<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 March 31,1997
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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)
Nevada 88-0201135
- ----------------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
345 North Arlington Avenue, Reno, Nevada 89501
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(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
----- -----
On May 13, 1997, the registrant had outstanding 4,498,722 shares of its common
stock, $.05 par value.
<PAGE> 2
THE SANDS REGENT AND SUBSIDIARIES
FORM 10-Q
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page No.
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<S> <C>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements. 1 - 7
Consolidated Statements of Operations 1
Consolidated Balance Sheets 2 - 3
Consolidated Statements of Cash Flows 4 - 5
Notes to Interim Consolidated Financial Statements 6 - 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. 8 - 14
PART II OTHER INFORMATION
Item 1. Legal Proceedings. 15
Item 2. Changes in Securities. 15
Item 3. Defaults Upon Senior Securities. 15
Item 4. Submission of Matters to a Vote of
Security Holders. 15
Item 5. Other Information. 15
Item 6. Exhibits and Reports on Form 8-K. 15
SIGNATURES 16
</TABLE>
<PAGE> 3
PART I FINANCIAL INFORMATION
Item 1. Financial Statements.
THE SANDS REGENT AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
(Dollars in thousands, THREE MONTHS NINE MONTHS
except per share amounts) ENDED MARCH 31, ENDED MARCH 31,
----------------------------- -----------------------------
1996 1997 1996 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Operating revenues:
Gaming $ 11,318 $ 10,069 $ 32,648 $ 31,757
Lodging 1,742 1,631 7,090 5,797
Food and beverage 1,993 1,885 5,923 5,853
Other 1,054 331 1,817 1,086
----------- ----------- ----------- -----------
16,107 13,916 47,478 44,493
Less complimentary lodging, food
and beverage included above 807 732 2,086 2,173
----------- ----------- ----------- -----------
15,300 13,184 45,392 42,320
----------- ----------- ----------- -----------
Operating costs and expenses:
Gaming 5,833 5,106 16,455 16,527
Lodging 1,152 1,123 3,835 3,701
Food and beverage 1,610 1,411 4,898 4,753
Other 157 149 532 481
Maintenance and utilities 1,040 1,155 3,440 4,036
General and administrative 3,349 3,527 9,721 10,714
Depreciation and amortization 911 940 2,710 2,820
----------- ----------- ----------- -----------
14,052 13,411 41,591 43,032
----------- ----------- ----------- -----------
Income (loss) from operations 1,248 (227) 3,801 (712)
----------- ----------- ----------- -----------
Other income (deductions):
Interest and other income 143 84 455 722
Interest and other expense (586) (438) (1,828) (1,429)
----------- ----------- ----------- -----------
(443) (354) (1,373) (707)
----------- ----------- ----------- -----------
Income (loss) before income taxes 805 (581) 2,428 (1,419)
Provision (benefit) for
income taxes 261 (210) 700 (543)
----------- ----------- ----------- -----------
Net income (loss) $ 544 ($ 371) $ 1,728 ($ 876)
=========== =========== =========== ===========
Net income (loss) per share $ .12 ($ .08) $ .38 ($ .19)
=========== =========== =========== ===========
Weighted average shares
outstanding 4,498,722 4,498,722 4,498,722 4,498,722
=========== =========== =========== ===========
</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, MARCH 31,
1996 1997
-------- ---------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $11,357 $ 5,862
Short-term investments 200 250
Accounts and notes receivable less allow-
ance for possible losses of $107 and $111 400 430
Inventories 789 654
Prepaid federal income taxes 141 1,078
Prepaid expenses and other assets 980 1,477
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Total current assets 13,867 9,751
PROPERTY AND EQUIPMENT:
Land 8,095 8,093
Buildings, ship and improvements 45,377 45,667
Equipment, furniture and fixtures 21,762 22,380
Construction in progress 231 2,425
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75,465 78,565
Less accumulated depreciation
and amortization 28,051 30,285
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47,414 48,280
OTHER ASSETS:
Deferred federal income tax asset 900 517
Note receivable 1,244 1,239
Other 886 362
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3,030 2,118
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Total assets $64,311 $60,149
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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<PAGE> 5
THE SANDS REGENT AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Dollars in thousands) JUNE 30, MARCH 31,
1996 1997
-------- --------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 2,282 $ 2,137
Accrued salaries, wages and benefits 1,687 1,691
Other accrued expenses 1,376 1,497
Deferred federal income tax liability 126 305
Current maturities of long-term debt 10,789 8,083
-------- --------
Total current liabilities 16,260 13,713
LONG-TERM DEBT 14,816 14,096
OTHER 19 --
STOCKHOLDERS' EQUITY:
Preferred stock, $.10 par value, 5,000,000
shares authorized, none issued -- --
Common stock, $.05 par value, 20,000,000
shares authorized, 6,898,722 shares
issued 345 345
Additional paid-in capital 13,074 13,074
Retained earnings 42,152 41,276
-------- --------
55,571 54,695
Treasury stock, at cost, 2,400,000 shares (22,355) (22,355)
-------- --------
Total stockholders' equity 33,216 32,340
-------- --------
Total liabilities and stockholders'
equity $ 64,311 $ 60,149
======== ========
</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>
(Dollars in thousands) NINE MONTHS ENDED
MARCH 31,
---------------------
1996 1997
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<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ 1,728 ($ 876)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization 2,710 2,820
(Gain) on sale of property and
equipment (494) (314)
(Increase) in accounts and notes
receivable (24) (30)
(Increase) decrease in inventories (47) 135
Decrease in prepaid expenses
and other current assets (218) (497)
(Increase) in other assets 44 116
Increase (decrease) in accounts
payable 107 (194)
Increase (decrease) in accrued expenses (244) 125
(Decrease) in federal income taxes (1,001) (937)
Changes in deferred federal
income taxes 697 562
(Decrease) in other liabilities (28) (19)
------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES 3,230 891
------- -------
INVESTING ACTIVITIES:
Purchase of short-term investments (583) (50)
Sale and maturity of short-term
investments 1,941 --
Payments received on note receivable 5 5
Additions to property and equipment (1,732) (2,566)
Proceeds from sale of property and
equipment 697 476
------- -------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES 328 (2,135)
------- -------
</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 (continued)
<TABLE>
<CAPTION>
(Dollars in thousands) NINE MONTHS ENDED
MARCH 31,
-----------------------
1996 1997
-------- --------
<S> <C> <C>
FINANCING ACTIVITIES:
Payment of accounts payable for prior
period purchases of property and
equipment (98) --
Issuance of long-term debt 375 728
Payments on long-term debt (1,863) (4,979)
Payment of dividends on common stock (675) --
-------- --------
NET CASH USED IN FINANCING ACTIVITIES (2,261) (4,251)
-------- --------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 1,297 (5,495)
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD 10,356 11,357
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 11,653 $ 5,862
======== ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Property and equipment acquired by
term-debt debt -- $ 825
======== ========
Property and equipment acquired by
accounts payable -- $ 49
======== ========
Property and equipment acquired by
conversion of other assets -- $ 400
======== ========
Interest paid, net of amount capitalized $ 1,542 $ 1,195
======== ========
Federal income taxes paid $ 1,075 --
======== ========
</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
NINE MONTHS ENDED MARCH 31, 1997 AND 1996
NOTE 1 - BASIS OF PREPARATION
These statements should be read in connection with the 1996 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, 1996. 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, 1996 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 March 31, 1997 and the results of operations and cash
flows for the three and nine months ended March 31, 1996 and 1997 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. ("Zante"),
Patrician, Inc. ("Patrician"), Gulfside Casino, Inc. ("GCI") and Artemis,
Inc. ("Artemis"), and Gulfside Casino Partnership ("GCP") (together the
"Company"). Patrician, GCI and Artemis are the sole partners in GCP. Zante,
Inc. owns and operates the Sands Regency hotel/casino in Reno, Nevada and
GCP owns and operates the Copa Casino in Gulfport, Mississippi.
NOTE 2 - LONG-TERM DEBT
Since December 31, 1996, the Company has been in non-compliance with the
fixed charge coverage ratio specified in a long-term debt loan agreement
resulting in a default under the loan agreement which permits the lender
(banks) to accelerate the principal balance which was $11 million at March 31,
1997. The lender has not accelerated the principal balance and, as a result,
the Company continues to classify the principal balance as current and
non-current in accordance with the present loan amortization schedule. The
Company is currently in discussions with the lender.
NOTE 3 - COMMITMENTS AND CONTINGENCIES
In January 1997, an amended judgement was entered in Chancery Court in
Harrison County, Mississippi requiring that GCP make monthly payments to two
former shareholders of GCI equal to 60% of all monies not designated for normal
operational expenses. Such payments are to continue until the judgement entered
for such former shareholders is satisfied. Through May 1, 1997, no monies have
been distributed by GCP and GCP has reported that no monies are available for
distribution. The amount of the judgement against GCI consist primarily of
notes payable, and accrued interest, due
-6-
<PAGE> 9
THE SANDS REGENT AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED MARCH 31, 1997 AND 1996
NOTE 3 - COMMITMENTS AND CONTINGENCIES (continued)
these former shareholders as presently recorded in the books and records of GCI
and as included in the Company's consolidated balance sheet in the aggregate
amount of approximately $7 million at March 31, 1997.
GCI, GCP and Patrician, as joined parties to such lawsuit, have filed an
appeal with the Mississippi Supreme Court because it is the Company's belief
that the Chancery Court's ruling was incorrect and not supported by the facts
or the law. Further, GCI has filed for protection under Chapter 11 of the
United States Bankruptcy Code. GCI is taking the position that the automatic
stay provisions under the United States Bankruptcy Code apply to all of GCI
creditors, including the two former shareholders. A reorganization plan for GCI
is presently being prepared.
In February 1997, the above two former shareholders of GCI each filed
separate lawsuits in U. S. District Court for the Southern District of
Mississippi, Biloxi Division, against The Sands Regent and Pete Cladianos, Jr.,
Jon N. Bengtson and David R. Wood, all officers and directors of GCI and The
Sands Regent. Such lawsuits allege breach of various common law duties and
contractual interference by the defendants and seek compensatory and punitive
damages. Management, and the individual defendants, believe these legal actions
to be without merit and will vigorously defend them.
-7-
<PAGE> 10
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.
Results of operations - Three months ended March 31, 1997 compared to three
months ended March 31, 1996
In the three month period ended March 31, 1997, compared to the same three
month period in fiscal 1996, revenues decreased to $13.2 million from $15.3
million which consists of a decrease in revenues at the Copa Casino of
aproximately $100,000 to $6.6 million and a decrease in revenues at the Sands
Regency of $2.0 million to $6.6 million. For the same comparable periods,
income from operations decreased from $1.2 million to a loss from operations of
$227,000. Such decrease consists of a decrease in income from operations at the
Copa Casino of approximately $279,000 to $799,000 and a decrease at the Sands
Regency of $1.2 million to a loss from operations of $1.0 million.
The Company incurred a net loss of $371,000 in the quarter ended March
31, 1997, or loss per share of $.08 compared to a net income of $544,000, or
$.12 per share, in the quarter ended March 31, 1996. The Copa Casino
contributed approximately $364,000 to the consolidated net income in the March
31, 1997 quarter compared to net income of $591,000 in the March 31, 1996
quarter. For the same comparable periods, the Sands Regency incurred a net loss
of approximately $735,000 as compared to a net loss in the prior year third
quarter of $47,000. The declines in revenues, income from operations, net
income (loss) and net income (loss) per share at the Sands Regency are
primarily due to increased competition from new and expanded Reno area
hotel/casinos and from new Las Vegas megas-resorts. Unusually poor weather
conditions in Northern Nevada, Northern California and the Pacific Northwest,
during the third quarter of fiscal 1997, also contributed to the decline in
Sands Regency Revenues. The decrease in Copa Casino profitability is due to
increases in various costs including an increase in legal fees as further
discussed below.
The decrease in lodging revenue of $111,000, in the third quarter of fiscal
1997 compared to the same quarter in the prior year, is due to a decrease in
the Sands Regency's average daily room rate from approximately $24 to $23 and a
decrease in hotel occupancy from 83.9% to 82.2%.
The decrease in gaming revenue of $1.2 million, in the March 1997 quarter
versus the March 1996 quarter, is a composed of a decrease in gaming revenue
from the Sands Regency of approximately $1.1 million and a slight decrease in
gaming revenue from the Copa Casino of $106,000. The decrease in gaming revenue
in Reno consists of a decrease in Sands Regency casino gaming revenue of
approximately $1.3 million which was offset by increased gaming revenue from
the Company's slot route operation of $124,000. The decrease in Sands Regency
casino gaming revenue includes the reclassification of slot participation
payouts of approximately $381,000 as a reduction in revenue instead of a cost
and expense as classified prior to July 1996. The decrease also consists
primarily of a decrease in slot revenue and is due to a decline per occupied
room. In the third quarter of fiscal 1996, Sands Regency casino gaming revenue
per occupied room was $70 as compared to $53 in the third quarter of fiscal
1997. The increase in slot route revenue is due to the Company's acquisition of
a slot route
-8-
<PAGE> 11
Results of operations - Three months ended March 31, 1997 compared to three
months ended March 31, 1996 (continued)
business in June 1996 which operates slot machines at various non-casino
businesses (convenience stores and cocktail lounges) in the Reno area.
The decline in food and beverage revenue of $108,000, in the March 1997
quarter versus the March 1996 quarter, is primarily attributable to the Sands
Regency operation. The related decrease in food and beverage costs and expenses
of $199,000 is also attributable to the Sands Regency operation and represents
a decline in various cost and expense components.
The decrease in other revenue of $723,000, is principally due to the
nonrecurrence of a prior year gain on the sale of a small motel owned and
operated by the Sands Regency.
The decrease in complimentary lodging, food and beverage, deducted from
revenue, of $75,000 consists of a decrease in complimentary lodging at the
Sands Regency of approximately $214,000 which has been offset by an increase in
complimentary food and beverage of $139,000 attributable to the Sands Regency.
The decrease in complimentary lodging is a result of Company implemented
changes to its lodging programs and packages offered to attract and retain
guests.
The decrease in gaming costs and expenses of $727,000, in the quarter ended
March 31, 1997 versus the quarter ended March 31, 1996, is primarily
attributable to the Sands Regency and includes the reclassification of $381,000
of slot participation payouts from an operating expense, where included through
the December 31, 1996 quarter and prior, to a reduction of revenue. The
decrease in Sands Regency gaming costs and expenses also includes a decrease of
$183,000 as a result of the reclassification of custodial costs and expenses
from gaming costs and expense, where classified through June 1996, to
maintenance costs and expenses commencing in July 1996. The decreases, which
also includes various other decreases aggregating approximately $244,000, were
partially offset by additional costs and expenses associated with the new slot
route operation of $81,000.
The increase in maintenance and utilities costs and expenses of $115,000
in the third quarter of fiscal 1997, as compared to the third quarter of fiscal
1996, is attributable to the Sands Regency and consists primarily of custodial
costs and expenses. Commencing in July 1996, custodial costs and expenses were
included in maintenance and utilities costs and expenses. Prior to July 1996,
such costs and expenses were included in gaming costs and expenses.
The increase in general and administrative costs and expenses of $178,000
is principally attributable to the Copa Casino and represents an increase in
various cost and expense categories including increased legal and accounting
costs.
The decrease in interest and other income of approximately $59,000 is
primarily due to reduced interest income from the Sands Regency as a result of
a reduction in excess funds available for investment purposes. The decrease in
interest and other expense of $148,000 is principally due to a principal
reduction in an interest bearing long-term debt obligation of the Sands Regency
in October 1996.
-9-
<PAGE> 12
Results of operations - Three months ended March 31, 1997 compared to three
months ended March 31, 1996 (continued)
The effective income tax rate differs from the statutory rate, in the
current quarter, as a result of one-time differences including tax-free
interest income and deductible tax credits.
Results of operations - First nine months of fiscal 1997 compared to 1996
In the nine months ended March 31, 1997, compared to the same nine months
in fiscal 1996, revenues decreased to $42.3 million from $45.4 million as a
result of a decrease at the Sands Regency of $4.3 million to $22.9 million
which was offset by an increase at the Copa Casino of $1.3 million to $19.4
million. For the same comparable periods, income from operations decreased from
$3.8 million to a loss from operations of $712,000. Such decrease consists of
an increase at the Copa Casino of approximately $142,000 to $2.0 million which
was offset by a decrease from the Sands Regency of $4.7 million to a loss from
operations of $2.7 million.
In the same comparable nine month periods, net income also decreased from
$1.7 million, or $.38 per share, to a net loss of $876,000 or loss per share of
$.19. The Copa Casino contributed approximately $951,000 to the consolidated
net income in the nine months ended March 31, 1997 compared to $871,000 in the
same nine months of fiscal 1996. For the same comparable periods, the Sands
Regency incurred a net loss of approximately $1.8 million as compared to net
income in the prior year nine months of $857,000. Such declines in revenues,
income from operations, net income (loss) and net income (loss) per share at
the Sands Regency are primarily due to increased competition from new and
expanded Reno area hotel/casinos and from new Las Vegas mega-resorts. Unusually
poor weather conditions in Northern Nevada, Northern California and the Pacific
Northwest, during the third quarter of fiscal 1997, also contributed to the
decline in Sands Regency Revenues. The increases in Copa Casino revenues and
profitability are due to an increase in customer counts and because operations
were not interrupted by the threat of hurricanes as occurred in August and
October 1995.
The decrease in lodging revenue of $1.3 million, in the nine months ended
March 31, 1997 compared to the same period in the prior year, is primarily due
to a decrease in the average daily rate from approximately $33 in the nine
months ended March 31, 1996 to $27 in the nine months ended March 31, 1997. For
the same comparable periods, hotel occupancy was approximately the same at 83%.
The decrease in gaming revenue of $891,000 is a result of a decrease in
gaming revenue from the Sands Regency of approximately $2.0 million which was
offset by an increase in gaming revenue from the Copa Casino of $1.1 million.
The decrease in gaming revenue in Reno consists of a decrease in Sands Regency
casino gaming revenue of $2.4 million which was offset by increased gaming
revenue from the Company's slot route operation of $410,000. The decrease in
Sands Regency casino gaming revenue includes the reclassification of slot
participation payouts of approximately $381,000 as a reduction in revenue
instead of a cost and expense as classified prior to July 1996. The decrease
also consists primarily of a decrease in slot revenue and is due to a decline
per occupied room. In the nine months ended
-10-
<PAGE> 13
Results of operations - First nine months of fiscal 1997 compared to 1996
(continued)
March 31, 1996, Sands Regency casino gaming revenue per occupied room was $72
as compared to $61 in the comparable nine months of fiscal 1997. The increase
in slot route revenue is due to the Company's acquisition of a slot route
business in June 1996 which operates slot machines at various non-casino
businesses (convenience stores and cocktail lounges) in the Reno area.
The slight decrease in food and beverage revenue of $70,000, in the nine
months ended March 31, 1997 versus the nine months ended March 31, 1996,
consists of an increase from the Copa Casino of approximately $132,000 and a
decrease from the Sands Regency of $202,000. The Sands Regency decrease
represents a decline in food revenue per occupied from approximately $18 to
$17.
The decrease in other revenue of $731,000, is principally due to the
nonrecurrence of a prior year gain on the sale of a small motel owned and
operated by the Sands Regency.
The slight increase in gaming costs and expenses of $72,000, in the nine
months ended March 31, 1997 compared to the same nine months in fiscal 1996,
consists of an increase from the Copa Casino of approxinmately $532,000 and a
decrease from the Sands Regency of approximately $460,000. The increase in the
Copa Casino costs and expenses is primarily attributable to the increase in
associated gaming revenue. The decrease in Sands Regency gaming costs and
expenses includes a decrease in custodial costs and expenses of $600,000, a
reduction in gaming taxes and licenses of $163,000 and a decrease of $381,000
due to the reclassification of slot participation payouts from an operating
expense to a reduction of revenue. Custodial costs and expenses have been
classified as maintenance costs and expenses since July 1996. Prior to July
1996, such costs and expenses were included with gaming costs and expenses.
These decreases in Sands Regency gaming costs and expenses have been offset by
an increase in the cost of complimentary goods and services provided of
$303,000, costs and expenses associated with the new slot route operation of
$305,000 and a net increase in various other costs and expenses of
approximately $76,000.
The decrease in food and beverage costs and expenses of $145,000, in the
nine months ended March 31, 1997 compared to the nine months ended March 31,
1996, consists of a decrease from the Sands Regency of approximately $295,000
and an increase from the Copa Casino of $150,000. The increase from the Copa
Casino is due to a decrease in the allocation of costs and expenses to gaming
relative to the provision of complimentary food and beverage and an increase in
the cost of beverages provided. The decrease from the Sands Regency consists of
an increase in the allocation of costs and expenses to gaming relative to the
provision of complimentary food and beverage.
The increase in maintenance and utilities costs and expenses of $596,000
in the nine months ended March 31, 1997, compared to the nine months ended
March 31, 1996, consists of a decrease from the Copa Casino of $149,000 and an
increase from the Sands Regency of approximately $745,000. The decrease from
the Copa Casino is due to the nonrecurrance of
-11-
<PAGE> 14
Results of operations - First nine months of fiscal 1997 compared to 1996
(continued)
the prior year hurricane preparedness costs and expenses associated with
Hurricane Opal. The increase from the Sands Regency primarily consists of
custodial costs and expenses of $600,000 and painting costs of $170,000.
Commencing in July 1996, custodial costs and expenses are included in
maintenance and utilities costs and expenses. Prior to July 1996, such costs
and expenses were included in gaming costs and expenses. The increase in
painting costs is due to the painting of the exterior of the Company's Reno
facilities and the interior of the five story parking structure.
The increase in general and administrative costs and expenses of $993,000
consists of an increase from the Copa Casino of approximately $613,000, an
increase from the Sands Regency of $380,000. The increase from the Copa Casino
is attributable to various cost and expense categories including increased
wages and benefits, and legal and accounting costs. The Sands Regency increase
consists primarily of an increase in advertising and promotional costs of
approximately $504,000 reduced by a decrease in property taxes of $138,000.
The increase in interest and other income of approximately $267,000 is
primarily due to a gain on the sale of a non-casino property in Reno. The
decrease in interest and other expense of $399,000 is principally due to a
principal reduction in an interest bearing long-term debt obligation of the
Sands Regency in October 1996.
The effective income tax rate differs from the statutory rate, in the
current year nine month period, as a result of one-time differences including
tax-free interest income and deductable tax credits.
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
Regency is 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
historically 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.
It appears that such seasonal trends are also applicable to the Copa
Casino. However, because of the limited amount of time that the Copa has been
in operation, the relatively limited amount of time that gaming has existed on
the Mississippi gulfcoast and the rapid expansion of gaming in Mississippi and
nearby Louisiana, the nature and extent of seasonal fluctuations, if any, are
subject to change.
Capital resources and liquidity
In October 1996, the Company entered into an agreement with Wells Fargo
Bank and Sumitomo Bank, ltd. amending certain financial covenants of its
long-term debt loan agreement. Such amendment resulted in the Company's
compliance with the financial covenants at June 30, 1996 and September 30,
-12-
<PAGE> 15
Capital resources and liquidity (continued)
1996 and it was anticipated that the Company would also be in compliance
thereafter. As consideration for such amendments, the Company made a prepayment
on its long-term debt obligation of approximately $1.7 million which would
otherwise have been paid on April 1, 1997 and $1.3 million which would
otherwise have been paid on the loan maturity date in March, 2000.
As a result of net losses attributable to Zante, Inc. dba the Sands
Regency, the Company is, and has been, in noncompliance with the fixed charge
coverage ratio specified in the long-term debt loan agreement at the quarters
ending December 31, 1996 and March 31, 1997. Such noncompliance is a default
under the loan agreement and permits the lender (banks) to accelerate the
principal balance which was $11 million at March 31, 1997. If the lender
accelerates the principal balance, the Company would not be in the financial
position to repay the debt in full or on an accelerated schedule.
The Company is currently in discussions with the lender in an attempt to
renegotiate certain terms of the loan agreement including restructuring the
payment schedule. At March 31, 1997, the Company estimates that all of its cash
funds are necessary for operational purposes.
As previously discussed in Note 3 to the Company's interim consolidated
financial statements above, a judgement has been entered against Gulfside
Casino, Inc. requiring certain payments by Gulfside Casino Partnership to two
former shareholders of Gulfside Casino, Inc. At present, the circumstances
requiring such payments, including excess monies not designated for Gulfside
Casino Partnership operational purposes, have not been met. Further, as a
result of the GCI filing for protection under Chapter 11 of the United States
Bankruptcy Code, management believes that the automatic stay provisions under
the Bankruptcy Code restrict payments to GCI creditors, including the two
former shareholders. An Appeal of the Chancery Court amended judgement has also
been filed with the Mississippi Supreme Court.
In February 1997, the above two former shareholders of GCI also filed
separate lawsuits against The Sands Regent and Pete Cladianos, Jr., Jon N.
Bengtson and David R. Wood, all officers and directors of GCI and The Sands
Regent, in U. S. District Court for the Southern District of Mississippi,
Biloxi Division. Such lawsuits allege breach of various common law duties and
contractual interference by the defendants and seek compensatory and punitive
damages. Management, and the individual defendants, believe these legal actions
to be without merit and will vigorously defend them.
The outcome of these actions are not presently subject to reasonable
estimation.
In addition to the above lawsuit, the litigation between Gulfside Casino
Partnership and the Mississippi State Port Authority and Mississippi Department
of Economic and Community Development, filed in July 1996 is ongoing without
significant changes since reported in the 1996 Annual Report. Such action could
result in the termination of GCP's lease in October 1999 which would adversly
affect GCP's results of operations and the Company's investment in the
Mississippi gaming operation. At March 31, 1997, the book value of the
Company's net investment in and advances to
-13-
<PAGE> 16
Capital resources and liquidity (continued)
(including accrued interest) the Mississippi gaming operation was
approximately $3.0 million.
Cautionary statement for purposes of the "Safe Harbor" provisions of the
Private Securities Litigation Reform Act of 1995
The foregoing Management's Discussion and Analysis of Financial Condition
and Results of Operations may contain various "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Securities Exchange Act of 1934, as amended, which
represent the Company's expectations or beliefs concerning future events.
Statements containing expressions such as "believes," "anticipates" or
"expects" used in the Company's press releases and periodic reports on Forms
10-K and 10-Q filed with the Securities and Exchange previously filed periodic
reports, including reports filed on Forms 10-K and 10-Q, are further qualified
by important factors that could cause actual results to differ materially from
those in the forward-looking statements. Such factors include, without
limitation, the following: increased competition in existing markets or the
opening of new gaming jurisdictions; a decline in the public acceptance of
gaming; the limitation, conditioning or suspension of any of the Company's
gaming licenses; increases in or new taxes imposed on gaming revenues or gaming
devices; a finding of unsuitability by regulatory authorities with respect to
the Company's officers, directors or key employees; loss or retirement of key
executives; significant increases in fuel or transportation prices; adverse
economic conditions in the Company's key markets; severe and unusual weather in
the Company's key markets and adverse results of significant litigation
matters.
-14-
<PAGE> 17
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.
NONE
Item 5. Other information.
NONE
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K:
NONE
-15-
<PAGE> 18
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.
THE SANDS REGENT
(Registrant)
Date: May 14, 1997 By /s/ DAVID R. WOOD
--------------------------
David R. Wood
Executive Vice President
and Principal Accounting
and Financial Officer
-16-
<PAGE> 19
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered
Number Page
------- ------------
<S> <C> <C>
27 Financial Data Schedule.........................
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> MAR-31-1997
<CASH> 5,862
<SECURITIES> 250
<RECEIVABLES> 541
<ALLOWANCES> 111
<INVENTORY> 654
<CURRENT-ASSETS> 9,751
<PP&E> 78,565
<DEPRECIATION> 30,285
<TOTAL-ASSETS> 60,149
<CURRENT-LIABILITIES> 13,713
<BONDS> 14,096
0
0
<COMMON> 345
<OTHER-SE> 31,995
<TOTAL-LIABILITY-AND-EQUITY> 60,149
<SALES> 5,853
<TOTAL-REVENUES> 42,320
<CGS> 4,753
<TOTAL-COSTS> 25,462
<OTHER-EXPENSES> 17,570
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,429
<INCOME-PRETAX> (1,419)
<INCOME-TAX> (543)
<INCOME-CONTINUING> (876)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (876)
<EPS-PRIMARY> (.19)
<EPS-DILUTED> (.19)
</TABLE>
