTB's proposed assessment and withdraw its
Notice of Proposed Assessment. Because of the
likelihood of either litigation or a settlement, the
Company has provided in its balance sheet $300,000
relating to this matter. The Company has been informed
that a hearing date regarding this matter has been set
for December 4, 1997.
17
<PAGE>
DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997 AND 1996
UNAUDITED
6. Contingencies (continued):
d. John B. Anderson, Edith Anderson, Cedar Development Co.,
J.A. Inc. and J.B.A. Investments, Inc. (collectively
the Anderson Parties) are involved in litigation with
the Federal Deposit Insurance Corporation (the FDIC).
This matter is more fully described in the Company's
Form 10-K for the year ended December 31, 1996, see
"Item 3. Legal Proceedings - Federal Deposit Insurance
Corporation, et al v. John B. Anderson et al."; Form
8-K, "Item 5. Other Events," dated February 4, 1997;
Form 8-K, "Item 5. Other Events," dated March 26, 1997;
and Form 8-K, "Item 5. Other Events," dated July 8,
1997. Mr. Anderson, through his ownership of Cedar
Development Co. (Cedar), the parent of Baby Grand Corp.
(BGC) and J.B.A. Investments, Inc. (J.B.A.), owns
approximately 4,280,756 shares or 67.2% of the
outstanding common stock of the Company. Of these
shares (i) 3,000,000 shares or 47.1% of the outstanding
common stock of the Company (the Pledged Dunes Shares)
are pledged as collateral in favor of entities of which
the FDIC is a successor and/or assign and (ii) 1,280,756
shares or 20.1% of the outstanding common shares are
pledged to MRI as collateral for the BGC Note. In April
1997, the Company was informed that the FDIC had filed
applications with the Nevada Gaming Control Board (the
NGCB) and the Nevada Gaming Commission (the NGC) (the
NGCB and the NGC are collectively referred to herein as
the Nevada Gaming Authorities) for permission to
enforce the FDIC's security interest in, including the
right to vote, the common stock of Cedar, BGC and other
entities. The successful enforcement of the security
interests by the FDIC in the common stock of the
foregoing companies would, among other things, result
in a change in control of such companies as well
as the Company. The NGCB referred the matter back to
the NGCB staff for further review. On June
3, 1997, the FDIC filed a motion in the United States
District Court, District of Nevada (the Nevada District
Court) (i) for a declaration that the FDIC has the
right to exercise voting rights to the Pledged Dunes
Shares, and (ii) to require the Company and other
entities to hold their respective stockholders meetings.
On July 8, 1997, the Nevada District Court granted the
FDIC's motion. In August 1997, the Anderson Parties
filed in the Nevada District Court a motion for
clarification of the Nevada District Court's order
granting the FDIC's motion. The
18
<PAGE>
DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997 AND 1996
UNAUDITED
6. Contingencies (continued):
request for clarification is based on the fact that the
Nevada District Court's order is silent as to whether or
not the FDIC is required to comply with certain sections
of the NGC Regulations requiring prior approval of the
NGCB and NGC before voting rights can be exercised by
the FDIC. On September 8, 1997, the Nevada District
Court denied the Anderson Parties' motion. On July 3,
1997, the Nevada District Court approved the FDIC's
proposed plan (the Plan) for disposition of the
collateral which includes the Pledged Dunes Shares.
The Plan requires, among other things, that the Special
Master gather material to be provided to prospective
bidders, to review bids and negogiate with prospective
bidders, to submit qualified bids to the Nevada District
Court and to obtain a hearing date at which time the
Nevada District Court may consider any qualified
overbids, as well as credit bids for the FDIC. The
proposed time schedule of the Plan is approximately 215
days or January 24, 1998. The Company believes any
proceeds from the disposition of the Company's common
shares held by BGC, and pledged to MRI, would be payable
to MRI. Should the FDIC successfully assert voting
rights over, or dispose of, the Pledged Dunes Shares,
there will be a change in control of the Company. The
Company has been advised that Cedar and BGC each
received letters dated November 3, 1997, from the FDIC
asserting the FDIC's "rights with regard to the Cedar
and BGC stock, advising each of Cedar and BGC that " no
corporate action should be taken which is inconsistent
in any manner with the rights of the FDIC" and demanding
that a special meeting of the stockholders of each of
Cedar and BGC be forthwith noticed and held, "at which
meeting the FDIC, acting pursuant to the above
described authority, intends to vote the Cedar and BGC
stock to remove the existing board of directors of Cedar
and BGC and to elect a designee of the FDIC to
constitute the entire board of directors thereof." The
letter sent to BGC additionally states as follows: "Such
action will be taken with a view to then authorize BGC
to surrender its Nevada Gaming License and to enable
the appointment of a supervisor with respect to its
gaming activities. Each of the letters further provides
that Cedar and BGC are to call a special meeting of
stockholders and that if such meetings are not held on
or before November 20, 1997, the FDIC may petition
the Nevada District Court to enter such further orders
as may be required to notice and hold such meetings or
to permit the FDIC to take such actions by unanimous
written consent, for such sanctions as the Nevada
District Court may deem necessary or appropriate for
the failure to comply with the court orders, and for
such other relief as may be deemed necessary and
appropriate. As
19
<PAGE>
DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997 AND 1996
UNAUDITED
6. Contingencies (continued):
a result of the above-described potential future actions
by the FDIC, the ability of BGC to pay the $2,000,000
indebtedness owed to the Company may be further
substantially impaired. The Company cannot presently
predict what action Cedar or BGC may take in reaction
to the above-described notice from the FDIC, what
additional actions the FDIC may take in reaction
thereto, or what other actions other parties, including
the Nevada Gaming Authorities and the holder of the
first deed of trust on BGC's Maxim Hotel and Casino, may
take with respect to the foregoing. Without limitation,
the above actions of the FDIC, if successful, will
likely constitute events of default under the first
deed of trust indebtedness on BGC's Maxim Hotel and
Casino, which may cause other events which will
substantially impair the ability of BGC to repay the
indebtedness to the Company.
7. Loss per common share:
Loss per common share has been computed using the number of
shares outstanding (6,375,096) at September 30, 1997 and 1996.
Dividends on the Company's non-convertible preferred stock,
Series B (Series B Preferred Stock), have been deducted from
income or added to the loss applicable to common shares.
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
$1,155,000 as of September 30, 1997.
20
<PAGE>
DUNES HOTELS AND CASINOS INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE PERIOD ENDED SEPTEMBER 30, 1997
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Section 21E of the Securities Exchange Act of 1934 provides
a "safe harbor" for forward-looking statements. Certain
information included herein contains statements that are
forward-looking, such as anticipated liquidity requirements for
the coming fiscal year, anticipated sources of liquidity for the
coming fiscal year, the collectibility of certain receivables,
the impact of anticipated asset sales and potential changes
in control of the Company. Such forward-looking information
involves important risks and uncertainties that could
significantly affect the Company's financial condition and
future results of operations, and, accordingly, such future
financial condition and results of operations may differ from
those expressed in any forward-looking statements made herein.
These risks and uncertainties include, but are not limited to,
those risks relating to actual costs necessary to clean-up
certain real property chemical contamination, real estate
market conditions and general economic conditions, the
abilities of certain third parties to obtain financing and
otherwise perform under real estate purchase agreements,
potential changes in control of certain affiliate controlled
entities, and the outcome of certain litigation and other risks.
The Company cautions readers not to place undue reliance on
any such forward-looking statements, and, such statements speak
only as of the date made.
OVERVIEW
On July 3, 1997, the Company completed the sale of its 57
residential lots in North Las Vegas, Nevada. Net proceeds to
the Company were approximately $573,000 of which $318,000 was
paid to Beal Bank, the purchaser of the SASA Obligation. In
addition, the Company received a note and deed of trust in the
amount of $72,597 representing reimbursement of water fees
previously paid. The note was paid in full on July 21, 1997.
On July 15, 1997, the Company completed the sale of the
White Ranch. Net proceeds from the sale were approximately
$5,965,000 of which approximately $2,985,500 was paid to the
Company. The balance of the proceeds were paid to the other 50%
owner of the White Ranch.
On May 29, 1997, SHF signed a contract (the Contract) in
the amount of $1,651,800 with Tolson Construction Company (the
Contractor) for the construction of a rice drying facility (the
Drying Facility) adjacent to the rice storage facility in Yolo
County, California. The Contract does not include certain costs
such as
21
<PAGE>
DUNES HOTELS AND CASINOS INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE PERIOD ENDED SEPTEMBER 30, 1997
permits, landscaping, paving, utility lines, interest
costs, etc. These additional costs are estimated to be between
$200,000 and $250,000. As of October 31, 1997, SHF had paid
approximately $1,491,800 to the Contractor in accordance with
the contract and approximately $312,000 to other parties for the
additional costs. In connection with the financing of the
Drying Facility construction, SHF has entered into the following
agreements with ICON Cash Flow Partners, L.P., Series E (ICON,
LP) and ICON Financial Corp. (ICON): (1) A promissory note (the
Note) dated April 3, 1997, between ICON, LP and SHF in the
principal amount of $1,150,000, with interest thereon at the
rate of 12% per annum. Interest is payable on the first day of
the month following the first advance and on the first day of
the month thereafter. Upon completion of the Drying Facility
advances made under the Note will be rolled into the equipment
lease financing as of the Base Lease Commencement Date (the last
day of the month following the date the Drying Facility is
declared complete by both SHF and ICON, LP). As of October 31,
1997, SHF has drawn $991,800 against the Note. (2) A Master
Equipment Lease (the Lease) dated April 3, 1997, between ICON
and SHF. Beginning with the Base Lease Commencement Date, ICON
will lease to SHF the Drying Facility for a period of five
years. At the end of the five year period, SHF will have the
right to purchase not less than all of the Drying Facility for
$1.00. The monthly rental under the Lease will be approximately
2.202% of the funded Drying Facility cost (estimated to be
approximately $25,000 per month). In addition to being
collateralized by the Drying Facility, SHF has provided
additional collateral in the form of a Deed of Trust on certain
parcels of property, including the parcel on which the storage
facility is located. Both the Note and the Lease are guaranteed
by MRI and the Company (collectively the Guarantors). Before
the Guarantors are liable for any deficiency, ICON or ICON, LP
must first proceed against the Drying Facility and the
additional collateral. Both the Lease and the Note contain
certain events of defaults, one of which relates to any material
adverse change in the business or financial condition of SHF or
the Guarantors (defined as a reduction of Tangible Net Worth of
20% or more) and another relates to the loss of Farmers Rice
Coop as a customer. These events of defaults only apply during
the period the Note remains unpaid. The Drying Facility
commenced operations on approximately September 15, 1997.
During the quarter ended September 30, 1997, the Company wrote
down its investment in the Solano County Option by $400,000
because management believes that the option purchase price is
in excess of the estimated fair value of the property under
option.
22
<PAGE>
DUNES HOTELS AND CASINOS INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE PERIOD ENDED SEPTEMBER 30, 1997
John B. Anderson, Edith Anderson, Cedar Development Co., J.A.
Inc. and J.B.A. Investments, Inc. (collectively the Anderson
Parties) are involved in litigation with the Federal Deposit
Insurance Corporation (the FDIC). This matter is more fully
described in the Company's Form 10-K for the year ended December
31, 1996, see "Item 3. Legal Proceedings - Federal Deposit
Insurance Corporation, et al v. John B. Anderson et al."; Form
8-K, "Item 5. Other Events," dated February 4, 1997; Form 8-K,
"Item 5. Other Events," dated March 26, 1997; and Form 8-K,
"Item 5. Other Events," dated July 8, 1997. Mr. Anderson,
through his ownership of Cedar Development Co. (Cedar), the
parent of Baby Grand Corp. (BGC) and J.B.A. Investments, Inc.
(J.B.A.), owns approximately 4,280,756 shares or 67.2% of the
outstanding common stock of the Company. Of these shares (i)
3,000,000 shares or 47.1% of the outstanding common stock of the
Company (the Pledged Dunes Shares) are pledged as collateral in
favor of entities of which the FDIC is a successor and /or
assign and (ii) 1,280,756 shares or 20.1% of the outstanding
common shares are pledged to MRI as collateral for the BGC Note.
In April 1997, the Company was informed that the FDIC had filed
an application with the Nevada Gaming Control Board (NGCB) and
the Nevada Gaming Commission (NGC) (the NGCB and the NGC are
collectively referred to herein as the Nevada Gaming Authorities)
for permission to enforce the FDIC's security interest in,
including the right to vote, the common stock of Cedar, BGC
and other entities. The successful enforcement of the security
interest by the FDIC in the common stock of the foregoing
companies would, among other things, result in a change in
control of such companies as well as the Company. The NGCB
referred the matter back to the NGCB staff for further review.
On June 3, 1997, the FDIC filed a motion in the
United States District Court, District of Nevada (the Nevada
District Court) (i) for a declaration that the FDIC has the
right to exercise voting rights to the Pledged Dunes Shares, and
(ii) to require the Company and certain other entities to hold
their respective stockholders meetings. On July 8, 1997, the
Nevada District Court granted the FDIC's motion. In August
1997, the Anderson Parties filed in the Nevada District Court a
motion for clarification of the Nevada District Court's order
granting the FDIC's motion. The request for clarification is
based on the fact that the Nevada District Court's order is
silent as to whether or not the FDIC is required to comply with
certain sections of the NGC Regulations requiring prior
approval of the NGCB and the NGC before voting rights can be
exercised by the FDIC. On September 8, 1997, the Nevada
District Court denied the Anderson Parties motion. On July 3,
1997, the Nevada District Court approved the FDIC's proposed
plan (the Plan) for disposition of the collateral which includes
the Pledged Dunes Shares. The Plan requires, among other
things, that the Special Master gather material to be
23
<PAGE>
DUNES HOTELS AND CASINOS INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE PERIOD ENDED SEPTEMBER 30, 1997
provided to prospective bidders, to review bids and negotitate
with prospective bidders, to submit qualified bids to the Nevada
District Court and to obtain a hearing date at which time the
Nevada District Court may consider any qualified overbids, as
well as credit bids from the FDIC. The proposed time schedule
for the Plan is approximately 215 days or January 24, 1998. The
Company believes any proceeds from the disposition of the
Company's common shares held by BGC, and pledged to MRI, would
be payable to MRI. Should the FDIC successfully assert voting
rights over, or dispose of, the Pledged Dunes Shares, there will
be a change in control of the Company. The Company has been
advised that Cedar and BGC each received letters dated November
3, 1997, from the FDIC asserting the FDIC's "rights with regard
to the Cedar and BGC stock, advising each of Cedar and BGC that
"no corporate action should be taken which is inconsistent in
any manner with the rights of the FDIC" and demanding that a
special meeting of the stockholders of each of Cedar and BGC be
forthwith noticed and held, "at which meeting the FDIC, acting
pursuant to the above described authority, intends to vote the
Cedar and BGC stock to remove the existing board of directors of
Cedar and BGC and to elect a designee of the FDIC to constitute
the entire board of directors thereof." The letter sent to BGC
additionally states as follows: "Such action will be taken with
a view to then authorize BGC to surrender its Nevada Gaming
License and to enable the appointment of a supervisor with
respect to its gaming activities." Each of the letters further
provide that Cedar and BGC are to call a special meeting of
stockholders and that if such meetings are not held on or before
November 20, 1997, the FDIC may petition the Nevada District
Court to enter such further orders as may be required to notice
and hold such meetings or to permit the FDIC to take such
actions by unanimous written consent, for such sanctions as the
Nevada District Court may deem necessary or appropriate for the
failure to comply with the court orders, and for such other
relief as may be deemed necessary and appropriate. As a result
of the above-described potential future actions by the FDIC, the
ability of BGC to pay the $2,000,000 indebtedness owed to the
Company may be further substantially impaired. The Company
cannot presently predict what action Cedar or BGC may take in
reaction to the above-described notice from the FDIC, what
additional actions the FDIC may take in reaction thereto, or
what other actions other parties, including the Nevada Gaming
Authorities and the first deed of trust holder on BGC's Maxim
Hotel and Casino, may take with respect to the foregoing. Without
limitation, the above-described actions of the FDIC, if
successful, will likely constitute events of default under the
first deed of trust indebtedness on BGC's Maxim Hotel and Casino,
which may cause other events which will substantially impair the
ability of BGC to repay the indebtedness to the Company.
24
<PAGE>
DUNES HOTELS AND CASINOS INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE PERIOD ENDED SEPTEMBER 30, 1997
The Company received a notice from the California Franchise Tax
Board (FTB) wherein the FTB alleges that one of the Company's
subsidiaries owes California franchise tax, penalties and
interest of approximately $563,000. The tax arose out of a gain
in 1988 resulting from a foreclosure sale of certain real
property owned by the subsidiary. The FTB contends that the
gain is non-business income to the subsidiary and therefore
should be allocated 100% to California without benefit of any
losses of the Company. The Company has exhausted all of its
appeals with the FTB and therefore this matter has been referred
to the California State Board of Equalization (SBE). On June
12, 1997, the Company filed its Reply Brief with the SBE wherein
the Company requested, based on reasons stated in the Reply
Brief, that the SBE reverse the FTB's proposed assessment and
withdraw its Notice of Proposed Assessment. Because of the
likelihood of either litigation or a settlement, the Company has
provided in its balance sheet $300,000 relating to this matter.
The Company has been informed that a hearing date regarding this
matter has been set for December 4, 1997.
The Company has no present intentions to pay dividends on either
its common or preferred stock.
OPERATING RESULTS
Results of operations for the nine months ended September
30, 1997 were impacted by a write down of approximately $157,000
relating to real estate notes resulting from sales at The
Fairways and a $400,000 write down of the investment in the
Solano County Option. The write down of the Fairway notes was
a result of two of the original purchasers of lots at The
Fairways asking to have their loans reduced so that their total
investment in their lots would be closer to their current market
value. Although the Company could have foreclosed on the lots
and resold them, it was management's decision to grant the
reduction rather than go through a lengthy and costly
foreclosure proceeding. The write down of the Solano County
Option was due to management's belief that the fair value of the
property under option is less than the option purchase price.
These write downs were partially offset by the sale of the White
Ranch and the 57 residential lots in North Las Vegas.
25
<PAGE>
DUNES HOTELS AND CASINOS INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE PERIOD ENDED SEPTEMBER 30, 1997
Three months ended September 30, 1997 vs. Three Months ended
September 30, 1996
Real Estate
The increase in revenues from the sale of real estate and
the increase in cost of real estate sold for the three months
ended September 30, 1997 resulted from the sale of the White
Ranch and the 57 residential lots in North Las Vegas.
Net rental income from agricultural properties for the
three months ended September 30, 1997 decreased by approximately
$315,000 when compared with the three months ended September 30,
1996. The decrease was due to the sale of portions of Sam
Hamburg Farm and the sale of the White Ranch.
Agricultural
Profit from the rice drying and storage operations for the
three months ended September 30, 1997 increased by $60,000 when
compared with the three months ended September 30, 1996. The
increase was due primarily to the increased efficiency of the
new Drying Facility and the operation of the West Sacramento
facility to dry and store long grain rice.
General
When compared with the three months ended September 30,
1996, corporate selling, general and administrative expenses
decreased by approximately $21,000; loss on real estate
investments increased by approximately $400,000; partnership
losses decreased by approximately $40,000; interest income
decreased by approximately $31,000; and interest expense
decreased by approximately $38,000.The decrease in corporate
selling, general and administrative expenses was due primarily
to a decrease in salaries. The loss on real estate investments
increased because of the write down of the investment in the
Solano County Option. The decrease in partnership losses was due
to the termination of the Pine Ridge Joint Venture and Steadfast
Cattle Company in 1996. The decrease in interest income and
interest expense was due to principal collections on notes
receivable and a reduction in the principal balance owing on the
RTC note.
26
<PAGE>
DUNES HOTELS AND CASINOS INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE PERIOD ENDED SEPTEMBER 30, 1997
Nine months ended September 30, 1997 vs. Nine months ended
September 30, 1996
Real estate
Profit from the sale of real estate for the nine months ended
September 30, 1997, increased by $559,000 when compared to the
nine months ended September 30, 1996. This was a result of
higher sales prices of lots at The Fairways, the sale of the
White Ranch and the sale of the 57 residential lots in North Las
Vegas. The increase in cost of real estate sold was due to the
sale of the White Ranch and the 57 lots in North Las Vegas.
Rental income from agricultural properties for the nine
months ended September 30, 1997, decreased by $181,000 when
compared with the nine months ended September 30, 1996. The
decrease in rental income from agricultural properties was due
primarily to a reduction in water assessment fees, a reduction
in the cost of toxic clean up at Sam Hamburg Farm, the sale of
a portion of Sam Hamburg Farm and the sale of the White Ranch.
Agricultural
Profit from the rice drying and storage operation for the nine
months ended September 30, 1997, increased by approximately
$97,000 when compared with the nine months ended September
30, 1996. The increase in profit was primarily attributable to
the termination of the 1996 lease of the West Sacramento drying
facility and the agreement to use the Cal-Dehy name, the
increased efficiency of the new Drying Facility, and the use of
the West Sacramento facility to dry and store long grain rice.
General
When compared with the nine months ended September 30, 1996,
operating expenses increased by approximately $170,000. The
increase in operating expenses consisted primarily of an
increase in loss on real estate investments of $110,000, and an
increase in bad debts of $100,000. The increase in loss on real
estate investments was a result of the Company writing down its
investment in the Solano County Option. The increase in bad
debt expense relates to the reduction of certain notes
receivable resulting from the sale of lots at The Fairways
which is described above. The decrease in interest and dividend
income for the nine months ended September 30, 1997, was due to
a reduction in the principal balance of various notes receivable
primarily related to sales at The Fairways. Interest expense
decreased as a result of principal payments made Beal Bank,
the purchaser of the SASA Obligation.
The decrease in partnership losses was due to the termination
of the Pine Ridge Joint Venture and Steadfast Cattle Company in
1996.
LIQUIDITY AND CAPITAL RESOURCES
During the nine months ended September 30, 1997, cash, cash
equivalents and marketable securities increased by $2,960,000
from $1,810,000 at December 31, 1996, to $4,770,000 at September
30, 1997. The most significant sources of cash during the nine
months ended September 30, 1997, were from operations
($3,498,000); the collection of loans made to others
($788,000) and an increase in long-term debt of $1,152,000. The
most significant uses of cash during the nine months ended
September 30, 1997, consisted of payments on long-term debt
($703,000); payments on short term debt ($42,000); payments made
for the construction of the Drying Facility ($1,804,000) and an
increase in investments of $1,151,000.
The Company believes that its primary requirements for liquidity
in the coming fiscal year will be to fund ongoing expenses at
The Fairways, which include, among other things, association
dues, water and sewer fees, property taxes and the final payment
due the Rancho Murieta Association on December 31, 1997 for
unpaid park fees; to fund the required payments on the note to
the RTC; to fund the monthly lease payments on the Drying
Facility; to fund costs that may be incurred relating to the
toxic clean-up at Sam Hamburg Farm; to fund amounts, if any,
that may be due to the California Franchise Tax Board; and to
fund general and administrative expenses. In addition, the
Company may elect to pay certain mortgage payments relating
to the Solano County Option if the current owner is unable to do
so.
The Company believes that sources of required liquidity in
addition to cash, cash equivalents and marketable securities at
September 30, 1997, will be cash generated from the rice drying
and storage facilities, collections on loans made to others,
including the BGC Note, anticipated lots sales at The
Fairways, collections of notes receivable resulting from sales
at The Fairways and Success Payments
28
<PAGE>
DUNES HOTELS AND CASINOS INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE PERIOD ENDED SEPTEMBER 30, 1997
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
related to the venture with Murieta Investors. Based on known
commitments, the Company believes that the sources of cash
described will be adequate to fund known liquidity requirements.
29
<PAGE>
DUNES HOTELS AND CASINOS INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE PERIOD ENDED SEPTEMBER 30, 1997
PART II - OTHER INFORMATION
ITEM 1. Legal Proceeding
None, except for the discussion contained in "Part I, Item
2, Management's Discussion and Analysis of Financial
Condition and Results of Operations."
ITEM 3. Default Upon Senior Securities
Dividends in arrears. See Note 7 of Notes to Consolidated
Condensed Financial Statements.
ITEM 5. Other Events
Certain events could result in a change of control of the
Company. See Part 1.-Item 1. Financial Statements - Note
6 (d) of Notes to Consolidated Condensed Financial
Statements, September 30, 1997 and 1996.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27.01 Financial Data Schedule
(b) Reports on Form 8-K
None
30
<PAGE>
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 13, 1997 By: /s/ James H. Dale
James H. Dale
Duly Authorized Officer
and Chief Financial Officer
31
<PAGE>
EXHIBIT INDEX
Item Description Page No.
27.01 Financial data schedule 33
32
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheet and statements of income of Dunes Hotels and
Casinos Inc., as of and for the quarter ended September 30, 1997, and is
qualified in its entirety be reference to such financial statements.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 3,092
<SECURITIES> 1,678
<RECEIVABLES> 2,703
<ALLOWANCES> 2,023
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 3,823
<DEPRECIATION> 482
<TOTAL-ASSETS> 14,092
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
5
<COMMON> 3,900
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 14,029
<SALES> 7,074
<TOTAL-REVENUES> 7,966
<CGS> 6,572
<TOTAL-COSTS> 1,981
<OTHER-EXPENSES> 97
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 103
<INCOME-PRETAX> (548)
<INCOME-TAX> (53)
<INCOME-CONTINUING> (601)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (920)
<EPS-PRIMARY> (.14)
<EPS-DILUTED> (.14)
</TABLE>
