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 September 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.
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(Exact name of business issuer as specified in its charter)
NEW YORK 11-1687244
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(State or other jurisdiction or I.R.S. Employer Identification No.
incorporation or organization)
4600 Northgate Boulevard, Suite 130, Sacramento, California 95834
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(Address of principal executive offices)
(916) 929-2295
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(Issuer's telephone number)
NOT APPLICABLE
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(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 November 1, 2000.
Transitional Small Business Disclosure Format (check one): Yes____ No X
---
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DUNES HOTELS AND CASINOS INC.
INDEX
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Page
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Part 1. Financial Information
Item 1. Financial Statements
----------------------------
Condensed Consolidated Balance Sheets 3
September 30, 2000 and December 31, 1999
Condensed Consolidated Statements of Operations 5
for the three months ended September 30, 2000
and 1999
Condensed Consolidated Statements of Operations 6
for the nine months ended September 30, 2000
and 1999
Condensed Consolidated Statements of Cash Flows 7
for the nine months ended September 30, 2000
and 1999
Notes to Condensed Consolidated Financial 8
Statements
Item 2. Management's Discussion and Analysis of
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Financial Condition and Results of Operations 17
---------------------------------------------
Part II. Other Information
Item 1. Legal Proceedings 22
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Item 2. Changes in Securities 22
-----------------------------
Item 3. Defaults Upon Senior Securities 22
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Item 4. Submission of Matters to a Vote of Security Holders 22
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Item 5. Other Information 22
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Item 6. Exhibits and Reports on Form 8-K 22
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Signatures 23
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DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2000 AND DECEMBER 31, 1999
(Dollars in thousands)
ASSETS
September December
30, 2000 31, 1999
---------- ----------
(Unaudited)
Cash and cash equivalents $ 793 $ 3,323
Marketable securities 3,405 278
Receivables
Trade 132 3
Related party, less allowance of $1,899 in 1999 37
Real estate sales 529 363
Inventory of real estate held for sale 1,710 3,460
Prepaid expenses 78 111
Property and equipment, less accumulated
depreciation and amortization of $828
and $730 in 2000 and 1999 3,038 3,118
Other assets 3 3
---------- ----------
$ 9,688 $ 10,696
========== ==========
See notes to condensed consolidated financial statements
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DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
SEPTEMBER 30, 2000 AND DECEMBER 31, 1999
(Dollars in thousands)
LIABILITIES AND SHAREHOLDERS' EQUITY
September December
30, 2000 31, 1999
---------- ----------
(Unaudited)
Accounts payable $ 100 $ 52
Accrued expenses 199 171
Deferred credits 106
Income taxes 307 307
Long-term debt and capital lease obligation 650 815
Accrued preferred stock dividends in arrears 1,371 1,317
---------- ----------
2,733 2,662
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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 $2,571 at September 30, 2000,
including dividends in arrears 5 5
Common stock - authorized 25,000,000
shares ($.50 par); issued 7,799,780
shares 3,900 3,900
Capital in excess of par 25,881 25,881
Deficit (20,793) (19,752)
---------- ----------
8,993 10,034
Treasury stock at cost;
Preferred - Series B, 902 shares
Common 2,705,440 shares and
1,424,684 shares in 2000
and 1999 (2,038) (2,000)
---------- ----------
Total shareholders' equity 6,955 8,034
---------- ----------
$ 9,688 $ 10,696
========== ==========
See notes to condensed consolidated financial statements
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DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 (Dollars in
thousands, except per share)
UNAUDITED
2000 1999
------------ ------------
Revenues
Sales of real estate $ 729 $ 1,208
Rental income, agricultural properties 14 10
Drying and storage revenues 74 54
------------ ------------
817 1,272
------------ ------------
Cost and expenses
Cost of real estate sold 763 293
Cost and expenses of rental income 1 1
Cost of drying and storage revenues 110 75
Selling, administrative and general
Corporate 225 162
Real estate operations 46 75
Depreciation 33 33
------------ ------------
1,178 639
------------ ------------
Income/(loss) before other credits (charges)
and income taxes (361) 633
Other credits (charges)
Interest and dividend income 56 63
Interest expense (19) (42)
Gain / (loss) on marketable securities, net 28 (28)
------------ ------------
65 (7)
------------ ------------
Income/(loss) before income taxes (296) 626
Income taxes
------------ ------------
Net income/(loss) $ (296) $ 626
============ ============
Weighted average number of shares outstanding 5,966,973 6,375,096
Basic and diluted income/(loss)
per common share $ (0.05) $ 0.10
============ ============
See notes to condensed consolidated financial statements
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DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(Dollars in thousands, except per share)
UNAUDITED
2000 1999
------------ -------------
Revenues
Sales of real estate $ 1,807 $ 1,986
Rental income, agricultural properties 43 36
Drying and storage revenues 110 147
------------ -------------
1,960 2,169
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Cost and expenses
Cost of real estate sold 1,928 1,010
Cost and expenses of rental income 3 3
Cost of drying and storage revenues 249 225
Selling, administrative and general
Corporate 692 506
Real estate operations 131 183
Depreciation 98 99
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3,101 2,026
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Income/(loss) before other credits
(charges) and income (1,141) 143
Other credits (charges)
Interest and dividend income 159 176
Interest expense (62) (131)
Other income 3 11
Gain / (loss) on marketable securities, net 59 (43)
------------ -------------
159 13
------------ -------------
Income/(loss) before income taxes (982) 156
Income taxes (5) (12)
------------ -------------
Net income/(loss) $ (987) $ 144
============ =============
Weighted average number of shares outstanding 5,966,973 6,375,096
Basic and diluted income/(loss)
per common share $ (0.17) $ 0.01
============ =============
See notes to condensed consolidated financial statements
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DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(Dollars in thousands)
UNAUDITED
2000 1999
------------- ------------
Cash flows from operating activities:
Net cash provided by (used in)
operating activities $ 762 $ 567
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Cash flows from investing activities:
Proceeds from disposition of investment 544
Investment in marketable securities (3,127) 43
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Net cash provided by (used in) investing
activities (3,127) 587
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Cash flows from financing activities
Payments on long-term debt (165) (350)
Payments on short-term debt (49)
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Net cash used in financing activities (165) (399)
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(Decrease) increase in cash and cash
equivalents (2,530) 755
Cash and cash equivalents, beginning of period 3,323 3,120
------------- ------------
Cash and cash equivalents, end of period $ 793 $ 3,875
============= ============
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 consolidated balance sheet of the Company at
that date. The accompanying unaudited condensed consolidated financial
statements reflect all adjustments (consisting solely of normal recurring
adjustments) which are, in the opinion of management, necessary for a fair
presentation of the financial position, results of operations and cash
flows of the Company.
The results of operations for the nine months ended September 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, and 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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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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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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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. On October 31, 2000, GFS filed an
Application for Order Approving Disposition of Collateral, which if
approved would authorize a UCC sale of the FDIC Pledged Shares. 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, ss.ss.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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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) 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
has disposed of 1,000 cubic yards of soil to date. The Board of
Directors has estimated that the cost of disposal of the remaining
soil is $125 to $200 per cubic yard or approximately $500,000 to
$800,000. However, they also have estimated that if on-site
remediation could be achieved, that the cost should be no more than
$170,000, which is the amount that has been accrued. The Board of
Directors currently is in the process of obtaining updated estimates
of the cost of remediating the contamination. However, at this time
the Company does not have sufficient information to revise the
previous estimates. Accordingly, it is reasonably possible the
estimates will change materially in the near term.
(c) As previously reported, the Company had been notified that the
California Franchise Tax Board (FTB) was examining its 1995 tax
return. On September 13, 2000, the FTB requested, and the Company
granted, a six month extension of the period in which the FTB could
make an assessment related to the 1995 tax return. The Company
disagrees with the FTB and plans to oppose any assessment of
additional taxes or interest and, therefore, has not made any
provision for additional taxes or interest. However, if the FTB
were successful on all of the issues that it has raised, the Company
would be liable for approximately $1 million in taxes and interest.
Based on the information available at this time, the Board of
Directors is not able to accurately assess the amount that may be
owed to the State of California as additional franchise taxes.
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DUNES HOTELS AND CASINOS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
(d) The Company estimates the carrying value of the lots at The Fairways
real estate development approximates their fair market value. The
carrying values will continue to increase the longer the lots are
held by the Company. As a result, the Company could realize a loss on
the sale of the remaining lots if the fair market value of the lots
does not increase at the same rate as the carrying values.
5. Loss per common share:
Loss per common share has been computed by dividing the income, net
(loss), less the accrued dividends applicable to the cumulative Series B
Preferred Shares, for the nine months ended September 30, 2000, and 1999,
by the weighted number of shares outstanding (5,966,973) as of September
30, 2000, and (6,375,096) as of September 30, 1999. 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 $1,371,000 as of September 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.
(Dollars in thousands, except per share)
Nine Months Ended Nine Months Ended
September 30, 2000 September 30, 1999
------------------ ------------------
Income/(loss) from operations $ (987) $ 144
Less: preferred dividends ( 54) ( 54)
------ ------
Income/(loss) to common
stockholders used in basic
and diluted EPS $(1,041) $ 90
======= ======
Weighted average number
of common shares used
in basic and diluted EPS 5,966,973 6,375,096
========= =========
Basic and diluted EPS $ (0.17) $ 0.01
====== =====
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DUNES HOTELS AND CASINOS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
Three Months Ended Three Months Ended
September 30, 2000 September 30, 1999
------------------ ------------------
Income/(loss) from Operations $(296) $ 626
Less: preferred dividends ( 18) ( 18)
------ ------
Loss to common stockholders
used in basic and diluted EPS $(314) $ 608
====== =======
Weighted average number
of common shares used
in basic and diluted EPS 5,966,973 6,375,096
========= =========
Basic and diluted EPS $(0.05) $0.10
====== =====
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.
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DUNES HOTELS AND CASINOS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
(Dollars in thousands)
Grain Drying
And Storage Real Estate Farming Total
------------ ----------- ------- -----
Nine Months Ended September 30, 2000
External revenue $110 $1,807 $43 $1,960
Depreciation 98 98
Income/(loss) (237) (252) 40 (449)
Assets 3,173 2,093 146 5,412
Nine Months Ended September 30, 1999
External revenue $147 $1,986 $36 $2,169
Depreciation 99 99
Income/(Loss) (177) 793 33 649
Assets 3,172 3,859 146 7,177
Three Months Ended September 30, 2000
External revenue $74 $729 $14 $817
Depreciation 33 33
Income/(loss) (69) (80) 13 (136)
Assets 3,173 2,093 146 5,412
Three Months Ended September 30, 1999
External revenue $54 $1,208 $10 $1,272
Depreciation 33 33
Income/(loss) (54) 840 9 795
Assets 3,172 3,859 146 7,177
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DUNES HOTELS AND CASINOS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
Nine Months Nine Months Three Months Three Months
Ended Ended Ended Ended
September September September September
30, 2000 30, 1999 30, 2000 30, 1999
Revenues
Total for reportable
Segments $1,960 $2,169 $817 $1,272
-------------------------------------------------------
Total $1,960 $2,169 $817 $1,272
=======================================================
Income/(loss)
Total for reportable
Segments $(449) $649 $(136) $795
Corporate expenses (692) (506) (225) (162)
Interest income/
expense & other 159 13 65 (7)
-------------------------------------------------------
Income/(loss) before
Income taxes $(982) $156 $(296) $626
=======================================================
Assets
Total for reportable
Segments $5,412 $7,177 $5,412 $7,177
Cash, securities &
Prepaids 4,276 4,807 4,276 4,807
-------------------------------------------------------
Total $9,688 $11,984 $9,688 $11,984
=======================================================
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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 October 31, 2000, 16 lots
remain and 14 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 planned to build a
privacy wall on those lots, however, the wall was not approved by the
architectural review committee.
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>
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).
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 and during September 2000 the Company
received payment for 50% of the storage revenue under the terms of the
agreement.
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. During September 2000, the Company began drying
operations and as of September 30, 2000, realized gross drying revenue of
approximately $59,000 net of freight rebate.
During the quarter ended September 30, 2000, installation of equipment and
field related structures at the drying facility was started at a cost of
approximately $105,000. This equipment, which will allow the Company to clean
the wet paddy rice prior to drying and elevator modifications, is projected to
increase the Company's efficiency and flow rates.
If the Company were to lose its drying and storage customer, it would have a
material adverse effect on the Company's agricultural segment.
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DUNES HOTELS AND CASINOS INC.
OPERATING RESULTS
Three months ended September 30, 2000 vs. the three months ended
September 30, 1999.
Real Estate
Revenue from the sale of real estate lots, increased by $462,000. There were
eight lots sold through September 30, 2000, with gross revenue of $729,000
compared with three lots sold through September 30, 1999, with gross revenue of
$267,000. The cost of lots sold in 2000 was $763,000 compared to $293,000 in
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. In addition, in 1999 the Company also received a
success payment of $94,000 from Murieta Investors and sold 2.16 acres of
industrial property in Las Vegas, NV for $847,000. A more detailed discussion
of the Success Payment from Murieta Investors, LLC and the Las Vegas, NV
industrial property is described in the Company's Form 10-KSB for the year
ended December 31, 1999.
Net rental income from agricultural properties increased slightly over the
revenue for 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 increased by approximately
$15,000 During this period the filling of the east warehouse was completed and
in September 2000 drying operations were started. Increased costs of natural
gas and electricity to operate the dryer and related equipment contributed to
the loss increase. Revenue from the drying operation is realized during the
drying period, however, the storage revenue is realized over a twelve month
storage period See "Item 2--Management's Discussion and Analysis of Financial
Condition and Results of Operations--Overview--Agricultural".
General
Corporate operating expenses increased by approximately $63,000. This increase
consisted of increases in administrative and general expenses, officers
salaries & related payroll costs ($50,000), accounting fees ($12,000),
registrar transfer agent fees ($14,000), officers travel ($17,000), and
officers/directors insurance ($3,000) offset by a decrease in legal fees
($20,000) and directors consulting fees ($13,000).
Selling expenses associated with the real estate operations decreased by
approximately $29,000. Decreases in advertising ($26,000), real property taxes
($7,000), association dues ($3,000) and other expense ($4,000) made up the
majority of the decrease. The decrease was offset by an increase in country
club dues ($11,000). See "Item 2-Management's Discussion and Analysis of
Financial Condition and Results of Operations-Overview-Fairways".
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DUNES HOTELS AND CASINOS INC.
Nine months ended September 30, 2000 vs. nine months ended September 30, 1999
Real Estate
Revenues from the sale of real estate decreased by $179,000. There were 21 lots
sold at "The Fairways" in the first nine months of 2000, with gross revenues of
$1,807,000 compared with gross revenues of $1,986,000 for the first nine months
of 1999, which consisted of the sale of 6 lots at "The Fairways" for $468,000,
Success Payments of $138,000 on lots previously sold to Murieta Investors, LLC,
the sale of Solano Option for $533,000 and the sale of 2.16 acres of industrial
property in Las Vegas, NV for $847,000. A more detailed discussion of the
Success Payment from Murieta Investors, LLC, the Solano Option sale and the Las
Vegas, NV industrial property 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 $37,000.
The only storage revenue generated during the nine month period ended September
30, 2000 was from the shipment of wheat in storage and the filling of the east
warehouse with paddy rice. In 1999 storage revenue was generated from both
warehouses with wheat and corn. The west warehouse at the storage facility is
currently being filled with paddy rice from the drying operation. See "Item
2--Management's Discussion and Analysis of Financial Condition and Results of
Operations--Operating Results-Three months ended September 30, 2000 vs. the
three months ended September 30, 1999-Agriculture."
General
Corporate operating expenses increased by $186,000. The increase is made up of
officer/office salaries and benefits ($53,000), accounting fees ($33,000),
legal fees ($86,000), registrar/transfer agent fees ($19,000), officer's travel
($17,000), directors expenses ($10,000) and office expense and related
($7,000). This increase is offset by decreases in directors consulting fees
($25,000) and directors fees ($14,000).
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 $52,000. The most significant
decreases were advertising expenditures ($39,000), geo-technical consulting
services ($11,000), real property taxes ($14,000) association dues ($7,000) and
legal fees ($3,000). The decrease was offset by an increase in Rancho Murieta
Country Club dues ($18,000) and sales trailer expense ($4,000).
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DUNES HOTELS AND CASINOS INC.
The increase in country club dues resulted from the conversion of social
memberships to golf memberships.
LIQUIDITY AND CAPITAL RESOURCES
During the nine months ended September 30, 2000, cash, cash equivalents and
marketable securities increased by $597,000 from $3,601,000 at December 31,
1999, to $4,198,000 at September 30, 2000. The increase in cash was due
primarily to lot sales at "The Fairways". The most significant uses of cash
during the nine months ended September 30, 2000, consisted of payment of
long-term debt ($165,000).
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 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; 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 and marketable
securities available at September 30, 2000. Based on known commitments, the
Company believes that the sources of cash described and the cash available at
September 30, 2000, will be adequate to fund known liquidity requirements.
FINANCIAL CONDITION
At December 31, 1999, Inventory of Real Estate held for sale was $3,460,000
consisting of 40 lots compared to $1,710,000 consisting of 20 lots at September
30, 2000. This decrease of $1,750,000 is a result of the sale of lots at The
Fairways.
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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
Condensed Consolidated 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 September 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
27.01 Financial Data Schedule
(b) Reports on Form 8-K
None
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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: November 14, 2000 By: /s/ Steve K. Miller
----------------- --------------------------
Steve K. Miller, President
By: /s/ Marvin P. Johnson
--------------------------
Marvin P. Johnson
Chief Accounting Officer
