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 June 30, 2000
-------------
____ 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: 5,094,340 shares of common
stock, $.50 par value as of August 1, 2000.
Transitional Small Business Disclosure Format (check one): Yes No X
---- ----
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<PAGE>
DUNES HOTELS AND CASINOS INC.
INDEX
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Page
Part 1. Financial Information ----
Item 1. Financial Statements
----------------------------
Condensed Consolidated Balance Sheets 3
June 30, 2000 and December 31, 1999
Condensed Consolidated Statements of Loss 5
for the three months ended June 30, 2000
and 1999
Condensed Consolidated Statements of Loss 6
for the six months ended June 30, 2000
and 1999
Condensed Consolidated Statements of Cash Flows 7
for the six months ended June 30, 2000
and 1999
Notes to Condensed Consolidated Financial 8
Statements
Item 2. Management's Discussion and Analysis of
------------------------------------------------
Financial Condition and Results of Operations 16
---------------------------------------------
Part II. Other Information
Item 1. Legal Proceedings 21
-------------------------
Item 2. Changes in Securities 21
------------------------------------
Item 3. Defaults Upon Senior Securities 21
---------------------------------------
Item 4. Submission of Matters to a Vote of Security Holders 21
-----------------------------------------------------------
Item 5. Other Information 21
-------------------------
Item 6. Exhibits and Reports on Form 8-K 21
----------------------------------------
Signatures 22
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<PAGE>
DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, 2000 AND DECEMBER 31, 1999
(Dollars in thousands)
ASSETS
June December
30, 2000 31, 1999
----------- --------
(Unaudited)
Cash and cash equivalents $ 3,608 $ 3,323
Marketable securities 409 278
Receivables
Trade 1 3
Related party, less allowance of $1,899 in 1999 37
Real estate sales 301 363
Inventory of real estate held for sale 2,437 3,460
Prepaid expenses 51 111
Property and equipment, less accumulated depreciation
and amortization of $796 and $631 in 2000 and 1999 3,054 3,118
Other assets 3 3
----------- ----------
$ 9,864 $ 10,696
=========== ==========
See Notes to Condensed Consolidated Financial Statements
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<PAGE>
DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
JUNE 30, 2000 AND DECEMBER 31, 1999
(Dollars in thousands)
LIABILITIES AND SHAREHOLDERS' EQUITY
June December
30, 2000 31, 1999
----------- -----------
(Unaudited)
Accounts payable $ 4 $ 52
Accrued expenses 188 171
Income taxes 307 307
Long-term debt and capital lease obligation 744 815
Accrued preferred stock dividends in arrears 1,353 1,317
----------- -----------
2,596 2,662
------------ -----------
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 $2,553
at June 30, 2000, including dividends
in arrears 5 5
Common stock - authorized 25,000,000 shares
($.50 par); issued 7,799,780 shares 3,900 3,900
Capital in excess of par 25,881 25,881
Deficit (20,480) (19,752)
----------- -----------
9,306 10,034
Treasury stock at cost; Preferred - Series B,
902 shares Common 2,705,440 shares and
1,424,484 shares in 2000 and 1999 (2,038) (2,000)
----------- -----------
Total shareholders' equity 7,268 8,034
----------- -----------
$ 9,864 $ 10,696
=========== ===========
See Notes to Condensed Consolidated Financial Statements
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DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF LOSS
THREE MONTHS ENDED JUNE 30, 2000 AND 1999
(Dollars in thousands, except per share)
UNAUDITED
2000 1999
------------ ------------
Revenues
Sales of real estate $ 683 $ 105
Rental income, agricultural properties 15 14
Drying and storage revenues 22 46
------------ ------------
720 165
------------ ------------
Cost and expenses
Cost of real estate sold 705 85
Cost and expenses of rental income 1 1
Cost of drying and storage revenues 71 70
Selling, administrative and general
Corporate 106 159
Real estate operations 43 64
Depreciation 33 33
------------ ------------
959 412
------------ ------------
Loss before other credits (charges) and income taxes (239) (247)
Other credits (charges)
Interest and dividend income 57 62
Interest expense (21) (46)
Other income 3
Gain / (loss) on marketable securities, net 9 (12)
------------ ------------
45 7
------------ ------------
Loss before income taxes (194) (240)
Income taxes (5) (7)
------------ ------------
Net loss $ (199) $ (247)
============ ============
Weighted average number of shares outstanding 5,966,973 6,375,096
Basic and diluted loss per common share $ (0.04) $ (0.04)
============ ============
See Notes to Condensed Consolidated Financial Statements
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DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF LOSS
SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(Dollars in thousands, except per share)
UNAUDITED
2000 1999
------------ ------------
Revenues
Sales of real estate $ 1,078 $ 778
Rental income, agricultural properties 29 26
Drying and storage revenues 35 93
------------ ------------
1,142 897
------------ ------------
Cost and expenses
Cost of real estate sold 1,164 716
Cost and expenses of rental income 2 2
Cost of drying and storage revenues 139 150
Selling, administrative and general
Corporate 467 343
Real estate operations 85 108
Depreciation 65 66
------------ ------------
1,922 1,385
------------ ------------
Loss before other credits (charges) and income taxes (780) (488)
Other credits (charges)
Interest and dividend income 104 114
Interest expense (43) (89)
Other income 3 7
Gain / (loss) on marketable securities, net 30 (15)
------------ ------------
94 17
------------ ------------
Loss before income taxes (686) (471)
Income taxes (5) (10)
------------ ------------
Net loss $ (691) $ (481)
============ ============
Weighted average number of shares outstanding 5,966,973 6,375,096
Basic and diluted loss per common share $ (0.12) $ (0.08)
============ ============
See Notes to Condensed Consolidated Financial Statements
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DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(Dollars in thousands)
UNAUDITED
2000 1999
------------ ------------
Cash flows from operating activities:
Net cash provided by (used in) operating
activities $ 487 $ (256)
------------ ------------
Cash flows from investing activities:
Proceeds from disposition of investment 544
Investment in marketable securities (131) 15
------------ ------------
(131) 559
------------ ------------
Cash flows from financing activities
Payments on long-term debt (71) (180)
Payments on short-term debt (49)
------------ ------------
(71) (229)
------------ ------------
Increase in cash and cash equivalents 285 74
Cash and cash equivalents, beginning of period 3,323 3,120
------------ ------------
Cash and cash equivalents, end of period $ 3,608 $ 3,194
============ ============
See Notes to Condensed Consolidated Financial Statements
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DUNES HOTELS AND CASINOS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
1. BASIS OF PRESENTATION:
The condensed consolidated financial information included herein is
unaudited, except that the balance sheet at December 31, 1999, was derived
from the audited financial statements included in the Company's 1999 Form
10-KSB, however, such information reflects all adjustments (consisting
solely of normal recurring adjustments) which are, in the opinion of
management, necessary for a fair presentation of the of financial position,
results of operations and cash flow of the Company."
The results of operations for the six months ended June 30, 2000, are not
necessarily indicative of the results to be expected for the full year.
Further, Certain information and note disclosures normally included in the
Company's annual financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted.
These condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes thereto
included in the Company's Form 10-KSB annual report for 1999 filed with
the Securities and Exchange Commission.
2. CONSOLIDATION:
The accompanying consolidated 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. CONTROL OF REGISTRANT:
FDIC LITIGATION/CHANGE OF CONTROL
John B. Anderson (Anderson), the former Chairman of the Board of Directors
of the Company, through ownership of Cedar Development Co. ("Cedar"), was
the controlling shareholder and President of Baby Grand Corp. (BGC) and
J.B.A. Investments, Inc. (Anderson Entities), which collectively owned
approximately 4,280,756 shares or 67.2% of the Company's common stock. Of
those shares (i) 3,000,000 shares (the FDIC Pledged Shares) were pledged as
collateral to secure certain obligations owing to the FDIC, and (ii)
1,280,756 shares (the BGC Pledged Shares) were pledged as collateral in
favor of a subsidiary of the Company.
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<PAGE>
DUNES HOTELS AND CASINOS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
3. CONTROL OF REGISTRANT: (CONTINUED)
The Federal Deposit Insurance Corporation ("FDIC") brought an action
captioned, Federal Deposit Insurance Corporation, et al. v. John B.
Anderson et al., United States District Court, District of Nevada, Case No.
CV-S-95-00679-PMP (LRL), on July 14, 1995. Anderson, Edith Anderson
(Anderson's wife), Cedar, J.A Inc. (JA), J.B.A. Investments Inc, (JBA)
(collectively, the Anderson Parties) are defendants in this litigation (the
Anderson Litigation). This matter is more fully described in the Company's
Form 10-K for the year ended December 31, 1997, see "Item 3. Legal
Proceedings - Federal Deposit Insurance Corporation, et al. v. John B.
Anderson, et al."
Prior to the events described herein, Anderson asserted, through his
ownership of Cedar, the parent of Baby Grand Corp. (BGC) and JBA, that he
owned approximately 4,280,756 shares or 67.2% of the then Company's
outstanding common stock (the Common Stock). Of those shares (i) 3,000,000
shares (the FDIC Pledged Shares) were pledged as collateral in favor of the
FDIC, and (ii) 1,280,756 shares (the BGC Pledged Shares) were pledged as
collateral in favor of a subsidiary of the Company. The FDIC reduced its
claims to a Consent Judgment dated September 12, 1995 (the "Judgement").
In June 1999, the FDIC sold a portion of its Judgement, together with the
underlying security owned by the Anderson Parties to General Financial
Services, Inc. (GFS). Included in the sale were the FDIC Pledged Shares.
GFS attempted to exercise its rights under the Judgement and transfer
ownership of the FDIC Pledged Shares to it but the Company intervened on
behalf of Anderson, and seized the Pledged Shares. The Company in turn
filed on July 6, 1999, a Complaint in Interpleader in Superior Court of
California (the "California Action"). The action was removed and
transferred on September 20, 1999, to the United States District Court for
the District of Nevada (the "Nevada Action"). GFS and its subsidiary GFS
Acquisition Company, Inc. filed a counter-claim alleging among other
things, damages from the previous Company management for filing the
California Action, seizing the FDIC Pledged Shares, interfering with the
lawful transfer of the FDIC Pledged Shares and refusing to grant
shareholder demands for an immediate shareholder meeting to elect
directors. A more detailed discussion is described in the Company's Form
10-KSB for the fiscal year ended December 31, 1999.
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<PAGE>
DUNES HOTELS AND CASINOS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
3. CONTROL OF REGISTRANT: (CONTINUED)
On January 5, 2000, the U.S. District Court in Nevada ordered that the
Company hold a shareholders' meeting on or before April 14, 2000, and that
GFS was entitled to vote the FDIC Pledged Shares at that meeting. In
addition to its interest in the FDIC Pledged Shares, GFS has reported that
through its subsidiary GFS Acquisition Company, Inc., it owns 853,422
shares of the Company's common stock acquired in the open market during
1999 and January 2000, or approximately a total of 60% of the then
outstanding stock.
Since 1998, the BGC Pledged Shares have been under the jurisdiction of the
U.S. Bankruptcy Court in Las Vegas, Nevada, where BGC filed a petition
under Chapter 7 of the Bankruptcy Code. On February 22, 2000, the
Company's motion in Bankruptcy Court for relief from the automatic stay
was granted to allow it to foreclose on the BGC Pledged Shares. On March
3, 2000, the Company foreclosed on the BGC Pledged Shares and placed them
in the treasury. Placing the BGC Pledged Shares into treasury had the
effect of increasing GFS's voting percentage to 75.6% of the outstanding
stock (GFS Shares).
On Friday, April 14, 2000, an Annual Meeting (the "Meeting") of the
Shareholders of the Company was held at 10:00 a.m. in Sacramento, CA. The
purpose of the Meeting was the election of the Board of Directors of the
Company. Upon completion of the ballot counting, it was determined that
the nominees of GFS and its subsidiary GFS Acquisition, Inc. received a
plurality of the votes and were duly elected. See the Company's Current
Report on Form 8-K dated April 14, 2000 and filed with the Securities and
Exchange Commission on May 3, 2000.
Immediately following the annual Meeting, the board of directors met and,
in accordance with the provisions of the Company's bylaws, elected three
additional directors to fill the three vacancies on the board of
directors. For more information regarding the names, ages and business
experience for at least the past five years of the new directors, see the
Company's Current Report on Form 8-K dated April 14, 2000 and filed with
the Securities and Exchange Commission on May 3, 2000.
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<PAGE>
DUNES HOTELS AND CASINOS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
3. CONTROL OF REGISTRANT: (CONTINUED)
Pursuant to a Consent and Undertaking entered into with the Securities and
Exchange Commission on October 13, 1977, the SEC asserts that the board of
directors must have at least three directors satisfactory to the Commission
(the "Independent Directors"). The Company has sought confirmation from the
staff of the Commission that they do not object to Messrs. Herfurth,
Steckart and Viets being designated the Independent Directors for purposes
of the Consent and Undertaking. The staff has not responded to date. If the
staff were to object to any of the above individuals being designated an
Independent Director, then the board of directors will, without further
shareholder approval elect another director, submit that director to the
staff to replace any director that was objected to by the staff.
The new board of directors elected Mr. Miller president of the Company. Mr.
Cary Peaden was elected secretary-treasurer of the Company. Mr. Marvin
Johnson has been retained as the chief accounting officer of the Company.
On July 18, 2000, the Company and GFS filed in the United States District
Court in Nevada a joint motion to dismiss the Nevada Action and the GFS
counterclaim. When granted, the order to dismiss will turn the FDIC
Pledged shares over to GFS for foreclosure. GFS is proceeding with the
foreclosure in the Nevada Action. There can be no assurance as to the
outcome of the foreclosure or at what time the foreclosure will be.
INJUNCTIVE ACTION REGARDING TENDER OFFER
On April 3, 2000, JBA, GFS and GFS Acquisition filed an action against the
USI Corp., Barney Kreutzer and Thomas Honton (collectively the "USI Group")
in the U.S. District Court for the District of Kansas alleging, among other
things, violations of the Williams Act, Sections 13(d), 14(d) and 14(e) of
the Securities Exchange Act of 1934, 15 U.S.C. 78a et seq. ("Williams
Act"). The case is captioned J.B.A. Investments, Inc., et al. v. USI Corp,
et al., Case No 00127 WEB (D. Kan. 2000). The plaintiffs allege that the
USI Group conducted a tender offer for the Company's Series B Preferred
Stock in violation of the Williams Act. Upon information believed to be
reliable, USI Group was able to purchase approximately 3000 shares of the
Company's non-convertible preferred stock, Series B ("Series B Preferred").
The plaintiffs further allege that USI Group failed to file any of the
necessary reports required under the Williams Act, failed to make material
disclosures to the former Series B Preferred shareholders and engaged in
fraudulent practices in conjunction with the alleged tender offer. The
plaintiffs seek a preliminary and permanent injunction prohibiting the USI
Group from completing the tender offer, recission of the Series B Preferred
purchases by the USI Group and damages.
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<PAGE>
DUNES HOTELS AND CASINOS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
3. CONTROL OF REGISTRANT: (CONTINUED)
The USI Group and the plaintiffs have consented to an order halting any
further purchases of Series B Preferred by the USI Group, allowing the
Company to instruct its transfer agent to stop the transfer of such shares
to USI Group and precluding the USI Group from transferring or otherwise
disposing the acquired Series B Preferred.
The USI Group has filed a motion to dismiss the plaintiff's action. The
plaintiffs have responded and the matter is under advisement by the court.
On August 3, 2000, the court entered an agreed order joining the Company
as third party plaintiff in the action.
While management believes in the merits of the action against the USI
Group, there can be no assurance as to the outcome of the action and
ultimate ownership of the contested Series B Preferred.
4. CONTINGENCIES:
(a) As of June 30, 2000, there were no material legal proceedings pending
against the Company. Subsequent to June 30, 2000, see Note 3 above
regarding legal proceedings that may have a material adverse affect on
the Company.
(b) SHF was advised in 1991 of possible contamination of 40 acres at Sam
Hamburg Farm of approximately 5,000 cubic yards of soil. 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. The Company has disposed of 1,000 cubic yards of
soil to date. Cost of disposal of the remaining soil is estimated at
$125 to $200 per cubic yard or approximately $500,000 to $800,000.
However, if on-site remediation can be achieved, it is estimated that
the cost should be no more than $170,000 which has been accrued. 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.
(c) The Company has been notified that the California Franchise Tax Board
(FTB) is examining its 1995 tax return. The FTB is questioning the
Company's reporting of approximately $7,700,000 of income as being
exempt from the 9.3% California income tax. The Company disagrees with
the FTB and plans to oppose any assessment of additional taxes or
interest. Therefore, no provision for additional taxes or interest has
been made.
(d) The Company estimates the carrying value of the lots at The Fairways
real estate development approximate their fair market value. It's
reasonably possible the amounts ultimately realized could differ
materially in the near term from the amounts recorded in the financial
statements.
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DUNES HOTELS AND CASINOS INC.
NOTES TO CONDENSED CONSOLIDATED 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, for the three and
six months ended June 30, 2000, and 1999, by the weighted number of shares
outstanding (5,966,973) as of June 30, 2000, and (6,375,096) as of June 30,
1999. Dividends on Series B Preferred are added to the loss applicable to
common shares. Dividends on the Company's Series B Preferred have not been
paid since the first quarter of 1982. The Company is in arrears on such
dividends in the amount of approximately $1,353,000 as of June 30, 2000.
The Company has no present intention to pay dividends on either its common
or preferred shares.
The following data show the amounts used in computing loss per share and
the effect on loss and the weighted average number of shares of dilutive
potential common stock.
Six Months Ended Six Months Ended
June 30, 2000 June 30, 1999
------------- -------------
Loss from operations $(691) $(481)
Less: preferred dividends ( 36) ( 36)
------ ------
Loss to common stockholders
used in basic EPS $(727) $(517)
====== ======
Weighted average number
of common shares used
in basic and diluted EPS 5,966,973 6,375,096
========= =========
Three Months Ended Three Months Ended
June 30, 2000 June 30, 1999
------------- -------------
Loss from Operations $(199) $(247)
Less: preferred dividends ( 18) ( 18)
------ ------
Loss to common stockholders
used in basic EPS $(217) $(265)
====== ======
Weighted average number
of common shares used
in basic and diluted EPS 5,966,973 6,375,096
========= =========
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DUNES HOTELS AND CASINOS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
6. SEGMENT INFORMATION:
The Company's operations are classified into three principal reporting
segments that provide different products or services. Separate management
of each segment is required because each business unit is subject to
different marketing, production, and technology strategies. The following
table shows external revenues, depreciation, loss and assets for the
reportable segments.
Reportable Segments (in thousands)
Grain Drying
And Storage Real Estate Farming Total
Six Months Ended June 30, 2000
External revenue $35 $1,078 $29 $1,142
Depreciation 65 65
Loss (169) (171) 27 (313)
Assets 3,058 2,592 146 5,796
Six Months Ended June 30, 1999
External revenue $93 $778 $26 $897
Depreciation 66 66
Loss (123) (46) 24 (145)
Assets 3,199 4,110 146 7,455
Three Months Ended June 30, 2000
External revenue $22 $683 $15 $720
Depreciation 33 33
Loss (82) (65) 14 (133)
Assets 3,058 2,592 146 5,796
Three Months Ended June 30, 1999
External revenue $46 $105 $14 $165
Depreciation 33 33
Loss (57) (44) 13 (88)
Assets 3,199 4,110 146 7,455
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<PAGE>
DUNES HOTELS AND CASINOS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
<TABLE>
<CAPTION>
Six Months Six Months Three Months Three Months
Ended Ended Ended Ended
June 30, 2000 June 30, 1999 June 30, 2000 June 30, 1999
<S> <C> <C> <C> <C>
Revenues
Total for reportable
segments $1,142 $897 $720 $165
-----------------------------------------------------------------
Total $1,142 $897 $720 $165
=================================================================
Loss
Total for reportable
segments $(313) $(145) $(133) $(88)
Corporate expenses (467) (343) (106) (159)
Interest income/
expense & other 94 17 45 7
-----------------------------------------------------------------
Loss before income
taxes $(686) $(471) $(194) $(240)
=================================================================
Assets
Total for reportable
segments $5,796 $7,455 $5,796 $7,455
Cash, securities &
prepaids 4,068 4,060 4,068 4,060
-----------------------------------------------------------------
Total $9,864 $11,515 $9,864 $11,515
=================================================================
</TABLE>
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<PAGE>
DUNES HOTELS AND CASINOS INC.
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 cautions readers not to place undue reliance on any such
forward-looking statements, and, such statements speak only as of the date made.
OVERVIEW
REAL ESTATE
FAIRWAYS
The Fairways consist of the remaining portion of approximately 50 acres of
developed residential land in Rancho Murieta, Sacramento County, California.
Rancho Murieta is a 3,500 acre master planned unit development community located
approximately 25 miles from Sacramento. The development consists primarily of
single family homes, town houses, commercial property and two 18-hole
championship golf courses and country club facilities. The 50 acres are located
within the boundaries of one of the golf courses. The property was subdivided
into 110 single-family estate lots. As of August 14, 2000, 14 lots remain and 10
lots are in escrow pending closing. Although dependent on a myriad of factors,
Management anticipates that most of the lots will be sold by the end of the
current year. The Company does not expect to realize a gain on the sale of the
remaining lots as the existing cost basis approximates net sale proceeds. To
facilitate sales on certain lots, the Company expects to build a privacy wall at
an estimated cost of approximately $60,000. The Company intends to add the cost
of the wall back into the listing price of the lots.
In January 2000, the Company's subsidiary purchased thirty social memberships at
the Rancho Murieta Country Club, which were convertible to golfing memberships.
Due to changes in the Country Club's bylaws effective August 7, 2000, the
Company's subsidiary was forced to convert the remaining 19 social memberships
into golfing memberships. This change will increase the future carrying cost on
the remaining lots by approximately $5,000 per month. Management is considering
its options with respect to recouping this additional expense.
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<PAGE>
DUNES HOTELS AND CASINOS INC.
SAM HAMBURG FARM
Sam Hamburg Farm consists of approximately 150 acres remaining from an original
4,600 acres of agricultural land. The Company leases 110 acres to one tenant,
who grows various crops. The term of the lease is for two years on a cash rent
basis.
AGRICULTURAL
The Company operates a rice 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 stored wheat principally for one customer, Adams Grain Co.("Adams")
under a contract which expires May 2002 ("Adams Contract"). However, in May
2000, the Company negotiated an end to the Adams Contract. The terms of ending
the storage agreement, effective May 18, 2000 require the Company to only store
rice at its storage facility and if the Company stores any grain other than
rice, Adams, retains a first right of refusal to store commodities under the
Adams Contract. These conditions will remain in effect until May 31, 2002 (the
original expiration date of the Adams Contract).
Subsequently, the Company has entered into an agreement with Pacific
International Rice Mills, Inc. (PIRMI) to store approximately 350,000 cwt. of
dry paddy rice for the period commencing September 1, 2000, to August 31, 2001,
in the east warehouse. The gross revenue is approximately $140,000. As of July
26, 2000, the filling of the east warehouse was completed.
In addition, another agreement has been signed with PIRMI to dry and store wet
paddy rice from the 2000 crop. The agreement provides for a minimum of 400,000
cwt. of wet paddy rice to be delivered. Gross drying revenue will be determined
by the moisture content of the wet paddy rice delivered and the storage revenue
will be calculated per dry cwt. Due to these unknown factors, anticipated
revenues cannot be determined at this time.
In the next three months, the Company expects to spend approximately $50,000 to
$100,000 to purchase and install equipment and field related structures at the
drying facility. This equipment which allows the Company to clean the wet paddy
rice prior to drying and the elevator modifications is projected to increase the
Company's storage capacity and flow rates. In July 2000, an $8,000 deposit was
made to Pneumatic Conveying & Mfg. to begin the fabrication of the structure and
purchase of equipment.
If the Company were to lose its drying and storage customer, it would have a
material adverse effect on the Company's agricultural segment.
OTHER
The Company has no present intentions to pay dividends on either its common or
preferred stock.
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DUNES HOTELS AND CASINOS INC.
OPERATING RESULTS
THREE MONTHS ENDED JUNE 30, 2000 VS. THE THREE MONTHS ENDED JUNE 30, 1999.
REAL ESTATE
Revenue from the sale of real estate lots for the three months ended June 30,
2000, increased by $578,000 over the same period ended June 30, 1999. There were
eight lots sold through June 30, 2000, with gross revenue of $683,000 compared
with one lot sold through June 30, 1999, gross revenue of $105,000. The lot
sales increase can be attributed to a turn around in the real estate market in
the Sacramento, California area. However, due to the length of time in
inventory, the cost of sales of the lots in inventory has reduced the profit
margins considerably.
Net rental income from agricultural properties for the three months ended June
30, 2000, increased slightly over the revenue the same period in 1999. The
annual rent in calendar year 1999 was $19,950, compared to $24,000 for calendar
year 2000 which accounted for the slight increase during this period. A new
two-year lease at Sam Hamburg Farm was signed in January 2000. This is the first
year of a two-year lease.
AGRICULTURAL
The loss from the grain drying and storage facility for the three months ended
June 30, 2000, increased by approximately $25,000 when compared with the three
months ended June 30, 1999. The loss increase was primarily the result of a
severe reduction in drying and storage revenue. During the fall 1999 season,
there was virtually no drying revenue, which also reduced the storage revenue,
as one of the warehouses remained empty. During the three month period ended
June 30, 1999, there were grain shipments generating revenue in the amount of
approximately $46,000 compared to revenue of approximately $22,000 for the three
months ended June 30, 2000. As the fixed costs were constant during this period
in 2000 and 1999, the difference in revenue was responsible for the loss
increase. The Company's new management team has entered into two new contracts
which are expected to keep the east side of its flat houses full and, depending
on the harvest of rice this fall, to fill the west side of the facility. These
two new contracts are anticipated (depending on harvest conditions and results)
to generate both drying revenues and storage fees. See "Item 2--Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Overview--Agricultural"
General
-------
When compared with the three months ended June 30, 1999, corporate operating
expenses decreased by approximately $53,000 for the period ended June 30, 2000.
This decrease consisted of reductions in administrative and general expenses,
primarily legal fees ($29,000), director fees ($6,000) and director consulting
fees ($21,000), offset by an increase in registrar/transfer agent fees ($3,000).
The increase in registrar/transfer agent fees resulted from the cost of the
shareholder meeting held on April 14, 2000.
Selling expenses associated with the real estate operations decreased by
approximately $21,000 for the three months ended June 30, 2000, compared with
the three months ended June 30, 1999. Decreases in advertising ($14,000), real
property taxes ($4,000), and other expense ($10,000)
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DUNES HOTELS AND CASINOS INC.
made up the majority of the decrease. The decrease was offset by an increase in
country club dues ($4,000), and miscellaneous expense ($3,000). Country club
dues increased during this period as the Company purchased 30 social memberships
to aid in the sales of the remaining lots.
The decrease in other expense of $10,000 resulted from a one-time charge during
this period in 1999, for geo-technical consulting services on various lots
within "The Fairways" project.
SIX MONTHS ENDED JUNE 30, 2000 VS. SIX MONTHS ENDED JUNE 30, 1999
REAL ESTATE
Revenues from the sale of real estate for the six months ended June 30, 2000,
increased by $300,000 compared to the six month period ended June 30, 1999.
There were 13 lots at "The Fairways" sold in the first six months of the year as
of June 30, 2000, with gross revenues of $1,078,000 compared with gross revenues
of $778,000 for the first six month period of the year as of June 30, 1999,
which consisted of the sale of three lots at "The Fairways" for $245,000 and the
sale of Solano Option for $533,000. A more detailed discussion of the Solano
Option sale is described in the Company's Form 10-KSB for the year ended
December 31, 1999. The lot sales increase can be attributed to a turn around in
the real estate market in the Sacramento, California area. However, due to the
length of time in inventory, the cost of sales of the lots in inventory has
reduced the profit margins considerably.
AGRICULTURAL
Storage revenue at the grain drying and storage facility decreased by $58,000 in
the six months ended June 30, 2000, compared with the six months ended June 30,
1999. The 2000 decrease resulted from a lack of drying revenue during the 1999
fall harvest season. The only storage revenue generated during the six month
period ended June 30, 2000 was from the out-bound shipment of wheat in storage.
The west warehouse at the storage facility remained empty during this period.
See "Item 2--Management's Discussion and Analysis of Financial Condition and
Results of Operations--Operating Results-Three months ended June 30, 2000 vs.
the three months ended June 30, 1999-Agriculture."
GENERAL
Compared with the six months ended June 30, 1999, corporate operating expenses
increased by $124,000 in the six months ended June 30, 2000. The increase is
made up of office salaries and benefits ($4,000), accounting fees ($21,000),
legal fees ($106,000), registrar/transfer agent fees ($5,000), directors
expenses ($3,000) and office expense ($3,000). This increase is offset by
decreases in directors fees ($6,000) and directors consulting fees ($12,000).
Accounting, registrar/transfer agent fees and office expense increased as a
result of the shareholder's meeting held on April 14, 2000. Legal fees increased
due to the proxy preparation for the annual shareholder meeting and due to
litigation relating to GFS Acquisition Corp.
The cost of real estate operations decreased by $23,000 in the six months ended
June 30, 2000, compared with the six months ended June 30, 1999. The most
significant decreases were
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DUNES HOTELS AND CASINOS INC.
advertising expenditures ($14,000), geo-technical consulting services ($9,000),
real property taxes ($7,000) and legal fees ($2,000). The decrease was offset by
an increase in sales trailer expense ($2,000) and Rancho Murieta Country Club
dues ($7,000).
The increase in country club dues resulted from the purchase of 30 social
memberships as a method to boost sales.
LIQUIDITY AND CAPITAL RESOURCES
During the six months ended June 30, 2000, cash, cash equivalents and marketable
securities increased by $416,000 from $3,601,000 at December 31, 1999, to
$4,017,000 at June 30, 2000. The increase in cash was due primarily to lot sales
at "The Fairways". The most significant uses of cash during the three months
ended June 30, 2000, consisted of payment of long-term debt ($71,000).
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
and the building of the privacy wall; to fund the required payments due on the
grain dryer improvements and financing; to fund costs that may be incurred
relating to the toxic clean-up at Sam Hamburg Farm; to fund any tax payment that
may be due if the California Franchise Tax Board disagrees with the Company's
exemptions (see Note 4 to the Condensed Consolidated Financial Statements); and
to fund general and administrative expenses.
The Company believes that sources of required liquidity will be cash generated
from the rice drying and storage facilities, anticipated lot sales at The
Fairways, collection of notes receivable, and the cash available at June 30,
2000. Based on known commitments, the Company believes that the sources of cash
described and the cash available at June 30, 2000, will be adequate to fund
known liquidity requirements.
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DUNES HOTELS AND CASINOS INC.
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 Condensed Consolidated
Financial Statements for the quarter ended June 30, 2000.
ITEM 4. Submission of Matters to a Vote of Security Holders
------------------------------------------------------------
None
ITEM 5. Other Information
--------------------------
None
ITEM 6. Exhibits and Reports on Form 8-K
-----------------------------------------
(a) Exhibits
10.1 Letter Agreement dated May 31, 2000 and signed May 31, 2000
between SHF Acquisition, a wholly-owned subsidiary of the Dunes
Hotels & Casinos Inc. and Pacific International Rice Mills
10.2 Letter Agreement dated April 26, 2000 and signed April 26, 2000
between SHF Acquisition, a wholly-owned subsidiary of the Dunes
Hotels & Casinos Inc. and Pacific International Rice Mills
27.01 Financial Data Schedule
(b) Reports on Form 8-K
Current Report on Form 8-K dated April 14, 2000 regarding Item 1, regarding
a change of control pursuant to the election of new directors proposed by
GFS and GFS Acquisition, Inc.
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DUNES HOTELS AND CASINOS INC.
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: August 15, 2000 By: /s/ Steve K. Miller
-----------------------------
Steve K. Miller, President
By: /s/ Marvin P. Johnson
----------------------------
Marvin P. Johnson
Chief Accounting Officer
