<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, 1996 or
-----------------
( ) Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
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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 ___
At February 13, 1997, 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
Page No.
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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. Managements' Discussion and Analysis
of Financial Condition and Results of
Operations. 8 - 13
PART II OTHER INFORMATION
Item 1. Legal Proceedings. 14
Item 2. Changes in Securities. 14
Item 3. Defaults Upon Senior Securities. 14
Item 4. Submission of Matters to a Vote of
Security Holders. 14
Item 5. Other Information. 14
Item 6. Exhibits and Reports on Form 8-K. 14
SIGNATURES 15
<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 SIX MONTHS
except per share amounts) ENDED DECEMBER 31, ENDED DECEMBER 31,
------------------------- --------------------------
1995 1996 1995 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Operating revenues:
Gaming $ 10,569 $ 10,341 $ 21,330 $ 21,688
Lodging 1,973 1,609 5,348 4,166
Food and beverage 1,832 1,883 3,930 3,968
Other 385 371 763 755
----------- ----------- ----------- -----------
14,759 14,204 31,371 30,577
Less complimentary lodging, food
and beverage included above 722 668 1,279 1,441
----------- ----------- ----------- -----------
14,037 13,536 30,092 29,136
----------- ----------- ----------- -----------
Operating costs and expenses:
Gaming 5,398 5,707 10,622 11,421
Lodging 1,254 1,223 2,683 2,578
Food and beverage 1,501 1,657 3,288 3,342
Other 173 155 375 332
Maintenance and utilities 1,248 1,379 2,400 2,881
General and administrative 3,223 3,798 6,372 7,187
Depreciation and amortization 904 940 1,799 1,880
----------- ----------- ----------- -----------
13,701 14,859 27,539 29,621
----------- ----------- ----------- -----------
Income (loss) from operations 336 (1,323) 2,553 (485)
Other income (deductions):
Interest and other income 152 497 312 638
Interest and other expense (631) (432) (1,242) (991)
----------- ----------- ----------- -----------
(479) 65 (930) (353)
----------- ----------- ----------- -----------
Income (loss) before income taxes (143) (1,258) 1,623 (838)
Provision (benefit) for income taxes (139) (449) 439 (333)
----------- ----------- ----------- -----------
Net income (loss) ($ 4) ($ 809) $ 1,184 ($ 505)
=========== =========== =========== ===========
Net income (loss) per share -- ($ .18) $ .26 ($ .11)
=========== =========== =========== ===========
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.
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<PAGE> 4
THE SANDS REGENT AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Dollars in thousands) JUNE 30, DECEMBER 31,
1996 1996
------- -------
ASSETS
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $11,357 $ 7,337
Short-term investments 200 250
Accounts and notes receivable less allow-
ance for possible losses of $107 and $109 400 239
Inventories 789 760
Prepaid federal income taxes 141 540
Prepaid expenses and other assets 980 1,580
------- -------
Total current assets 13,867 10,706
PROPERTY AND EQUIPMENT:
Land 8,095 8,093
Buildings, ship and improvements 45,377 45,297
Equipment, furniture and fixtures 21,762 22,045
Construction in progress 231 2,252
------- -------
75,465 77,687
Less accumulated depreciation
and amortization 28,051 29,858
------- -------
47,414 47,829
OTHER ASSETS:
Deferred federal income tax asset 900 1,057
Note receivable 1,244 1,241
Other 886 448
------- -------
3,030 2,746
------- -------
Total assets $64,311 $61,281
======= =======
</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
(Dollars in thousands) JUNE 30, DECEMBER 31,
1996 1996
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
CURRENT LIABILITIES:
<S> <C> <C>
Accounts payable $ 2,282 $ 2,865
Accrued salaries, wages and benefits 1,687 1,758
Other accrued expenses 1,376 1,648
Deferred federal income tax liability 126 348
Current maturities of long-term debt 10,789 8,180
-------- --------
Total current liabilities 16,260 14,799
LONG-TERM DEBT 14,816 13,771
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 41,647
-------- --------
55,571 55,066
Treasury stock, at cost, 2,400,000 shares (22,355) (22,355)
-------- --------
Total stockholders' equity 33,216 32,711
-------- --------
Total liabilities and stockholders'
equity $ 64,311 $ 61,281
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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<PAGE> 6
THE SANDS REGENT AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED DECEMBER 31,
------------------
1995 1996
---- ----
OPERATING ACTIVITIES:
<S> <C> <C>
Net income (loss) $ 1,184 ($ 505)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization 1,799 1,880
(Gain) loss on disposal of property
and equipment 128 (340)
(Increase) decrease in accounts and
notes receivable (17) 161
(Increase) decrease in inventories (101) 29
(Increase) in prepaid expenses and
other current assets (749) (600)
Decrease in other assets 36 33
Increase in accounts payable 64 366
Increase (decrease) in accrued expenses (143) 343
(Decrease) in federal income taxes
payable (1,503) (399)
Change in deferred federal income taxes 940 65
(Decrease) in other liabilities (19) (19)
------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,619 1,014
------- -------
INVESTING ACTIVITIES:
Purchase of short-term investments (518) (50)
Sale and maturity of short-term
investments 1,736 --
Payments received on note receivable 3 3
Additions to property and equipment (1,317) (1,390)
Proceeds from sale of property and
equipment 5 457
------- -------
NET CASH USED IN INVESTING ACTIVITIES (91) (980)
------- -------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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<PAGE> 7
THE SANDS REGENT AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED DECEMBER 31,
------------------
1995 1996
---- ----
<S> <C> <C>
FINANCING ACTIVITIES:
Payment of accounts payable for
prior year purchases of property
and equipment (69) --
Issuance of long-term debt 375 728
Payments on long-term debt (1,750) (4,782)
Payment of dividend on common stock (450) --
-------- --------
NET CASH USED IN FINANCING ACTIVITIES (1,894) (4,054)
-------- --------
DECREASE IN CASH AND CASH EQUIVALENTS (366) (4,020)
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD 10,356 11,357
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 9,990 $ 7,337
======== ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Property and equipment acquired by
long-term debt -- $ 400
======== ========
Property and equipment acquired by
accounts payable -- $ 217
======== ========
Property and equipment acquired by
conversion of other assets -- $ 400
======== ========
Interest paid, net of amount capitalized $ 1,044 $ 881
======== ========
Federal income taxes paid $ 1,075 --
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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<PAGE> 8
THE SANDS REGENT AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED DECEMBER 31, 1996 AND 1995
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 December 31, 1996 and the results of operations and
cash flows for the six months ended December 31, 1996 and 1995 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
At December 31, 1996, the Company is in noncompliance 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. Since the lender has not accelerated the principal
balance, the Company's classification of the principal balance, between current
and non-current, is 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, a ruling was entered in Chancery Court in Harrison
County, Mississippi requiring that GCP make payments to two former shareholders
of GCI equal to 60% of all monies not designated for normal operational
expenses on a monthly basis beginning February 1, 1997. Such payments are to
continue until the judgement entered for such former shareholders is satisfied.
As of February 1, 1997, GCP reported that no monies were available for
distribution. The judgment amounts consist primarily of notes payable, and
accrued interest, due these former shareholders as presently recorded in the
books and records of GCI and as
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<PAGE> 9
THE SANDS REGENT AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED DECEMBER 31, 1996 AND 1995
NOTE 3 - COMMITMENTS AND CONTINGENCIES (continued)
included in the Company's consolidated balance sheet in the aggregate amount of
$6.9 million at December 31, 1996.
GCI, and 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 Bankrupsy Code. GCI is taking the position that the automatic
stay provisions under the United States Bankrupsy Code apply to all of GCI
creditors, including the two former shareholders.
-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, 1996 compared to
three months ended December 31, 1995
In the three month period ended December 31, 1996, compared to the same
three month period in fiscal 1996, revenues decreased from $14 million to $13.5
million as a result of an increase in revenues at the Copa Casino of $622,000
to $6.3 million and a decrease in revenues at the Sands Regency of $1.1 million
to $7.3 million. For the same comparable periods, income from operations
decreased from $336,000 to a loss from operations of $1.3 million. Such
decrease consists of an increase in income from operations at the Copa Casino
of approximately $142,000 to $295,000 which was offset by a decrease from the
Sands Regency of $1.8 million to a loss from operations of $1.6 million.
The Company incurred a net loss of $809,000 in the quarter ended December
31, 1996, or $.18 per share, compared to a net loss of $4,000, nil per share,
in the quarter ended December 31, 1995. The Copa Casino contributed
approximately $86,000 to the consolidated net income in the December 31, 1996
quarter compared to a loss of $23,000 in the December 31, 1995 quarter. For the
same comparable periods, the Sands Regency incurred a net loss of approximately
$895,000 as compared to net income in the prior year second quarter of $19,000.
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. 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 October 1995.
The decrease in lodging revenue of $364,000, in the second quarter of
fiscal 1997 compared to the same quarter in the prior year, is primarily due to
a decrease in the Sands Regency's average daily room rate from approximately
$29 to $24. For the same comparable periods, hotel occupancy increased slightly
from approximately 77.9% to 78.5%. The decrease in the average daily rate was
due to rate discounts offered to stimulate hotel occupancy.
The decrease in gaming revenue of $228,000, in the December 1996 quarter
versus the December 1995 quarter, is a result of an increase in gaming revenue
from the Copa Casino of $481,000 and a decrease in gaming revenue from the
Sands Regency of approximately $709,000. The decrease in gaming revenue in Reno
consists of a decrease in Sands Regency casino gaming revenue of $845,000 which
was offset by increased gaming revenue from the Company's slot route operation
of $136,000. The decrease in Sands Regency casino gaming revenue is composed
primarily of decreased slot revenue and is due to a decline per occupied room.
In the second quarter of fiscal 1996, Sands Regency casino gaming revenue per
occupied room was $77 as compared to $64 in the second quarter 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.
-8-
<PAGE> 11
Results of operations - Three months ended December 31, 1996 compared to
three months ended December 31, 1995 (continued)
The decrease in complimentary lodging, food and beverage, deducted from
revenue, of $54,000 is composed of an increase in complimentary lodging at the
Sands Regency of approximately $110,000 which has been offset by a reduction in
other complimentary goods and services of $60,000 attributable to the Copa
Casino and $104,000 attributable to the Sands Regency. The increase in
complimentary lodging is a result of Company implemented changes to its lodging
programs and packages offered to attract and retain guests.
The increase in gaming costs and expenses of $309,000, in the quarter ended
December 31, 1996 versus the quarter ended December 31, 1995, is the result of
an increase at the Copa Casino of $251,000 and an increase at the Sands Regency
of approximately $58,000. The increase in the Copa Casino costs and expenses is
primarily attributable to the increase in associated gaming revenue. The
increase in Sands Regency gaming costs and expenses is composed of an increase
in the cost of complimentary goods and services provided of $103,000, costs and
expenses associated with the new slot route operation of $113,000 and an
increase in various other costs and expenses of approximately $51,000. These
increases were offset by the reclassification of custodial costs and expenses
amounting to $209,000 from gaming costs and expense, where classified through
June 1996, to a maintenance cost and expense commencing in July 1996.
The increase in food and beverage costs and expenses of $156,000 is equally
attributable to the Copa Casino and the Sands Regency. The increase from the
Copa Casino is primarily due to a decrease in the allocation of costs to gaming
relative to the provision of compimentary food and beverage. The increase from
the Sands Regency is attributable to various cost and expense elements.
The increase in maintenance and utilities costs and expenses of $131,000
in the second quarter of fiscal 1997 as compared to the second quarter of
fiscal 1996,is the result of a decrease at the Copa Casino of $145,000 and an
increase at the Sands Regency of $276,000. The decrease from the Copa Casino is
due to the nonrecurrance of the prior year hurricane preparedness costs and
expenses associated with Hurricane Opal. The increase from the Sands Regency
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 $575,000
consists of an increase at the Copa Casino of approximately $248,000, an
increase at the Sands Regency of $394,000 and a decrease at The Sands Regent
and other subsidiaries of approximately $67,000. The increase from the Copa
Casino is attributable to various cost and expense categories including
increased advertising and promotional costs and legal and accounting costs. The
Sands Regency increase consists primarily of an increase in advertising and
promotional costs.
-9-
<PAGE> 12
Results of operations - Three months ended December 31, 1996 compared to
three months ended December 31, 1995 (continued)
The increase in interest and other income of approximately $345,000 is
primarily due to a gain on the sale of a non-casino property in Reno. The
decrease in interest and other expense of $199,000 is principally due to a
principal reduction in an interest bearing long-term debt obligation of the
Sands Regency.
The effective income tax rate differs from the statutory rate, in the
current quarter, as a result of one-time differences such as tax-free interest
income and deductable tax credits.
Results of operations - First six months of fiscal 1997 compared to 1996
In the six months ended December 31, 1996, compared to the same six months
in fiscal 1996, revenues decreased from $30.1 million to $29.1 million as a
result of an increase at the Copa Casino of $1.4 million to $12.9 million and a
decrease at the Sands Regency of $2.3 million to $16.3 million. For the same
comparable periods, income from operations decreased from $2.6 million to a
loss from operations of $485,000. Such decrease consists of an increase at the
Copa Casino of approximately $420,000 to $1.2 million as offset by a decrease
from the Sands Regency of $3.5 million to a loss from operations of $1.7
million.
In the same comparable six month periods, net income also decreased from
$1.2 million, or $.26 per share, to a net loss of $505,000 or loss per share of
$.11. The Copa Casino contributed approximately $587,000 to the consolidated
net income in the first half of fiscal 1997 compared to $281,000 in the first
half of fiscal 1996. For the same comparable periods, the Sands Regency
incurred a net loss of approximately $1.1 million as compared to net income in
the prior year six months of $904,000. 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 megas-resorts. 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 $1.2 million, in the first half of
fiscal 1997 compared to the same period in the prior year, is primarily due to
a decrease in the average daily rate from approximately $37 in the six months
ended December 31, 1995 to $29 in the six months ended December 31, 1996. For
the same comparable periods, hotel occupancy was approximately the same at 83%.
The increase in gaming revenue of $358,000 is a result of an increase in
gaming revenue from the Copa Casino of $1.2 million which was offset by a
decrease in gaming revenue from the Sands Regency of approximately $848,000.
The decrease in gaming revenue in Reno is composed of a decrease in Sands
Regency casino gaming revenue of $1.2 million which was offset by increased
gaming revenue from the Company's slot route operation of $286,000. The
decrease in Sands Regency casino gaming revenue is comprised primarily of slot
revenue and is due to a decline per occupied room. In the first half
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<PAGE> 13
Results of operations - First six months of fiscal 1996 compared to 1995
(continued)
of fiscal 1996, Sands Regency casino gaming revenue per occupied room was $73
as compared to $64 in the first half 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 increase in complimentary lodging, food and beverage, deducted from
revenue, of $162,000 is primarily due to an increase in complimentary lodging
at the Sands Regency. Such is a result of Company implemented changes to its
lodging programs and packages offered to attract and retain guests.
The increase in gaming costs and expenses of $799,000, in the six months
ended December 31, 1996 versus the comparable prior year six month period,
consists of an increase from the Copa Casino of $525,000 and an increase from
the Sands Regency of approximately $274,000. The increase in the Copa Casino
costs and expenses is primarily attributable to the increase in associated
gaming revenue. The increase in Sands Regency gaming costs and expenses is
composed of an increase in the cost of complimentary goods and services
provided of $298,000, costs and expenses associated with the new slot route
operation of $224,000 and an increase in various other costs and expenses of
approximately $170,000. Such increases have been offset by the reclassification
of custodial costs and expenses amounting to $418,000 from gaming costs and
expense, where reflected through June 1996, to a maintenance cost and expense
commencing in July 1996.
The increase in maintenance and utilities costs and expenses of $481,000
in the six months ended December 31, 1996, compared to the six months ended
December 31, 1995, is composed of a decrease from the Copa Casino of $133,000
and an increase from the Sands Regency of $614,000. The decrease from the Copa
Casino is due to the nonrecurrance of 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 $417,000 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 $815,000
consists of an increase from the Copa Casino of approximately $391,000, an
increase from the Sands Regency of $500,000 and a decrease from The Sands
Regent and other subsidiaries of approximately $76,000. The increase from the
Copa Casino is attributable to various cost and expense categories including
increased advertising and promotional costs and legal and accounting costs. The
Sands Regency increase consists primarily of an increase in advertising and
promotional costs.
The increase in interest and other income of approximately $326,000 is
primarily due to a gain on the sale of a non-casino property in Reno. The
decrease in interest and other expense of $251,000 is principally due to a
principal reduction in an interest bearing long-term debt obligation of the
Sands Regency.
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<PAGE> 14
Results of operations - First six months of fiscal 1996 compared to 1995
(continued)
The effective income tax rate differs from the statutory rate, in the
current year six month period, as a result of one-time differences such as
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 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
During the six months ended December 31, 1996, the Company entered into an
agreement amending certain financial covenants of its long-term debt loan
agreement with Wells Fargo Bank and Sumitomo Bank, ltd. Such amendments were
necessary in order for the Company to be in compliance with the financial
covenants at June 30, 1996. As consideration for such amendments, the Company
made a prepayment on its long-term debt obligation consisting of approximately
$1.7 million which would otherwise have been paid on April 1, 1997 and $1.3
million which would have otherwise been paid on the loan maturity date in
March, 2000.
For the quarter and six month periods ended December 31, 1996, the Company
has incurred a net operating loss. As a result, the Company is in noncompliance
with the fixed charge coverage ratio specified in the long-term debt loan
agreement resulting in a default under the loan agreement which permits the
lender (banks) to accelerate the principal balance. 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. At December 31, 1996, the Company estimates
that all 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, specifically excess monies not designated for Gulfside
Casino Partnership operational purposes, have not been met. Likewise, GCP is
not currently in the position to make payments against partner loan
obligations, including accrued interest. An
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<PAGE> 15
Capital resources and liquidity (continued)
Appeal of the judgement has been filed with the Mississippi Supreme Court and
Gulfside Casino, Inc., as creditor, has filed for protection under Chapter 11
of the United States Bankruptcy Code. The outcome is 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 December 31, 1996, the book value of the
Company's net investment in and advances to (including accrued interest) the
Mississippi gaming operation was approximately $2.4 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.
-13-
<PAGE> 16
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 4, 1996. At
such meeting, Katherene Latham, Pete Cladianos, Jr. and Pete Cladianos III
were re-elected to serve as Directors. The remaining continuing Directors
are Jon N. Bengtson, Joseph G. Fanelli, Weldon C. 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
27 Financial Data Schedule.
(b) Reports on Form 8-K:
NONE
-14-
<PAGE> 17
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: February 13, 1997 By /S/David R. Wood
--------------------------------------------
David R. Wood, Executive Vice President
Principal Accounting and Financial Officer
-15-
<PAGE> 18
INDEX TO EXHIBITS
Sequentially
Exhibit Numbered
Number Page
------- ------------
27 Financial Data Schedule.........................
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 7,337
<SECURITIES> 250
<RECEIVABLES> 348
<ALLOWANCES> 109
<INVENTORY> 760
<CURRENT-ASSETS> 10,706
<PP&E> 77,687
<DEPRECIATION> 29,858
<TOTAL-ASSETS> 61,281
<CURRENT-LIABILITIES> 14,799
<BONDS> 13,771
0
0
<COMMON> 345
<OTHER-SE> 32,366
<TOTAL-LIABILITY-AND-EQUITY> 61,281
<SALES> 3,968
<TOTAL-REVENUES> 29,136
<CGS> 3,342
<TOTAL-COSTS> 17,673
<OTHER-EXPENSES> 11,948
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 991
<INCOME-PRETAX> (838)
<INCOME-TAX> (333)
<INCOME-CONTINUING> (505)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (505)
<EPS-PRIMARY> (.11)
<EPS-DILUTED> (.11)
</TABLE>
