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, 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
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(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 April 30, 2000.
Transitional Small Business Disclosure Format (check one): Yes_____ No X
<PAGE>
DUNES HOTELS AND CASINOS INC.
QUARTERLY REPORT ON FORM 10-QSB
FOR THE PERIOD ENDING MARCH 31, 1999
INDEX
Page
Part 1. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets
March 31, 2000 and December 31, 1999 3
Consolidated Statements of Operations
for the three months ended March 31, 2000
and 1999 5
Consolidated Statements of Cash Flows
For the three months ended March 31, 2000
and 1999 6
Notes to Consolidated 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
2
<PAGE>
<TABLE>
<CAPTION>
DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 2000 AND DECEMBER 31, 1999
(Dollars in thousands)
ASSETS
March December
31, 2000 31, 1999
-------------- -------------
(Unaudited)
<S> <C> <C>
Cash and cash equivalents $ 3,271 $ 3,323
Marketable securities 300 278
Receivables
Trade 15 3
Related party, less allowance of $1,899 in 1999 37
Real estate sales 327 363
Inventory of real estate held for sale 3,111 3,460
Prepaid expenses 78 111
Property and equipment, less accumulated depreciation
and amortization of $763 and $631 in 2000 and 1999 3,087 3,118
Other assets 3 3
------------ ----------
$ 10,192 $ 10,696
============ ==========
(continued)
3
<PAGE>
<CAPTION>
(table continued)
DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
MARCH 31, 2000 AND DECEMBER 31, 1999
(Dollars in thousands)
LIABILITIES AND SHAREHOLDERS' EQUITY
March December
31, 2000 31, 1999
-------------- -------------
(Unaudited)
<S> <C> <C>
Accounts payable $ 100 $ 52
Accrued expenses 203 171
Income taxes 307 307
Long-term debt and capital lease obligation 762 815
Accrued preferred stock dividends in arrears 1,335 1,317
------------ -----------
2,707 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 $2,535 at March 31, 2000,
including dividends in arrears 5 5
Common stock - authorized 25,000,000 shares
($.50 par); issued 7,799,780 shares 3,900 3,900
Capital in excess of par 25,881 25,881
Deficit (20,263) (19,752)
------------ -----------
9,523 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 7,485 8,034
------------ -----------
10,192 $ 10,696
============= ===========
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
4
<PAGE>
<TABLE>
<CAPTION>
DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(Dollars in thousands, except per share)
UNAUDITED
<S> <C> <C>
2000 1999
--------------------- ---------------------
Revenues
Sales of real estate $ 395 $ 673
Rental income, agricultural properties 14 12
Drying and storage revenues 13 47
--------------------- ---------------------
422 732
--------------------- ---------------------
Cost and expenses
Cost of real estate sold 458 629
Cost and expenses of rental income 1 1
Cost of drying and storage revenues 68 79
Selling, administrative and general
Corporate 361 189
Real estate operations 42 40
Bad debts (recoveries), net (3) (3)
Depreciation 33 33
--------------------- ---------------------
960 968
--------------------- ---------------------
Loss before other credits (charges) and income taxes (538) (236)
--------------------- ---------------------
Other credits (charges)
Interest and dividend income 47 52
Interest expense (22) (42)
Other expense (1)
Gain/(loss) on marketable securities, net 22 (4)
--------------------- ---------------------
46 6
--------------------- ---------------------
Loss before income taxes (492) (230)
Income taxes (4)
--------------------- ---------------------
Net loss $ (492) $ (234)
===================== =====================
Weighted average number of shares outstanding 5,966,943 6,375,096
Loss per common share $ (0.08) $ (0.04)
===================== =====================
</TABLE>
The accompanying notes are an integral part of these financial statements
5
<PAGE>
<TABLE>
<CAPTION>
DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH, 2000 AND 1999
(Dollars in thousands)
UNAUDITED
<S> <C> <C>
2000 1999
--------------------- ---------------------
Cash flows from operating activities:
Net cash (used in) operating activities $ (32) $ (30)
--------------------- ---------------------
Cash flows from investing activities:
Proceeds from disposition of investment 500
Real estate loans (54) (67)
Payments received on receivables 87 11
--------------------- ---------------------
33 444
--------------------- ---------------------
Cash flows from financing activities
Payments on long-term debt (53) (74)
Payments on short-term debt (29)
--------------------- ---------------------
(53) (103)
--------------------- ---------------------
Increase (decrease) in cash and cash equivalents (52) 311
Cash and cash equivalents, beginning of period 3,323 3,120
--------------------- ---------------------
Cash and cash equivalents, end of period $ 3,271 $ 3,431
===================== =====================
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements
6
<PAGE>
DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
1. Basis of presentation:
The 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
statement of results of operations for the interim periods.
The results of operations for the three months ended March 31, 2000, 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, 1999.
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:
John B. Anderson (Anderson), the Company's controlling stockholder and
former Chairman of the Board of Directors of the Company, and through
ownership of Cedar Development Co., was the sole shareholder and President
of Baby Grand Corp.(BGC) and they assert that entities owned or controlled
by him (Anderson Entities) 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) have been pledged as collateral to secure certain
obligations owing to the FDIC, and (ii) 1,280,756 shares (the BGC Pledged
Shares) had been pledged as collateral in favor of a subsidiary of the
Company.
In June 1999, the FDIC sold a portion of its judgment, 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.
7
<PAGE>
DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
GFS attempted to exercise its rights under the judgment and demanded that
the Company transfer ownership of the FDIC Pledged Shares to itself but
Mr. Anderson objected, claiming that there was no change in ownership of
the shares. The Company in turn filed on July 6, 1999, a Complaint in
Interpleader in Superior Court of California. The jurisdiction of the
action was removed and transferred on September 20, 1999, to the United
States District Court for the District of Nevada. 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 and refusing to grant shareholder demands for an
immediate shareholder meeting to elect directors. The Company is unable to
predict the outcome of the Nevada Federal Action and has no ownership
interest in the shares. However, the Nevada Federal Action may result in a
change of control of the Company. A more detailed discussion is described
in the Company's Form 10-KSB for the fiscal year ended December 31, 1999.
On January 5, 2000, the Nevada District Court 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
US Bankruptcy Court in Las Vegas, Nevada, where BGC filed a petition under
Chapter 7 of the Bankruptcy Code. On February 22, 2000, the Company was
granted its motion in Bankruptcy Court 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 received a plurality of the votes and were duly
elected. See the Company's Form 8-K filed on May 3, 2000.
8
<PAGE>
DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
4. Contingencies:
(a) As of March 31, 2000, the counter claim filed by GFS and GFS
Acquisition pending before the Nevada District Court was the only
legal proceedings pending against the Company, which may have a
material adverse effect on the Company. See note 3 regarding legal
proceedings for a more detailed discussion in the Company's Form
10-KSB for the fiscal year ended December 31, 1999.
(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 chemical and
toxics-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 up to $170,000. 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.
(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.
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, 2000, and 1999, by the weighted average
number of shares outstanding (5,966,943) as of March 31, 2000, and
(6,375,096) as of March 31, 1999. 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 $1,335,000 as of March 31,
2000. The Company has no present intention to pay dividends on either its
common or preferred shares.
9
<PAGE>
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.
OVERVIEW
REAL ESTATE
FAIRWAYS
In October 1996, the Company and Murieta Investors, LLC, (MI) signed a Purchase
and Option Agreement which provided that MI would purchase from the Company 6
lots at The Fairways at $40,000 per lot plus payment of the park fees applicable
to the lots purchased. In addition, the Company may receive contingent
consideration equal to 20% of the gross sales price of each residential dwelling
sold less $40,000 (a "Success Payment"). During 1999, four residential dwellings
were sold by MI and the Company received Success Payments in the amount of
$174,980. Construction has not started on the two remaining lots.
The agreement also provided for MI to have options to acquire 36 additional lots
at various prices. The options were exercisable starting December 1, 1998 (6
lots) and every six months thereafter (4 lots each). If two consecutive options
were not exercised, then the remaining options would be terminated. MI did not
exercise the December 1, 1998 option and the June 1, 1999 option. During June
1999, the Company notified MI that the remaining options were terminated.
During March 2000, MI offered the Company to buy back the two lots for
approximately $30,000 per lot. On March 24, 2000, escrow closed and the Company
placed the two lots in inventory for resale at a cost of approximately $30,000
per lot.
10
<PAGE>
On November 23, 1999, the Company liquidated the debt owed on the lots held by
Beal Bank, in the amount of $672,950. The Company does not expect to realize a
gain on the sale of the lots because the existing cost basis is higher than
anticipated net sale proceeds. Although dependent on myriad factors, Management
anticipates that most of the lots will be sold by the end of the year. To
facilitate sales on certain lots, the Company expects to build a privacy wall at
an anticipated cost of approximately $60,000. It intends to add that cost back
into the listing price of the lots.
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 crop 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 rehired
in January 2000, its former manager at the drying facility. In the next six
months the Company anticipates the expenditure of $50,000 to $100,000 in
equipment purchases at the drying facility. The equipment is needed to clean the
grain prior to the drying process. The Company currently stores wheat
principally for one customer under a contract, which expires in May 2002. The
Company is currently in negotiations to terminate this contract and enter into a
contract to store and dry rice for principally one new customer. However, there
can be no assurances that the Company will be successful in entering into a
contract with this potential customer on terms favorable to the Company.
11
<PAGE>
OTHER
The Company has no present intentions to pay dividends on either its common or
preferred stock.
OPERATING RESULTS
Three months ended March 31, 2000 vs. the three months ended March 31, 1999.
Real Estate
The revenues from the sale of real estate at The Fairways for the three months
ended March 31, 2000, compared with the three months ended March 31, 1999,
increased. Five lots sold in March 2000, versus the two lots that were sold in
the same period during 1999. However, due to the length of time in inventory,
the cost of sales of the lots in inventory has reduced the profit margins
considerably. Sales at The Fairways seem to be on the rise, as during the month
ended April 30, 2000, there were six sales.
Net rental income from agricultural properties for the three months ended March
31, 2000, increased slightly over the revenue for the same period in 1999. A new
two-year lease at Sam Hamburg Farm accounted for this slight increase. This is
the first year of the two-year lease.
Agricultural
The loss from the grain drying and storage operation for the three months ended
March 31, 2000, increased by approximately $23,000 when compared with the three
months ended March 31,1999. 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. A number of factors contributed to this
situation and in January 2000, management at the facility was reorganized in an
attempt to remedy the problem.
General
When compared with the three months ended March 31, 1999, operating expenses
increased by approximately $172,000. Major contributors to the increase were
legal fees ($134,000), accounting fees ($21,000) and directors
expenses/consulting fees ($12,000). Litigation concerning the Interpleader, GFS
related matters and the shareholder meeting were most responsible for the legal
and accounting fee increases.
12
<PAGE>
The remaining increase ($5,000) was made up of salaries and office expenses.
Interest expense for the three months ended March 31, 2000, decreased by
approximately $20,000 when compared with the three months ended March 31, 1999.
The payment in full of the Beal Bank note in November 1999 accounted for the
decrease.
LIQUIDITY AND CAPITAL RESOURCES
During the quarter ended March 31, 2000, cash, cash equivalents and marketable
securities decreased by $30,000 from $3,601,000 at December 31, 1999, to
$3,571,000 at March 31, 2000. The most significant uses of cash during the three
months ended March 31, 2000 consisted of cash used in operating activities and
payment on long-term debt.
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 a privacy wall; to fund the required payments due on the
grain dryer financing to fund equipment purchases at the grain drying facility;
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.
The Company anticipates that sources of required liquidity will be cash
generated from the grain drying and storage facility, anticipated lot sales at
The Fairways, collection of notes receivable and the cash available at March 31,
2000. Based on known commitments, the Company believes that the sources of cash
described and the cash available at March 31, 2000, will be adequate to fund
known liquidity requirements.
13
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings
See 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, 2000.
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
14
<PAGE>
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: May 15, 2000 By: /s/Steve K. Miller
-----------------------
Steve K. Miller, President
By: /s/ Marvin P. Johnson
------------------------
Marvin P. Johnson
Chief Accounting Officer
15
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial
information extracted from the consolidated
balance sheet and the consolidated statement of
operations on pages 3 through 5 of the Company's
quarterly report on Form 10-QSB for the quarter
ended March 31, 2000, and is qualified in it's
entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 3,271
<SECURITIES> 300
<RECEIVABLES> 342
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,991
<PP&E> 3,850
<DEPRECIATION> 763
<TOTAL-ASSETS> 10,192
<CURRENT-LIABILITIES> 610
<BONDS> 0
0
5
<COMMON> 3,900
<OTHER-SE> 3,580
<TOTAL-LIABILITY-AND-EQUITY> 10,192
<SALES> 395
<TOTAL-REVENUES> 422
<CGS> 527
<TOTAL-COSTS> 527
<OTHER-EXPENSES> 433
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (22)
<INCOME-PRETAX> (492)
<INCOME-TAX> 0
<INCOME-CONTINUING> (492)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (492)
<EPS-BASIC> (.08)
<EPS-DILUTED> (.08)
</TABLE>
