<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(X) Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended December 31, 1994 or
( ) Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ____________ to ____________
Commission file number 0-14050
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THE SANDS REGENT
-------------------------------------------------
(exact name of registrant as specified in charter)
<TABLE>
<S> <C>
Nevada 88-0201135
--------------------------------- ---------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
345 North Arlington Avenue, Reno, Nevada 89501
- - - --------------------------------------------------------------------------------
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code (702) 348-2200
-------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
--- ---
At Febuary 13, 1995, the registrant had outstanding 4,498,722 shares of
its common stock, $.05 par value.
<PAGE> 2
THE SANDS REGENT AND SUBSIDIARY
FORM 10-Q
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page No.
<S> <C>
PART I FINANCIAL INFORMATION
Item 1. Financial statements 1 - 7
Consolidated Statements of Income 1
Consolidated Balance Sheets 2 - 3
Consolidated Statements of Cash Flows 4 - 5
Notes to Interim Consolidated Financial
Statements 6 - 7
Item 2. Managements' Discussion and Analysis
of Financial Condition and Results of
Operations. 8 - 12
PART II OTHER INFORMATION
Item 1. Legal Proceedings. 13
Item 2. Changes in Securities. 13
Item 3. Defaults Upon Senior Securities. 13
Item 4. Submission of Matters to a Vote of
Security Holders. 13
Item 5. Other Information. 13
Item 6. Exhibits and Reports on Form 8-K. 13
SIGNATURES 14
</TABLE>
<PAGE> 3
PART I FINANCIAL INFORMATION
Item 1. Financial Statements.
THE SANDS REGENT AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
(Dollars in thousands, THREE MONTHS SIX MONTHS
except per share amounts) ENDED DECEMBER 31, ENDED DECEMBER 31,
--------------------- ---------------------
1993 1994 1993 1994
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Operating revenues:
Gaming $ 6,114 $ 9,922 $ 12,424 $ 20,954
Lodging 2,232 1,995 5,660 5,072
Food and beverage 1,519 1,846 3,390 4,162
Other 1,084 363 2,314 994
--------- --------- --------- ---------
10,949 14,126 23,788 31,182
Less complimentary lodging, food
and beverage included above 390 573 730 1,266
--------- --------- --------- ---------
10,559 13,553 23,058 29,916
--------- --------- --------- ---------
Operating costs and expenses:
Gaming 2,670 5,340 5,389 10,984
Lodging 1,111 1,310 2,361 2,628
Food and beverage 1,318 1,543 2,938 3,414
Other 926 170 1,986 609
Maintenance and utilities 605 1,037 1,241 2,172
General and administrative 1,530 2,885 2,816 5,891
Depreciation and amortization 633 1,109 1,262 2,176
--------- --------- --------- ---------
8,793 13,394 17,993 27,874
--------- --------- --------- ---------
Income from operations 1,766 159 5,065 2,042
Other income (deductions):
Interest and other income 173 197 345 272
Interest and other expense (212) (617) (417) (1,305)
Equity in (loss) of
unconsolidated affiliate (80) - (1,142) -
(119) (420) (1,214) (1,033)
--------- --------- --------- ---------
Income (loss) before income taxes 1,647 (261) 3,851 1,009
Provision for income taxes 527 31 1,229 468
--------- --------- --------- ---------
Net income (loss) $ 1,120 $ (292) $ 2,622 $ 541
========= ======== ========= =========
Net income (loss) per share $.26 $(.07) $.60 $.12
==== ===== ==== ====
Weighted average shares
outstanding 4,348,244 4,498,722 4,341,983 4,496,513
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
-1-
<PAGE> 4
THE SANDS REGENT AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Dollars in thousands) JUNE 30, DECEMBER 31,
1994 1994
---------- ------------
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 9,669 $10,706
Short-term investments 135 135
Accounts and notes receivable less allow-
ance for possible losses of $111 and $119 330 346
Inventories 1,116 679
Prepaid federal income taxes 179 -
Prepaid expenses and other assets 1,136 1,600
------- -------
Total current assets 12,565 13,466
PROPERTY AND EQUIPMENT:
Land 8,101 8,101
Buildings, ship and improvements 53,639 53,732
Equipment, furniture and fixtures 21,794 21,954
Construction in progress 236 692
------- -------
83,770 84,479
Less accumulated depreciation
and amortization 22,963 24,640
------- -------
60,807 59,839
OTHER ASSETS:
Goodwill, net of accumulated
amortization of $122 and $305 7,195 7,012
Note receivable 1,258 1,253
Other 443 428
------- -------
8,896 8,693
------- -------
Total assets $82,268 $81,998
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
-2-
<PAGE> 5
THE SANDS REGENT AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Dollars in thousands) JUNE 30, DECEMBER 31,
1994 1994
---------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 3,475 $ 2,203
Accrued salaries, wages and benefits 1,668 1,916
Other accrued expenses 712 1,074
Federal income taxes payable - 1,135
Deferred federal income tax liability 168 228
Current maturities of long-term debt 1,722 4,084
------- -------
Total current liabilities 7,745 10,640
LONG-TERM DEBT 27,559 25,461
DEFERRED FEDERAL INCOME TAX LIABILITY 2,732 1,555
OTHER 94 75
STOCKHOLDERS' EQUITY:
Preferred stock, $.10 par value, 5,000,000
shares authorized, none issued - -
Common stock, $.05 par value, 20,000,000
shares authorized; 6,892,722 and
6,898,722 shares issued 345 345
Additional paid-in capital 13,036 13,074
Retained earnings 53,112 53,203
------- -------
66,493 66,622
Treasury stock, at cost, 2,400,000 shares (22,355) (22,355)
------- -------
Total stockholders' equity 44,138 44,267
------- -------
Total liabilities and stockholders'
equity $82,268 $81,998
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
-3-
<PAGE> 6
THE SANDS REGENT AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED DECEMBER 31,
-----------------------
1993 1994
---------- ----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $2,622 $ 541
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 1,262 2,176
(Gain) loss on disposal of property
and equipment 7 (4)
Noncash interest income from
unconsolidated affiliate (210) -
Equity in loss of unconsolidated
affiliate 1,142 -
(Increase) decrease in accounts and
notes receivable 73 (16)
(Increase) decrease in inventories (90) 437
(Increase) in prepaid expenses and
other current assets (392) (464)
Decrease in other assets 51 10
(Decrease) in accounts payable (420) (499)
Increase (decrease) in accrued expenses (398) 610
Increase (decrease) in federal income
taxes payable (1,242) 1,314
Increase (decrease) in deferred federal
income tax liability 171 (1,117)
(Decrease) in other liabilities - (19)
------ ------
NET CASH PROVIDED BY OPERATING ACTIVITIES 2,576 2,969
------ ------
INVESTING ACTIVITIES:
Sale and maturity of short-term
investments 302 -
Payments received on note receivable - 5
Additions to property and equipment (415) (957)
Proceeds from sale of property and
equipment 29 9
Investment in and advances to
unconsolidated affiliate (2,679) -
------ ------
NET CASH USED IN INVESTING ACTIVITIES (2,763) (943)
------ ------
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
-4-
<PAGE> 7
THE SANDS REGENT AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED DECEMBER 31,
-----------------------
1993 1994
---------- ----------
<S> <C>
FINANCING ACTIVITIES:
Payment of accounts payable for
prior year purchases of property
and equipment - (722)
Issuance of long-term debt 1,000 225
Payments on long-term debt (5) (80)
Issuance of common stock 100 38
Payment of dividend on common stock (434) (450)
------ -------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 661 (989)
------ -------
INCREASE IN CASH AND CASH EQUIVALENTS 474 1,037
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD 2,970 9,669
------ -------
CASH AND CASH EQUIVALENTS, END OF PERIOD $3,444 $10,706
====== =======
SUPPLEMENTAL CASH FLOW INFORMATION:
Property and equipment acquired by
accounts payable - $ 68
====== =======
Accounts payable converted to long-
term debt - $ 119
====== =======
Accrued expenses included in
investment in and advances to
unconsolidated affiliate $ 48 -
====== =======
Interest paid, net of amount capitalized $ 411 $ 1,073
====== =======
Federal income taxes paid $2,300 $ 275
====== =======
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
-5-
<PAGE> 8
THE SANDS REGENT AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED DECEMBER 31, 1994 AND 1993
NOTE 1 - BASIS OF PREPARATION
These statements should be read in connection with the 1994 Annual
Report heretofore filed with the Securities and Exchange Commission as
Exhibit 13 to the Registrant's Form 10-K for the year ended June 30,
1994. The accounting policies utilized in the preparation of the
financial information herein are the same as set forth in such annual
report except as modified for interim accounting policies which are
within the guidelines set forth in Accounting Principles Board
Opinion No. 28.
The Consolidated Balance Sheet at June 30, 1994 has been taken
from the audited financial statements at that date. The interim
consolidated financial information is unaudited. In the opinion of
management, all adjustments, consisting only of normal recurring
accruals, necessary to present fairly the financial condition as of
December 31, 1994 and the results of operations and cash flows for
the six months ended December 31, 1994 and 1993 have been included.
Interim results of operations are not necessarily indicative of the
results of operations for the full year.
The accompanying Consolidated Financial Statements include the
accounts of the Company and its wholly owned subsidiaries Zante, Inc.,
Patrician, Inc. and Gulfside Casino, Inc. and Gulfside Casino Partnership
(together the "Company"). Patrician, Inc. and Gulfside Casino, Inc. are
the sole partners in Gulfside Casino Partnership. Zante, Inc. owns and
operates the Sands Regency hotel/casino in Reno, Nevada and Gulfside Casino
Partnership owns and operates the Copa Casino in Gulfport, Mississippi.
NOTE 2 - RECLASSIFICATIONS
Certain reclassifications have been made to the December 31, 1993
interim consolidated financial statements to conform to the December 31,
1994 presentation.
NOTE 3 - COMMITMENTS AND CONTINGENCIES
The Copa Casino, on a stand alone basis, continues to operate at a
net loss and, as of December 31, 1994, current liabilities exceed
current assets. Management continues to undertake actions in an attempt
to improve Copa Casino revenues and to decrease costs. The Company
also continues to explore site development options. The scope of such
plans have been limited and negatively impacted by an action of the
Mississippi State Port Authority Board of Commissioners. On October 27,
1994, the Board of Commissioners specifically denied the Company's proposed
development of a hotel for the Copa Casino site. Other development options
and strategies, however, continue to be pursued by the Company.
-6-
<PAGE> 9
THE SANDS REGENT AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED DECEMBER 31, 1994 AND 1993
NOTE 3 - COMMITMENTS AND CONTINGENCIES (continued)
The Company's net investment in and advances to Gulfside Casino, Inc.
and the Copa Casino was approximately $22.5 million as of December 31,
1994. There are no assurances that the Company's efforts to improve oper-
ating results will be successful and the outcome of this uncertainty cannot
presently be determined. Accordingly, no provision for any loss due to an
impairment in value of the assets of Gulfside Casino, Inc. or the Copa
Casino, that may result upon the resolution of these matters, has been made
in the accompanying interim consolidated financial statements.
In December 1994, a lawsuit was filed in a Mississippi court against
Gulfside Casino, Inc. because of Gulfside's failure to make payments due
on promissory note obligations to two former shareholders of Gulfside.
These note obligations to the former shareholders are secured by a pledge
of Gulfside's partnership interest in the Copa Casino. In the Mississippi
suit, the former Gulfside shareholders are demanding the $6 million due
under the promissory notes, attorneys fees in an amount not less than
$900,000, interest costs, appointment of a receiver for Gulfside and
the sale of Gulfside's partnership interest in the Copa Casino.
These promissory notes, which were owed by Gulfside when The Sands
Regent purchased Gulfside in February 1994 in order to acquired Gulfside's
partnership interest in the Copa Casino, have not been assumed or guar-
anteed by The Sands Regent. Gulfside's only tangible asset is its
partnership interest in the Copa Casino and the Copa Casino has not
generated adequate operating results to allow for any partner distrib-
utions. As such, Gulfside is not presently in the financial position
to make any payments with respect to these note obligations.
The Company will monitor the progress of the lawsuit and take what-
ever measures are appropriate to protect the Copa Casino and the Company.
The ultimate outcome of the lawsuit, including any financial impact, is not
presently subject to reasonable estimation.
-7-
<PAGE> 10
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.
Results of operations - Three months ended December 31, 1994 compared
to three months ended December 31, 1993
In February 1994, the Company acquired Gulfside Casino, Inc. ("GCI")
and thereby increased its ownership in Gulfside Casino Partnership ("GCP")
to 100%. As such, the results of operations and cash flows of GCI and GCP,
which operates the Copa Casino, have been consolidated with the Company's
results of operations and cash flows since the date of acquisition. Prior
to such acquisition, the Company held a 40% interest in the Copa Casino and
accounted for its investment under the equity method of accounting. A
significant reason for the increases in revenue and costs and expenses in
the current fiscal period, compared to the comparable prior fiscal period,
is due to the inclusion of the results of operations of GCI and the Copa
Casino upon consolidation.
In the three month period ended December 31, 1994, compared to the
three month period in the prior year, revenues increased from approx-
imately $10.6 million to $13.6 million and income from operations de-
creased from $1.8 million to $159,000. The Company had a net loss of
$292,000 ($.07 per share) in the second quarter of fiscal 1994 compared
to net income of $1.1 million ($.26 per share) for the comparable period
in fiscal 1994. The increase in revenue is due to the inclusion of Copa
Casino revenue. The decreases in income from operations, net income and
net income per share are due to the inclusion of Copa Casino operating
results and a decline in revenue and profits from the Reno operation.
Management believes that the decline in Reno revenue and profits is due to
adverse weather conditions, as compared to the prior year, increased
competition from new Las Vegas mega-resorts and construction delays on
Interstate 80 west of Reno which is a major artery to Northern California.
The decrease in lodging revenue of $237,000, in the second quarter of
fiscal 1995 compared to the same quarter in the prior year, is primarily
due to a decrease in Reno hotel occupancy. Hotel occupancy decreased from
approximately 83.6% in the second quarter of fiscal 1995 to 78.7% in the
second quarter of the current fiscal year. For the same comparable
periods, the average room rate decreased from approximately $30 to $29.
The increase in gaming revenue of $3.8 million is composed of gaming
revenue from the Copa Casino of $4.7 million which was offset by a decrease
in gaming revenue at the Sands Regency in Reno of approximately $900,000.
The decrease in gaming revenue in Reno, which is primarily slot revenue,
is due to the decrease in hotel occupancy and a decrease per occupied room.
Gaming revenue per occupied room decreased from $85 in the second quarter
of fiscal 1994 to $77 in the second quarter of fiscal 1995.
The increase in food and beverage revenue of $327,000 is principally
due to the inclusion of Copa Casino revenue. Likewise, the increase in
food and beverage costs and expenses of $225,000 is primarily due to the
addition of Copa Casino operations.
-8-
<PAGE> 11
Results of operations - Three months ended December 31, 1994 compared
to three months ended December 31, 1993 (continued)
The decrease in other revenue of $721,000, and related decrease in
costs and expenses of $756,000, is chiefly due to a decrease in retail
liquor store sales. In August 1994, the retail liquor store business,
which was operated by the Company in Reno, was sold to a third party.
Such third party now operates the retail liquor store in Company owned
facilities for rent and other consideration paid to the Company.
The increase in complimentary lodging, food and beverage, deducted
from revenue, of $183,000 and increase in gaming costs and expenses of
$2.7 million is due to the inclusion of the Copa Casino.
The increase in lodging costs and expenses of $199,000 is primarily
due to an increase in hotel salaries, wages and benefits in Reno. Certain
general salary, wage and benefit increases have been implemented within
the last year in order to remain competitive. The increases in maintenance
and utilities and general and administrative costs and expenses of $432,000
and $1.4 million, respectively, are principally due to the addition of
Copa Casino results of operations. These general and administrative costs
and expenses include significant advertising, marketing and promotional
costs.
The increase in depreciation and amortization expense of $476,000
includes the amortization of goodwill for the quarter associated with
GCI of $91,000 and depreciation from the Copa Casino of $381,000.
The increase in interest and other income of approximately $24,000
is composed of an increase in interest income from the Reno operation
of $150,000 as a result of the investment of additional excess funds
at market interest rates higher than in the comparable prior year period.
Such increase was offset, in part, by the non-inclusion of interest earned
on advances to GCP in the prior year quarter as includable on a pre-
consolidation basis. Upon consolidation, such intercompany income/expense
items are now eliminated.
The increase in interest expense of $405,000 in the second quarter of
fiscal 1995, compared to the same quarter of fiscal 1994, includes interest
expense from the Copa Casino of $129,000 and interest expense from GCI,
which was acquired in February 1994, of $90,000. In addition, interest
expense increased as a result of additional borrowings by the Company
to finance the operation and expansion of the Copa Casino at interest
rates higher in the current fiscal period than in the comparable prior
fiscal period.
The elimination of the equity in loss of unconsolidated affiliate,
that occurred in the prior year second quarter, is the result of the
Company's acquisition of GCI and GCP in February 1994 and the inclusion of
related operations on a consolidated basis in the current second quarter.
The increase in the effective income tax rate in the current year
quarter, compared to the prior year, is the result of the current year
deduction of goodwill amortization that is not deductible for income
tax purposes and other one-time differences which also have resulted in an
increase in the provision for income taxes.
-9-
<PAGE> 12
Results of operations - First six months of fiscal 1995 compared to 1994
In February 1994, the Company acquired Gulfside Casino, Inc. ("GCI")
and thereby increased its ownership in Gulfside Casino Partnership ("GCP")
to 100%. As such, the results of operations and cash flows of GCI and GCP,
which operates the Copa Casino, have been consolidated with the Company's
results of operations and cash flows since the date of acquisition. Prior
to such acquisition, the Company held a 40% interest in the Copa Casino and
accounted for it under the equity method of accounting. A significant
reason for the increases in revenue and costs and expenses in the current
fiscal period, compared to the comparable prior fiscal period, is due to
the inclusion of the results of operations of GCI and the Copa Casino upon
consolidation.
In the six month period ended December 31, 1994, compared to the
six month period in the prior year, revenues increased from approximately
$23.1 million to $30 million and income from operations decreased from
$5.1 million to $2 million. For the same comparable fiscal periods, net
income decreased from $2.6 million to $541,000 and net income per share
decreased to $.12 from $.60. The increase in revenue is due to the
inclusion of Copa Casino revenue. The decreases in income from operations,
net income and net income per share are due to the inclusion of Copa Casino
operating results and a decline in revenue and profits from the Reno
operation. Management believes that the decline in Reno revenue and
profits is due to adverse weather conditions in the second quarter of
fiscal 1995, as compared to the prior year, increased competition from
new Las Vegas mega-resorts and construction delays on Interstate 80 west
of Reno which is a major artery to Northern California.
The decrease in lodging revenue of $588,000, in the first half of
fiscal 1995 compared to the same period in the prior year, is primarily
due to a decrease in Reno hotel occupancy. Hotel occupancy decreased from
approximately 89.4% in the six months ended December 31, 1993 to 84.6% in
the six months ended December 31, 1994. For the same comparable periods,
the average room rate was approximately the same at $35.
The increase in gaming revenue of $8.5 million is composed of gaming
revenue from the Copa Casino of $10.1 million which was offset by a de-
crease in gaming revenue at the Sands Regency in Reno of approximately
$1.6 million. The decrease in gaming revenue in Reno, which is primarily
slot revenue, is due to the decrease in hotel occupancy and a decrease per
occupied room. Gaming revenue per occupied room decreased from $88 in the
first half of fiscal 1994 to $74 in the first half of fiscal 1995.
The increase in food and beverage revenue of $772,000 includes the
addition of Copa Casino revenue of $948,000. Such increase was offset by
a decrease in revenue from the Reno operation due to thye decrease in
hotel occupancy. The related increase in food and beverage costs and
expenses of $476,000 is primarily due to the addition of Copa Casino
operations.
The decrease in other revenue of $1.3 million, and related decrease in
costs and expenses of $1.4 million, is chiefly due to a decrease in retail
liquor store sales. In August 1994, the retail liquor store business,
which was operated by the Company in Reno, was sold to a third party.
Such third party now operates the retail liquor store in Company owned
-10-
<PAGE> 13
Results of operations - First six months of fiscal 1995 compared to 1994
(continued)
facilities for rent and other consideration paid to the Company.
The increase in complimentary lodging, food and beverage, deducted
from revenue, of $536,000 and increase in gaming costs and expenses of
$5.6 million is due to the inclusion of the Copa Casino.
The increase in lodging costs and expenses of $267,000 is primarily
due to an increase in hotel salaries, wages and benefits in Reno. Certain
general salary, wage and benefit increases have been implemented within
the last year in order to remain competitive. The increases in maintenance
and utilities and general and administrative costs and expenses of $931,000
and $3.1 million, respectively, are principally due to the addition of
Copa Casino results of operations. These general and administrative costs
and expenses include significant advertising, marketing and promotional
costs.
The increase in depreciation and amortization expense of $914,000
includes the amortization of goodwill for the quarter associated with
GCI of $183,000 and depreciation from the Copa Casino of $718,000.
The decrease in interest and other income of approximately $73,000
is due to the non-inclusion of interest earned on advances to GCP of
approximately $213,000 in the first half of fiscal 1994 which was then
includable on a pre-consolidation basis. Upon consolidation in the
current year, such intercompany income/expense items are eliminated.
The above decrease was offset by an increase in interest income from the
Reno operation of $150,000 as a result of the investment of additional
excess funds at market interest rates higher than in the comparable prior
year period.
The increase in interest expense of $888,000 in the six months ended
December 31, 1995, compared to the same six months in fiscal 1994, includes
interest expense from the Copa Casino of $289,000 and interest expense from
GCI, which was acquired in February 1994, of $181,000. In addition,
interest expense increased as a result of additional borrowings by the
Company to finance the operation and expansion of the Copa Casino at
interest rates higher in the current fiscal period than in the comparable
prior fiscal period.
The elimination of the equity in loss of unconsolidated affiliate,
that occurred in the prior year first six months, is the result of the
Company's acquisition of GCI and GCP in February 1994 and the inclusion of
related operations on a consolidated basis in the current period.
The increase in the effective income tax rate in the current year six
months, compared to the prior year, is the result of the current year
deduction of goodwill amortization that is not deductible for income
tax purposes and other one-time differences which also have resulted in an
increase in the provision for income taxes.
-11-
<PAGE> 14
Results of operations - First six months of fiscal 1995 compared to 1994
(continued)
As is true for other hotel/casinos in the Reno area, demand for
the Company's facilities declines in the winter. Operating margins
and, to a lesser extent, revenues are lower during the second and
third fiscal quarters due to lower room rates and a lower level of
gaming play per occupied room. The Sands Regent is generally not
affected as severely as many other hotel/casinos in the Reno area because
the Company attracts high levels of group business during that period.
This group business and the Company's flexible pricing strategy have
enabled the Company to maintain relatively high levels of hotel
occupancy. Management anticipates that the trend of experiencing
lower operating margins in the second and third quarters of each fiscal
year will continue.
Management anticipates that such trends will also occur at the Copa
Casino. However, because of the limited amount of time that the Copa has
been in operation, the limited amount of time that gaming has existed on
Mississippi gulfcoast area and the rapid expansion of gaming in
Mississippi, the nature and extent of seansonal fluctuations are not
presently subject to reasonable estimation.
Capital resources and liquidity
As of December 31, 1994, the Company's net investment in and advances
to, or on behalf of the Copa Casino and Gulfside Casino, Inc., was $22.5
million. The Copa Casino continues to operate at a net loss and current
liabilities exceed current assets at December 31, 1994. Although the
Company is reviewing various alternative courses of action to improve
revenues and decrease costs and expenses in order to achieve profitable
operating results, there are no assurances of success. It may be necessary
for the Company to invest or advance additional amounts to or on behalf of
the Copa Casino. If the Company is unsuccessful in its efforts, an impair-
ment in asset value may occur which could result in a loss upto the amount
invested in or advanced to or for the benefit of the Copa Casino.
Other than above, there were no material changes in The Sands Regent's
financial condition nor were there any substantive changes relative to
matters discussed in the Capital Resources and Liquidity section of Manage-
ment's Discussion and Analysis of Financial Condition and Results of Oper-
ations as presented in the 1994 Annual Report appearing as exhibit 13 to
the Company's Form 10-K for the year ended June 30, 1994.
-12-
<PAGE> 15
PART II OTHER INFORMATION
Item 1. Legal Proceedings.
NONE
Item 2. Changes in Securities.
NONE
Item 3. Defaults Upon Senior Securities.
NONE
Item 4. Submission of Matters to a Vote of Security Holders.
The Annual Meeting of Shareholders was held on November 7, 1994. At
such meeting, Mr. Jon N. Bengtson was re-elected to serve as a Director.
The remaining continuing Directors are Pete Cladianos, Jr., Pete Cladianos
III, Joseph G. Fanelli, Katherene Latham, Weldon Upton and David R. Wood.
There were no other matters voted on at the Annual meeting.
Item 5. Other information.
NONE
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
<TABLE>
<S> <C>
10(a) Second Amendment to Gulfside Casino, a Mississippi
General Partnership, General Partnership Agreement,
dated December 9, 1994, between Gulfside Casino, Inc.
and Patrician, Inc. (both wholly owned subsidiaries
of The Sands Regent).
27 Financial Data Schedule
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(b) Reports on Form 8-K:
NONE
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<PAGE> 16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
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THE SANDS REGENT
(Registrant)
Date: February 13, 1995 By /s/David R. Wood
------------------------------------
David R. Wood,
Vice President - Finance
Principal Accounting and
Financial Officer
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<PAGE> 17
INDEX TO EXHIBITS
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Sequentially
Exhibit Numbered
Number Page
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10(a) Second Amendment to Gulfside Casino, a
Mississippi General Partnership, General
Partnership Agreement, dated December 9,
1994, between Gulfside Casino, Inc. and
Patrician, Inc. (both wholly owned sub-
sidiaries of The Sands Regent)..................
27 Financial Data Schedules........................
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<PAGE> 1
Exhibit 10(a)
SECOND AMENDMENT TO GULFSIDE CASINO PARTNERSHIP,
A MISSISSIPPI GENERAL PARTNERSHIP,
GENERAL PARTNERSHIP AGREEMENT
THIS SECOND AMENDMENT TO THE GENERAL PARTNERSHIP AGREEMENT
(the "Second Amendment") is made and entered into as of the 9th day of
December, 1994, by and between GULFSIDE CASINO, INC., a Mississippi corporation
("Gulfside"), and PATRICIAN, INC., a Nevada corporation ("Patrician"), with
respect to the following:
RECITALS
A. Gulfside and Patrician are the general partners
pursuant to that certain Agreement of Partnership for Gulfside Casino
Partnership, a Mississippi general partnership (the "Partnership"), dated
December 31, 1992, as amended (collectively the "Partnership Agreement").
B. This Second Amendment is made pursuant to Section
13.1 of the Partnership Agreement.
AGREEMENT
IN CONSIDERATION of the foregoing recitals and the mutual
promises and covenants contained herein, the Partners agree as follows:
1. The following Sections of the Partnership Agreement,
in their entireties, are hereby deleted and no longer shall have any force or
effect; Sections 7.1, 8.6, 9.7, 9.8, 10.3, 11.4, 12.1(b) and 13.2.
2. Article VI hereby is deleted in its entirety and the
following is a new Article VI of the Partnership Agreement.
"If the Board determines at any time that
additional capital contributions (the "Additional
Capital Contributions") are required to fund
Partnership operations, then it shall give written
notice (the "Call Notice") of such determination to
the Partners. The Call Notice shall include the
total amount of Additional Capital Contributions
needed, each Partner's pro rata Additional Capital
Contribution (based on each Partner's relative
Percentage Interest in the Partnership) and the date
upon which each Partner is required to make its pro
rata Additional Capital Contribution (which date
shall not be earlier than ten (10) days following
delivery of the Call Notice). Each Partner shall
then be obligated to make its pro rata Additional
Capital Contribution pursuant to, and within the time
provided in, the Call Notice.
<PAGE> 2
If any Partner ("Non-Contributing Partner")
fails to make its pro rata Additional Capital
Contribution (the "Defaulted Amount") pursuant to
this Article VI within the time provided therefor in
the Call Notice, then the Partners other than the
Non-Contributing Partner (each, a "Contributing
Partner") may in each such event elect (if such
Contributing Partner has made its pro rata Additional
Capital Contribution) to contribute some or all of
the Defaulted Amount. If more than one Contributing
Partner elects to contribute some or all of the
Defaulted Amount, and the aggregate amount of such
elections exceeds the amount of the Defaulted Amount,
then the Board shall, in its reasonable discretion,
determine a fair method of allocation among such
Contributing Partners.
The Percentage Interest of any
Non-Contributing Partner shall be adjusted to equal
a percentage, stated as a fraction, the numerator of
which shall equal the then-aggregate Capital
Contributions made by the Non-Contributing Partner
prior to the Call Notice, and the denominator of
which shall equal the sum of the aggregate Capital
Contributions made by all Partners (including the
Additional Capital Contributions and any portion of
the Defaulted Amount contributed by the Contributing
Partners). The Percentage Interest of each
Contributing Partner shall be adjusted to equal a
percentage, stated as a fraction, the numerator of
which shall equal the aggregate Capital Contributions
made by the Contributing Partner (including the
Additional Capital Contributions and any portion of
the Defaulted Amount contributed by such Contributing
Partner), and the denominator of which shall equal
the sum of the aggregate Capital Contributions made
by all Partners (including the Additional Capital
Contributions and any portion of the Defaulted Amount
contributed by all Contributing Partners).
Each Partner hereby acknowledges that the
contribution of Additional Capital Contributions may
be critical to the business of the Partnership; that
the interests of the other Partners may be at risk by
reason of the failure of any Non-Contributing Partner
to make its pro rata Additional Capital Contribution;
that the precise extent of the risk, damage and loss
to the other Partners resulting from such failure is
impossible to foresee or predict at this time, but
that such risk, damage and loss may imperil the
assets and business of the Partnership; and that in
view of the serious consequences that could arise
from any Partner's failure in making such Additional
Capital Contributions, the provisions of this Article
VI are reasonable."
3. Section 8.2 hereby is deleted in its entirety and the
following is a new Section 8.2 of the Partnership Agreement.
2
<PAGE> 3
"8.2 Composition and Voting. The Board shall
be composed of three (3) members. Gulfside (or any
Person acquiring all of the interest of Gulfside
hereunder at the time of Transfer pursuant to the
terms hereof) shall designate one (1) member of the
Board and Patrician (or any Person acquiring all of
the interest of Patrician hereunder at the time of
Transfer pursuant to the terms hereof) shall
designate two (2) members of the Board. Each Board
member shall serve on the Board at the discretion and
pleasure of the Partner entitled to designate such
Board member and may be replaced by such Partner at
any time upon written notice delivered to the other
Partner or any member of the Board appointed by such
other Partner. The affirmative vote of two (2) Board
members shall be necessary to approve any matter so
as to constitute an action of the Partnership,
binding upon all Partners."
4. With regard to Section 8.4, the Partners hereby agree
to have annual, rather than quarterly meetings, and agree that a quorum for
Board meetings shall be two (2) members attending in person or by proxy. The
Partners further agree that the last sentence of Section 8.4 hereby is deleted
in its entirety.
5. Section 9.2 hereby is deleted in its entirety and the
following is a new Section 9.2 of the Partnership Agreement.
"9.2 - Construction Management. Patrician
shall be the Construction Manager unless the Board
determines otherwise. Gulfside shall have the right
to review and comment on Construction Management."
6. Section 9.5 hereby is deleted in its entirety and the
following is a new Section 9.5 of the Partnership Agreement.
"Finance, audit and tax matters shall be
administered by Patrician. Gulfside shall have the
right to review and comment on such finance, audit
and tax matters. The books and records of the
Partnership shall be maintained in Mississippi to the
extent required by any legal or regulatory
requirement."
7. With regard to Section 10.2.1, the Partners hereby
agree that the Board may agree that Partner Loans shall have a maximum term in
excess of three (3) years.
8. Section 10.2.5 hereby is deleted in its entirety and
the following is a new Section 10.2.5 of the Partnership Agreement.
"10.2.5 Final Partner Start-up Loans. In the
event Partner Loans in excess of the Fifteen Million
Dollars ($15,000,000) are necessary to commence or
continue operations of the casino, as
3
<PAGE> 4
determined by the Board, the Partners agree that Partner Loans in
excess of said Fifteen Million Dollars ($15,000,000) (the "Final
Partner Start-up Loans") shall be made as follows:
1. For up to $21,500,000 in Partner
Loans:
Patrician - $5,978,156.83
Gulfside - $521,843.17 (see
Section 10.2.7) and;
2. For Partner Loan amounts greater
than $21,500,000.00, each Partner
shall contribute its proportionate
share equal to such Partner's
Percentage Interest."
9. Section 10.2.6 hereby is deleted in its entirety and
the following are new Sections 10.2.6 and 10.2.7 of the Partnership Agreement.
"10.2.6 Priority of Repayment of Partner
Loans. The principal and interest on the Partner
Loans will be repaid in full in the following order
of repayment:
1. first, interest on all outstanding
Partner Loans;
2. second, proportionate and pro rata
repayments to Gulfside and Patrician
for their respective Final Partner
Start-up Loans made pursuant to
Subsection 10.2.5 herein;
3. third, one hundred percent (100%) to
Patrician for its Patrician
Additional Partner Loan(s) to the
extent made pursuant to Subsection
10.2.4 herein;
4. fourth, equally (one-half each) to
Gulfside and Patrician for their
respective Additional Partner Loans,
to the extent made pursuant to
Subsection 10.2.3 herein; and
5. fifth, twenty percent (20%) to
Gulfside and eighty percent (80%) to
Patrician for their respective
Initial Loans pursuant to Subsection
10.2.2 herein."
10.2.7 With regard to the Initial Loans
described in Section 10.2.2, the Additional Partner
Loans described in Section 10.2.3 and the Additional
Partner Loans described in Section 10.2.5, these
loans to date in the total amount of $3,521,843.17,
which were to be made by
4
<PAGE> 5
Gulfside, in fact were made by others, and those
loans now are held by Sands and shall be repaid to
Sands on the same basis provided in the Partnership
Agreement for payment to Gulfside."
10. Section 11.1 hereby is deleted in its entirety and
the following is a new Section 11.1 of the Partnership Agreement.
"11.1 Generally. Except as specifically set
forth in Article XI hereof or as hereafter agreed
between the Partners, neither Partner shall engage
in, or cause or permit, any Transfer of all or any
portion of its interest in the Partnership, or its
rights with respect thereto or under this Agreement,
other than to an entity wholly-owned directly or
indirectly by Sands. Any breach of this Section
shall be deemed a withdrawal in violation of this
Agreement pursuant to Section 10.5. Neither Partner
shall engage in, cause or permit any Transfer of its
Partnership interest unless the Transfer is approved
by all appropriate and necessary governmental and
regulatory bodies. The Transfer limitation of this
Article XI shall be construed to include Transfer of
a majority shareholder interest or other majority
ownership interest in either Gulfside or Sands,
provided however, the Transfer limitations contained
herein shall not be construed to limit the Transfer
of any shares or other ownership interest in either
Gulfside or Sands which in the aggregate are less
than a change of a majority interest. Patrician
shall continue to be one hundred percent (100%) owned
by Sands or another Person one hundred percent (100%)
owned by Sands. The Partners hereby agree and
consent to the Transfer by Patrician of whatever
portion of Patrician's interest in the Partnership
that Patrician may elect to Transfer to Artemis,
Inc., a Nevada corporation, and all rights,
obligations and requirements of the Partnership
Agreement, including, without limitation Article XI,
are waived and relinquished, including any right to
declare a withdrawal in violation of the Partnership
Agreement. "
11. With regard to Section 13.5, the Partners hereby
agree that any Demand for Arbitration shall be filed with the American
Arbitration Association's office in New Orleans, Louisiana and that the
location for said arbitration shall be New Orleans, Louisiana. The Partners
further agree that the arbitration shall be conducted by three arbitrators in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association and that the third paragraph of Section 13.5 hereby is deleted in
its entirety.
12. The Partners acknowledge and agree that the
Partnership Agreement, as hereby amended, remains in full force and effect in
accordance with its terms. In the event of any conflict between the terms of
the Partnership Agreement and this Second Amendment, the provisions of this
Second Amendment shall control.
5
<PAGE> 6
IN WITNESS WHEREOF, the undersigned have executed this Second
Amendment to the Partnership Agreement as of the day and year first above
written.
PATRICIAN, INC. GULFSIDE CASINO, INC.
a Nevada corporation a Mississippi corporation
By: ______________________ By: ______________________
David R. Wood David R. Wood
Title: Vice President Title: Vice President
STATE OF NEVADA )
) ss:
COUNTY OF WASHOE )
On the 9th day of December, 1994, personally appeared before
me DAVID R. WOOD, personally known to me to be the Vice President of PATRICIAN,
INC., one of the above-named corporations, whose name is subscribed to the
above instrument, who acknowledged that he executed the above instrument on
behalf of said corporation.
__________________________________
Notary Public
STATE OF NEVADA )
) ss:
COUNTY OF WASHOE )
On the 9th day of December, 1994, personally appeared before
me DAVID R. WOOD, personally known to me to be the Vice President of GULFSIDE
CASINO, INC., one of the above-named corporations, whose name is subscribed to
the above instrument, who acknowledged that he executed the above instrument on
behalf of said corporation.
__________________________________
Notary Public
6
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