<PAGE>1
U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB
(Mark One)
_X_ Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarterly period ended March 31, 1999
___ Transition report pursuant to 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 business issuer as specified in its charter)
NEW YORK 11-1687244
(State or other jurisdiction or I.R.S. Employer Identification No.
incorporation or organization)
4600 Northgate Boulevard, Suite 130, Sacramento, California 95834
(Address of principal executive offices)
(916) 929-2295
(Issuer's telephone number)
NOT APPLICABLE
(Former name, former address and former fiscal year, if changed since last
report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the exchange Act during the past 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 or the past 90 days. Yes X No
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: 6,375,096 shares of common
stock, $.50 par value as of April 30, 1999.
Transitional Small Business Disclosure Format (check one): Yes No X
<PAGE>2
DUNES HOTELS AND CASINOS INC.
QUARTERLY REPORT ON FORM 10-QSB
FOR THE PERIOD ENDED MARCH 31, 1999
INDEX
Page
Part 1. Financial Information
Item 1. Financial Statements
Consolidated Condensed Balance Sheets
March 31, 1999 and December 31, 1978 3
Consolidated Condensed Statements of Operations
for the three months ended March 31, 1999
and 1998 5
Consolidated Condensed Statements of Cash Flows
For the three months ended March 31, 1999
and 1998 6
Notes to Consolidated Condensed Financial
Statement 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
Part II. Other Information
Item 1. Legal Proceedings 14
Item 2. Changes in Securities 14
Item 3. Defaults Upon Senior Securities 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
<PAGE>3
DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEET
MARCH 31, 1999 AND DECEMBER 31, 1998
(Dollars in thousands)
ASSETS
<TABLE>
<CAPTION>
<S> <C> <C>
March December
31, 1999 31, 1998
-------------- --------------
(Unaudited)
Cash and cash equivalents $ 3,431 $ 3,120
Marketable securities 824 828
Receivables
Trade 24 9
Related party, less allowance of $1,899 in 1999 and 1998 37 37
Real estate sales 458 369
Inventory of real estate held for sale 3,869 3,950
Prepaid expenses 79 115
Property and equipment,less accumulated depreciation
and amortization, 1999, $631; 1998, $509 3,195 3,228
Real estate investment 544
Other assets 3 3
------------- ------------
$ 11,920 $ 12,203
============= ============
</TABLE>
<PAGE>4
DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEET (CONTINUED)
MARCH 31, 1999 AND DECEMBER 31, 1998
(Dollars in thousands)
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
<S> <C> <C>
March December
31, 1999 31, 1998
-------------- --------------
(Unaudited)
Accounts payable $ 49 $ 25
Accrued expenses 215 185
Due to former minority interest 320 320
Income taxes 307 307
Short-term debt 20 49
Long-term debt and capital lease obligation 1,801 1,875
Accrued preferred stock dividends in arrears 1,263 1,245
-------------- --------------
3,975 4,006
-------------- --------------
Shareholders' equity
Preferred stock - authorized 10,750,000 shares ($.50 par);
issued 10,512 shares Series B $7.50 cumulative preferred
stock, outstanding 9,610 shares in 1999 and 1998, aggregate
liquidation value $2,446 including dividends in arrears 5 5
Common stock - authorized 25,000,000 shares ($.50 par);
issued 7,799,780 shares, outstanding 6,375,906 shares
in 1999 and 1998 3,900 3,900
Capital in excess of par 25,881 25,881
Deficit (19,841) (19,589)
-------------- --------------
9,945 10,197
Treasury stock at cost; Preferred - Series B, 902 shares
Common 1,424,684 shares in 1999 and 1998 (2,000) (2,000)
-------------- --------------
Total shareholders' equity 7,945 8,197
-------------- --------------
$ 11,920 $ 12,203
============== ==============
The accompanying notes are an integral part of these condensed financial
statements.
</TABLE>
<PAGE>5
DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(Dollars in thousands, except per share)
UNAUDITED
<TABLE>
<CAPTION>
<S> <C> <C>
1999 1998
----------------- -----------------
Revenues
Sales of real estate $ 673 $ 84
Rental income, agricultural properties 12 17
Drying and storage revenues 47 30
Miscellaneous income (expense), net 5
----------------- -----------------
732 136
----------------- -----------------
Cost and expenses
Cost of real estate sold 629 86
Cost and expenses of rental income 1 1
Cost of drying and storage revenues 79 131
Selling, administrative and general
Corporate 189 243
Real estate operations 40 49
Bad debts (recoveries), net (3) 159
Depreciation 33 32
----------------- -----------------
968 701
----------------- -----------------
Loss before other credits (charges) and income taxes (236) (565)
Other credits (charges)
Interest and dividend income 52 59
Interest expense (42) (30)
Loss on marketable securities, net (4) (2)
----------------- -----------------
6 27
----------------- -----------------
Loss before income taxes (230) (538)
Income taxes (4) (2)
----------------- -----------------
Net loss $ (234) $ (540)
================= =================
Weighted average number of shares outstanding 6,375,096 6,375,096
Loss per common share $ (0.04) $ (0.08)
================= =================
</TABLE>
The accompanying notes are an integral part of these financial statements
<PAGE>6
DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(Dollars in thousands)
UNAUDITED
<TABLE>
<CAPTION>
<S> <C> <C>
1999 1998
----------------- -----------------
Cash flows from operating activities:
Net cash provided by (used in) operating activities $ (33) $ (217)
----------------- -----------------
Cash flows from investing activities:
Decrease (increase) in investments 548 (249)
Decrease (increase) in notes receivable (101) (73)
Purchase of equipment (37)
----------------- -----------------
447 (359)
----------------- -----------------
Cash flows from financing activities
Decrease in long-term debt (74) (36)
Decrease in short-term debt (29) (54)
----------------- -----------------
(103) (90)
----------------- -----------------
Increase (decrease) in cash and cash equivalents 311 (666)
Cash and cash equivalents, beginning of period 3,120 4,299
----------------- -----------------
Cash and cash equivalents, end of period $ 3,431 $ 3,633
================= =================
</TABLE>
<PAGE>7
DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
UNAUDITED
1. 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 of operations for the
interim periods.
The results of operations for the three months ended March 31, 1999, are
not necessarily indicative of the results to be expected for the full year.
A more detailed discussion of the Company's financial position is described
in the Company's Form 10-KSB for the year ended December 31, 1998.
2. 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), after elimination of all material inter-company balances and
transactions.
3. Related party transactions:
John B. Anderson (Anderson), the Company's controlling stockholder and
ormer Chairman of the Board of Directors of the Company, and entities owned
or controlled by him (Anderson Entities) own approximately 67.2 % of the
Company's common stock as of April 30, 1999. See Note 11(b) in the
Company's Form 10-KSB for the year ended December 31, 1998 regarding
litigation between Anderson and the Federal Deposit Insurance Corporation
(the FDIC) and a possible change in ownership of the Company. Each Entity
related or controlled by Anderson will hereinafter be identified as an
Anderson Entity.
In November 1997, the Company entered into a Loan Purchase Agreement with
Anderson, as Trustee of the John J. Anderson Family Trust (Trust). On March
31, 1998, the Nevada District Court ordered that the Loan Purchase
Agreement be rescinded and all parties return any of the assets
transferred. As a result, the Company has recorded a loss of approximately
$162,500 at March 31, 1998. See Note 3(a)(1) in the Company's Form 10-KSB
for the year ended December 31, 1998 for details of this transaction.
<PAGE>8
DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
UNAUDITED
4. Contingencies:
(a) As of March 31, 1999, there were no material legal proceedings pending
against the Company. However, see note 3 regarding legal proceedings, not
involving the Company, which may have a material adverse effect on the
Company. A more detailed discussion of legal proceedings is described in
the Company's Form 10-KSB for the year ended December 31, 1998.
(b) SHF was advised in 1991 of possible contamination at Sam Hamburg Farm of
approximately 5,000 cubic yards of contaminated earth. 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 the chemical and toxic-laden 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 or
approximately $500,000. However, if on-site remediation can be achieved, it
is estimated that the cost 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. Accordingly, the estimates could
materially change as the testing and remediation work continues, which
could be as early as 1999.
(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 tax of approximately $316,000, plus
approximately $350,000 in penalties and interest resulting from the
foreclosure sale of certain real property owned by the subsidiary. The
Company appealed this matter to the California State Board of Equalization
(SBE) which ruled in favor of the Company on one point and ruled in favor
of FTB on another. Both sides appealed and the SBE has agreed to rehear the
case in July 1999. Provision has been made in the financial statements for
management's minimum estimate of the costs of this matter, including
penalties and interest accrued.
<PAGE>9
DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
UNAUDITED
5. Loss per common share:
Loss per common share has been computed by dividing the net loss plus the
accrued dividends applicable to the Series B Preferred stock ($18,000), for
the three months ended March 31, 1999 and 1998 by the number of shares
outstanding (6,375,096) as of March 31, 1999 and 1998. Dividends on
non-convertible preferred stock, Series B, are 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 $1,263,000 as of March 31, 1999. The Company has no present
intention to pay dividends on either its common or preferred shares.
<PAGE>10
DUNES HOTELS AND CASINOS INC.
QUARTERLY REPORT ON FORM 10-QSB
FOR THE PERIOD ENDED MARCH 31, 1999
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
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, 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 operation 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, and the outcome of certain litigation and other
risks. The Company caution readers not to place undue reliance on any such
forward-looking statements, and, such statements speak only as of the date made.
YEAR 2000 ISSUE
The Company has addressed the possible exposures related to the impact of Year
2000 issues. The internal computer systems for key financial information
processing and operational equipment relating to the computer controlled
conveyors at the grain drying facility have been assessed. It has been
determined that accounting software is Year 2000-certified. Computer systems at
the grain drying facility, which was built in 1997, are also compliant. The
dryer as well as conveyor equipment can also be operated manually.
In the two main segments that the Company operates, real estate and agriculture,
neither segment is dependent on computer applications. The Company feels that
these operations will not be affected by Year 2000 issues.
OVERVIEW
REAL ESTATE
FAIRWAYS
In December 1996 the Company sold 6 lots to Murieta Investors, LLC (MI) for the
greater of $40,000 per lot or 20% of the gross sales price of the residential
dwelling (Success Payment). To date MI has constructed 4 dwelling units and has
not started any construction on the remaining 2 lots. One dwelling was sold
during the first quarter of 1999 and the Company received a Success Payment in
the amount of $43,600.
<PAGE>11
DUNES HOTELS AND CASINOS INC.
QUARTERLY REPORT ON FORM 10-QSB
FOR THE PERIOD ENDED MARCH 31, 1999
Pursuant to a 1998 amendment to the Purchase and Option Agreement between the
Company and MI, the Company granted to MI an option to purchase 34 of the
remaining 44 lots at the Fairways. The lots covered by the option are subject to
prior sale by the Company. The options are exercisable starting December 1, 1998
(6 lots) and every six months thereafter (4 lots each).
In addition, if 2 consecutive options are not exercised then the remaining
options are terminated. MI did not exercise the December 1, 1998 option and the
Company does not expect the June 1, 1999 option to be exercised. The sales price
under the option is the greater of $50,000 per lot or 20% of the lesser of (i)
the gross sales price or (ii) the basic sales price as defined in the Purchase
and Option Agreement dated October 7, 1996, less $50,000.
In anticipation of the lapse of the Purchase and Option Agreement, the Company
plans to initiate a sales program with independent builders to complete The
Fairways. The program will be similar to the MI program but without options and
it is expected that several builders will participate.
SOLANO COUNTY OPTION
In December 1998, the Company entered into an agreement to sell the option.
Escrow closed in March 1999. The Company received $500,000 cash and a note
receivable in the amount of $33,333. The note is payable in four annual
installments.
AGRICULTURAL
The Company operates a grain drying and storage facility. The drying facility is
financed by a 5-year lease which commenced in March 1998. At the end of the
lease the Company will obtain title to the drying facility. The Company dries
and stores grain principally for one customer under a contract, which expires in
May 2002. If the Company were to lose this customer it would have a material
adverse effect on the Company's agricultural segment.
OTHER
The California State Board of Equalization has scheduled a July 1999 appeal
hearing to determine the amount of Franchise Tax, if any, that may be due as a
result of the sale of certain real property in San Diego, California.
The Company has no present intentions to pay dividends on either its common or
preferred stock.
<PAGE>12
DUNES HOTELS AND CASINOS INC.
QUARTERLY REPORT ON FORM 10-QSB
FOR THE PERIOD ENDED MARCH 31, 1999
OPERATING RESULTS
Three months ended March 31, 1999 vs. the three months ended March 31, 1998.
Real Estate
The revenues from the sale of real estate at The Fairways for the three months
ended March 31, 1999 when compared with the three months ended March 31, 1998,
are constant, one lot sold in March 1999 versus one lot sold in the same period
during 1998. Sales at The Fairways continue to be slow.
The sale of the Solano Option in March 1999 resulted in a net loss of
approximately $10,000, sales price received of $533,333 versus book cost of
approximately $544,000.
Real estate sales also included the "Success Payment", in the amount of $45,000,
received from Murieta Investors, LLC from the sale of one residential dwelling
at The Fairways.
Net rental income from agricultural properties for the three months ended March
31, 1999 parallel the revenue for the same period in 1998. The 1999-year is the
second year of a two-year lease for property located at Sam Hamburg Farm.
Agricultural
The loss from the grain drying and storage operation for the three months ended
March 31, 1999 decreased by approximately $68,000 when compared with the three
months ended March 31,1998. This is a result of the Company no longer operating
the West Sacramento facility for the drying and storage of short grain rice as
was done during this period in 1998.
General
When compared with the three months ended March 31, 1998 operating expenses
decreased by approximately $62,000. This decrease is consisted primarily of a
reduction in selling, administrative and general expenses consisting of a
decrease in officers/office salaries ($40,000), a decrease in employee benefits
($10,000), director fees decrease ($4,000), a decrease in officers/directors
liability insurance premiums ($6,000) and a decrease in dues/utilities at the
Fairways ($2,000). The increase in depreciation expense is attributable to the
grain dryer.
<PAGE>13
DUNES HOTELS AND CASINOS INC.
QUARTERLY REPORT ON FORM 10-QSB
FOR THE PERIOD ENDED MARCH 31, 1999
Interest expense for the three month ended March 31, 1999 increased by
approximately $12,000 when compared with the three months ended March 31, 1998.
The increase consisted of an increase in interest expense relating to the grain
dryer which was partially offset by a decrease in interest expense paid to Beal
Bank.
LIQUIDITY AND CAPITAL RESOURCES
During the quarter ended March 31, 1999, cash, cash equivalents and marketable
securities increased by $307,000 from $3,948,000 at December 31, 1998, to
$4,255,000 at March 31, 1999. The increase in cash was due primarily to the sale
of the Solano Option. The most significant uses of cash during the three months
ended March 31, 1999 consisted of cash used in operating activities ($33,000),
payments on long-term and short-term debt ($103,000) and a decrease in
investments of $548,000.
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 and property taxes;
to fund the required payments on the note to Beal Bank; to fund the required
payments due on the grain dryer financing; to fund costs that may be incurred
relating to the toxic clean-up at Sam Hamburg Farm; to fund any tax payment that
my be due to the California Franchise Tax Board; and to fund general and
administrative expenses. In addition, the Company may be required to fund
certain costs relating to a possible stockholder meeting.
The Company believes that sources of required liquidity will be cash generated
from the grain drying and storage facilities, anticipated lot sales at The
Fairways, collection of notes receivable and Success Payments related to the
venture with Murieta Investors and the cash available at March 31, 1999. Based
on known commitments, the Company believes that the sources of cash described
and the cash available at March 31, 1999 will be adequate to fund known
liquidity requirements.
<PAGE>14
DUNES HOTELS AND CASINOS INC.
QUARTERLY REPORT ON FORM 10-QSB
FOR THE PERIOD ENDED MARCH 31, 1999
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings
None, except for the discussion contained in footnote 3 in Notes to
Consolidated Condensed Financial Statements.
ITEM 2. Changes in Securities
Not applicable
ITEM 3. Default Upon Senior Securities
Dividends in arrears. See Note 5 of Notes to Consolidated Condensed
Financial Statements for the quarter ended March 31, 1999.
ITEM 4. Submission of Matters to a Vote of Security Holders
Not applicable
ITEM 5. Other Information
None
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27.01 Financial Data Schedule
(b) Reports on Form 8-K
None
<PAGE>15
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE
REGISTRANT HAS DULY CAUSE THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED THEREUNTO DULY AUTHORIZED.
DUNES HOTELS AND CASINOS INC.
Registrant
Date: April 30, 1999 By: /s/ Edward Pasquale
Edward Pasquale, President
By: /s/ Marvin P. Johnson
Marvin P. Johnson
Principal Financial and
Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated condensed balance sheet and the consolidated condensed statement of
operations on pages 3 through 5 of the Company's quarterly report on Form 10-QSB
for the quarter ended March 31, 1999, and is qualified in it's entirety by
reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1999
<CASH> 3,431
<SECURITIES> 824
<RECEIVABLES> 2,418
<ALLOWANCES> 1,899
<INVENTORY> 0
<CURRENT-ASSETS> 4,853
<PP&E> 3,826
<DEPRECIATION> 631
<TOTAL-ASSETS> 11,920
<CURRENT-LIABILITIES> 591
<BONDS> 0
0
5
<COMMON> 3,900
<OTHER-SE> 4,040
<TOTAL-LIABILITY-AND-EQUITY> 11,920
<SALES> 673
<TOTAL-REVENUES> 732
<CGS> 709
<TOTAL-COSTS> 709
<OTHER-EXPENSES> 259
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (42)
<INCOME-PRETAX> (230)
<INCOME-TAX> (4)
<INCOME-CONTINUING> (234)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (234)
<EPS-PRIMARY> (.04)
<EPS-DILUTED> (.04)
</TABLE>
