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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended June 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from:
Commission file number: 0-14050
THE SANDS REGENT
(Exact name of registrant as specified in its charter)
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Nevada 88-0201135
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
345 North Arlington Avenue
Reno, Nevada 89501
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (775) 348-2200
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Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.05 par value
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Sections 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 [ ]
The aggregate market value of the Registrant's $.05 par value Common Stock
held by non-affiliates of the Registrant on September 22, 1999 was $3,015,313.
The aggregate market value is computed with reference to the average price per
share on such date.
Registrant's Common Stock outstanding at September 22, 1999 was 4,495,722
shares.
Portions of Registrant's 1999 Annual Report to the Shareholders are
incorporated into Part II as set forth herein. Portions of Registrant's
definitive Proxy Statement for its November 1, 1999 Annual Meeting of
Shareholders are incorporated into Part III as set forth herein.
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PART I
ITEM 1. BUSINESS
GENERAL
THE COMPANY
The Company, through a wholly-owned subsidiary, Zante, Inc. ("Zante"), owns
and operates the Sands Regency casino/hotel in downtown Reno, Nevada. In
December 1998, the Company sold the three wholly-owned subsidiaries, Patrician,
Inc., Gulfside Casino, Inc. and Artemis, Inc., including the 100% owned Gulfside
Casino Partnership, which owned and operated the Copa Casino, in Gulfport,
Mississippi. Prior to the sale, the Company held a 100% interest in these three
subsidiaries, and the Copa Casino, since February 1994. From September 1993,
when gaming operations commenced, to February 1994, the Company held a 40%
interest in the Copa Casino.
The Sands Regency casino/hotel has approximately 27,000 square feet of
gaming space and 836 hotel rooms, including 29 suites of various sizes. The
complex also includes three restaurants, a coffee house/deli-style restaurant, a
"Pizza Hut", and an "Arby's" restaurant operated by a third party. The
facilities also include an entertainment show room, three cocktail lounges, a
gift shop, a beauty/barber shop operated by a third party, a video arcade, a
health club, a swimming pool and almost 12,000 square feet of convention and
meeting space which can seat up to 950 people. The Company maintains multiple
parking areas on its main casino/hotel property and adjacent to it, including a
parking garage, with a total combined capacity for approximately 1,000 vehicles.
Although the Company offers, on a very limited basis, complimentary hotel
accommodations to select customers, no group arrangements known as "junkets" are
conducted.
The average room occupancy for fiscal 1999 was 76.4% compared to 83.3% for
fiscal 1998. The hotel's average room rate for the current fiscal year was
approximately $34.00 as compared to $31.00 in the prior fiscal year. In early
April 1999, the Company discontinued the use of 102 older motel rooms which were
subsequently razed, leaving 836 tower hotel rooms available for use.
As of September 20, 1999, the casino offered 20 table games, including 14
blackjack tables, 1 craps table, and 2 roulette tables, 1 let it ride table, 1
three-card poker table and 1 pai gow poker table; 2 keno games and approximately
685 slot machines. In connection with the supervision of its gaming activities,
the Company's policies include stringent controls, cross-checks and recording of
all receipts and disbursements.
The Company's Reno, Nevada operations are conducted 24 hours a day, every
day of the year. The primary source of revenues and income to the Company is its
gaming activities, although the hotel, bars, shops, restaurants and other
services are an important adjunct to the gaming activities. The Company's
operating and marketing philosophy emphasizes high volume business, offering
large, attractive hotel rooms at reasonable prices to travel group wholesalers,
primarily from Western Canada, the Pacific Northwest and Northern California.
Gaming accounted for approximately 52% of the Company's revenues from continuing
operations in Reno in fiscal 1999 and approximately 73% of the gaming revenues
were generated by slot machines. The Company generally does not extend credit to
its gaming customers.
The Company has concentrated its resources on renovating and improving its
existing Reno facilities and services. Future expansion plans will be considered
based upon future market conditions and the need to add hotel rooms and other
major facilities.
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MARKETING
Traditionally, the central component of the Company's marketing philosophy
has been to utilize travel wholesalers to attract group and air wholesale
business to the casino/hotel. This philosophy is based on offering attractive,
well-furnished, large hotel accommodations and quality food and beverages at
prices slightly lower than those of most major casino/hotels in Reno. Because of
the significant increase in the number of Reno area hotel rooms in the last
several years and increased competition from other gaming venues, competition
for wholesale business has intensified. This has resulted in the Sands Regency
developing other areas for revenue generating opportunities.
The Sands Regency has developed a more comprehensive casino marketing
program with an emphasis on guest retention, data base marketing and an increase
in advertising awareness. In addition, programs are being developed to attract
business segments that had previously been largely untapped, such as Reno area
residents and residents from Northern California, particularly the Sacramento
metropolitan area.
The Company's player tracking system is instrumental in the data base
marketing efforts and in guest recognition. This system allows the casino
marketing efforts to more effectively identify good customers and develop
special events, programs and activities that appeal to them. An aggressive
promotion and player events schedule has also been implemented to allow the
Sands Regency to retain guests for longer periods of time and generate
incremental visits.
The Company will also continue to use a flexible approach to pricing its
rooms which is designed to maximize occupancy levels. Hotel rooms are offered at
discount prices to travel wholesalers for block sales of rooms used in travel
packages. This is particularly important to the Company because of the impact of
hotel occupancy on the level of gaming activity. The Company has historically
been particularly dependent upon group business from November through February
because of the seasonal decline in other sources of business. During these
months, a substantial amount of the Sands Regency's hotel capacity is normally
prebooked 30 to 180 days in advance on a cancellable basis.
Significant group and air wholesale market areas continue to include
Western Canada, the Pacific Northwest and Northern California. The Company
continues to expand its marketing areas by adding additional air wholesalers and
has been successful in obtaining wholesale business in Central Canada, the
Midwest, Southwest and Southern California.
The Sands Regency is the lead casino/hotel in the Reno area for several
major travel wholesalers who serve major cities in the West, Midwest and
Southwest United States and in Western and Central Canada. Group and air
wholesale business accounted for approximately 55% of the hotel's occupancy in
fiscal 1999 compared to 61% in fiscal 1998.
In addition to the group and air wholesale business, the Company
aggressively packages and markets group and military reunion business which
require 300 rooms or less. Other travel package arrangements are also promoted
which are geared toward individual travelers.
The Sands Regency will continue to rely on advertising by travel
wholesalers in their markets. In both the local market and selected feeder
markets, such as Northern California, the Sands Regency has increased
advertising efforts including radio, billboard, print and local television.
During periods of time when wholesale business operates at reduced levels, the
Company will also continue to utilize print advertising in its other major
market areas, with an emphasis on room rates, to attract individual customers.
These efforts will continue into the future as the Sands Regency strives to
strengthen its position in the Reno market.
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COMPETITION
The Company competes in the greater Reno area with approximately sixteen
major casinos and casino/hotels, some of which are larger than the Sands
Regency. In addition, there are numerous other smaller casinos in the greater
Reno area. The Company competes for its customers based upon gaming activities,
room rates, room size and quality of rooms, food, beverages and location.
Competitors of the Company have received governmental approval to construct an
additional 3,900 hotel rooms, none of which are presently under construction.
Such governmental approval does not provide assurance that all of these rooms
will be built. If construction is completed on all hotel rooms presently under
construction or approved for construction, the hotel room capacity in the
greater Reno area will increase by approximately an additional 23%. In the event
all approved hotel rooms are built, and depending on the time frames during
which they are completed, management of the Company believes that this added
capacity may have an adverse effect on operations of the Company.
The Company's Reno operations compete, to a lesser extent, with gaming
operations in other parts of the state of Nevada, such as Laughlin, Las Vegas
and Lake Tahoe. California currently sponsors a state lottery and allows other
non-casino style gaming, including parimutuel wagering, card parlors, bingo and
off-track betting. There is also casino style gaming on various Native American
lands in California. The Company believes that such non-casino style gaming does
not have a significant impact on the Company's operations. The Company believes,
however, that Native American gaming in California does have somewhat of an
impact on the Company's gaming operation and that the general legalization of
casino-style gaming in California could have a material impact on the Company's
operations.
To a significantly lesser extent, the Company competes with gaming
facilities in New Jersey, Colorado, South Dakota, Illinois, Iowa and other parts
of the world. The Company also competes with various gaming operations on Native
American land, including those located in California, Arizona, Oregon,
Washington, Connecticut, Michigan, Minnesota and Wisconsin. Indian casino gaming
has become a growing sector of the gaming industry as a result of the Indian
Gaming Regulatory Act of 1988, which generally permits unrestricted gaming on
Indian land in any state that allows similar forms of gaming, whether or not
restricted. Other states may legalize various forms of gaming that may compete
with the Company. In any jurisdiction where the Company may commence operations,
it will face competition for desirable sites and qualified personnel.
EMPLOYEES
At June 30, 1999, the Company employed 755 people at the Sands Regency in
Reno, Nevada, including 85 salaried employees and 670 hourly employees. None of
the Company's employees is represented by a union. The Company has not
experienced any work stoppages or other significant labor problems and
management considers its labor relations to be good.
REGULATION AND LICENSING-GAMING
The ownership and operation of casino gaming facilities in Nevada are
subject to (i) The Nevada Gaming Control Act and the regulations promulgated
thereunder (collectively, "Nevada Act"); and (ii) various local regulation. The
Company's gaming operations are subject to the licensing and regulatory control
of the Nevada Gaming Commission ("Nevada Commission"), the Nevada State Gaming
Control Board ("Nevada Board") and the City of Reno, (together, the "Nevada
Gaming Authorities").
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The laws, regulations and supervisory procedures of the Nevada Gaming
Authorities are based upon declarations of public policy which are concerned
with, among other things: (i) the prevention of unsavory or unsuitable persons
from having a direct or indirect involvement with gaming at any time or in any
capacity; (ii) the establishment and maintenance of responsible accounting
practices and procedures; (iii) the maintenance of effective controls over the
financial practices of licensees, including the establishment of minimum
procedures for internal fiscal affairs and the safeguarding of assets and
revenues, providing reliable record keeping and requiring the filing of periodic
reports with the Nevada Gaming Authorities; (iv) the prevention of cheating and
fraudulent practices; and (v) to provide a source of state and local revenues
through taxation and licensing fees. Change in such laws, regulations and
procedures could have an adverse effect on the Company's gaming operations.
Zante operates the Sands Regency casino/hotel and is required to be
licensed by the Nevada Gaming Authorities. The gaming license requires a
periodic payment of fees and taxes and is not transferable. The Company is
registered by the Nevada Commission as a publicly traded corporation
("Registered Corporation") and as such, it is required periodically to submit
detailed financial and operating reports to the Nevada Commission and furnish
any other information which the Nevada Commission may require. No person may
become a stockholder of, or receive any percentage of profits from Zante without
first obtaining licenses and approvals from the Nevada Gaming Authorities. The
Company and Zante have obtained from the Nevada Gaming Authorities the various
registrations, approvals, permits and licenses required in order to engage in
gaming activities in Nevada.
The Nevada Gaming Authorities may investigate any individual who has a
material relationship to, or material involvement with, the Company or Zante in
order to determine whether such individual is suitable or should be licensed as
a business associate of a gaming licensee. Officers, directors and certain key
employees of Zante must file applications with the Nevada Gaming Authorities and
may be required to be licensed or found suitable by the Nevada Gaming
Authorities. Officers, directors and key employees of the Company who are
actively and directly involved in gaming activities of Zante may be required to
be licensed or found suitable by the Nevada Gaming Authorities. The Nevada
Gaming Authorities may deny an application for licensing for any cause which
they deem reasonable. A finding of suitability is comparable to licensing, and
both require submission of detailed personal and financial information followed
by a thorough investigation. The applicant for licensing or a finding of
suitability must pay all the costs of the investigation. Changes in licensed
positions must be reported to the Nevada Gaming Authorities and in addition to
their authority to deny an application for a finding of suitability or
licensure, the Nevada Gaming Authorities have jurisdiction to disapprove a
change in a corporate position.
If the Nevada Gaming Authorities were to find an officer, director or key
employee unsuitable for licensing or unsuitable to continue having a
relationship with the Company or Zante, the companies involved would have to
sever all relationships with such person. In addition, the Nevada Commission may
require the Company or Zante to terminate the employment of any person who
refuses to file appropriate applications. Determinations of suitability or of
questions pertaining to licensing are not subject to judicial review in Nevada.
The Company and Zante are required to submit detailed financial and
operating reports to the Nevada Commission. Substantially all material loans,
leases, sales of securities and similar financing transactions by Zante must be
reported to, or approved by, the Nevada Commission.
If it were determined that the Nevada Act was violated by Zante, the gaming
licenses it holds could be limited, conditioned, suspended or revoked, subject
to compliance with certain statutory and regulatory procedures. In addition,
Zante, the Company, and the persons involved could be subject to substantial
fines for each separate violation of the Nevada Act at the direction of the
Nevada Commission. Further, a supervisor
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could be appointed by the Nevada Commission to operate the Company's gaming
properties and, under certain circumstances, earnings generated during the
supervisor's appointment (except for the reasonable rental value of the
Company's gaming properties) could be forfeited to the State of Nevada.
Limitation, conditioning or suspension of any gaming license or the appointment
of a supervisor could (and revocation of any gaming license would) materially
adversely affect the Company's gaming operations.
Any beneficial holder of the Company's voting securities, regardless of the
number of shares owned, may be required to file an application, be investigated,
and have his suitability as a beneficial holder of the Company's voting
securities determined if the Nevada Commission has reason to believe that such
ownership would otherwise be inconsistent with the declared policies of the
State of Nevada. The applicant must pay all costs of investigation incurred by
the Nevada Gaming Authorities in conducting any such investigation.
The Nevada Act requires any person who acquires more than 5% of the
Company's voting securities to report the acquisition to the Nevada Commission.
The Nevada Act requires that beneficial owners of more than 10% of the Company's
voting securities apply to the Nevada Commission for a finding of suitability
within thirty days after the Chairman of the Nevada Board mails the written
notice requiring such filing. Under certain circumstances, an "institutional
investor," as defined in the Nevada Act, which acquires more than 10%, but not
more than 15%, of the Company's voting securities may apply to the Nevada
Commission for a waiver of such finding of suitability if such institutional
investor holds the voting securities for investment purposes only. An
institutional investor shall not be deemed to hold voting securities for
investment purposes unless the voting securities were acquired and are held in
the ordinary course of business as an institutional investor and not for the
purpose of causing, directly or indirectly, the election of a majority of the
members of the board of the directors of the Company, any change in the
Company's corporate charter, bylaws, management, policies or operations of the
Company, or any of its gaming affiliates, or any other action which the Nevada
Commission finds to be inconsistent with holding the Company's voting securities
for investment purposes only. Activities which are not deemed to be inconsistent
with holding voting securities for investment purposes only include: (i) voting
on all matters voted on by stockholders; (ii) making financial and other
inquiries of management of the type normally made by securities analysts for
informational purposes and not to cause a change in its management, policies or
operations; and (iii) such other activities as the Nevada Commission may
determine to be consistent with such investment intent. If the beneficial holder
of voting securities who must be found suitable is a corporation, partnership or
trust, it must submit detailed business and financial information including a
list of beneficial owners. The applicant is required to pay all costs of
investigation.
Any person who fails or refuses to apply for a finding of suitability or a
license within thirty days after being ordered to do so by the Nevada Commission
or the Chairman of the Nevada Board, may be found unsuitable. The same
restrictions apply to a record owner if the record owner, after request, fails
to identify the beneficial owner. Any stockholder found unsuitable and who
holds, directly or indirectly, any beneficial ownership of the common stock of a
Registered Corporation beyond such period of time as may be prescribed by the
Nevada Commission may be guilty of a criminal offense. The Company is subject to
disciplinary action if, after it receives notice that a person is unsuitable to
be a stockholder or to have any other relationship with the Company or Zante,
the Company (i) pays that person any dividend or interest upon voting securities
of the Company, (ii) allows that person to exercise, directly or indirectly, any
voting right conferred through securities held by that person, (iii) pays
remuneration in any form to that person for services rendered or otherwise, or
(iv) fails to pursue all lawful efforts to require such unsuitable person to
relinquish his voting securities for cash at fair market value.
The Nevada Commission may, in its discretion, require the holder of any
debt security of a Registered Corporation to file applications, be investigated
and be found suitable to own the debt security of a Registered Corporation. If
the Nevada Commission determines that a person is unsuitable to own such
security, then
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pursuant to the Nevada Act, the Registered Corporation can be sanctioned,
including the loss of its approvals, if without the prior approval of the Nevada
Commission, it: (i) pays to the unsuitable person any dividend, interest, or any
distribution whatsoever; (ii) recognizes any voting right by such unsuitable
person in connection with such securities; (iii) pays the unsuitable person
remuneration in any form; or (iv) makes any payment to the unsuitable person by
way of principal, redemption, conversion, exchange, liquidation or similar
transaction.
The Company is required to maintain a current stock ledger in Nevada which
may be examined by the Nevada Gaming Authorities at any time. If any securities
are held in trust by an agent or by a nominee, the record holder may be required
to disclose the identity of the beneficial owner to the Nevada Gaming
Authorities. A failure to make such disclosure may be grounds for finding the
record holder unsuitable. The Company is also required to render maximum
assistance in determining the identity of the beneficial owner. The Nevada
Commission has the power to require the Company's stock certificates to bear a
legend indicating that the securities are subject to the Nevada Act. The
Company's stock certificates do bear such a legend.
The Company may not make a public offering of its securities without the
prior approval of the Nevada Commission if the securities or the proceeds
therefrom are intended to be used to construct, acquire or finance gaming
facilities in Nevada, or to retire or extend obligations incurred for such
purposes. Such approval, if given, does not constitute a finding, recommendation
or approval by the Nevada Commission or the Nevada Board as to the accuracy or
adequacy of the prospectus or the investment merits of the securities. Any
representation to the contrary is unlawful.
Changes in control of the Company through merger, consolidation, stock or
asset acquisitions, management or consulting agreements, or any act or conduct
by a person whereby he obtains control, may not occur without the prior approval
of the Nevada Commission. Entities seeking to acquire control of a Registered
Corporation must satisfy the Nevada Board and Nevada Commission in a variety of
stringent standards prior to assuming control of such Registered Corporation.
The Nevada Commission may also require controlling stockholders, officers,
directors and other persons having a material relationship or involvement with
the entity proposing to acquire control, to be investigated and licensed as part
of the approval process relating to the transaction.
The Nevada legislature has declared that some corporate acquisitions
opposed by management, repurchases of voting securities and corporate defense
tactics affecting Nevada gaming licensees, and Registered Corporations that are
affiliated with those operations, may be injurious to stable and productive
corporate gaming. The Nevada Commission has established a regulatory scheme to
ameliorate the potentially adverse effects of these business practices upon
Nevada's gaming industry and to further Nevada's policy to: (i) assure the
financial stability of corporate gaming operators and their affiliates; (ii)
preserve the beneficial aspects of conducting business in the corporate form;
and (iii) promote a neutral environment for the orderly governance of corporate
affairs. Approvals are, in certain circumstances, required from the Nevada
Commission before the Company can make exceptional repurchases of voting
securities above the current market price thereof and before a corporate
acquisition opposed by management can be consummated. The Nevada Act also
requires prior approval of a plan of recapitalization proposed by the Company's
Board of Directors in response to a tender offer made directly to the Registered
Corporation's stockholders for the purposes of acquiring control of the
Registered Corporation.
License fees and taxes, computed in various ways depending on the type of
gaming or activity involved, are payable to the State of Nevada and to the
counties and cities in which the Nevada licensee's respective operations are
conducted. Depending upon the particular fee or tax involved, these fees and
taxes are payable either monthly, quarterly or annually and are based upon
either: (i) a percentage of the gross revenues received; (ii) the number of
gaming devices operated; or (iii) the number of table games operated. A casino
entertainment tax is also paid by casino operations where entertainment is
furnished in connection with the selling of food or
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refreshments. Nevada licensees that hold a license as an operator of a slot
route, or a manufacturer's or distributor's license, also pay certain fees and
taxes to the State of Nevada.
Any person who is licensed, required to be licensed, required to be
registered, or is under common control with such persons (collectively,
"Licensees"), and who has become involved in a gaming venture outside of Nevada
is required to deposit with the Nevada Board, and thereafter maintain, a
revolving fund in the amount of $10,000 to pay the expenses of investigation of
the Nevada Board of their participation in such foreign gaming. The revolving
fund is subject to increase or decrease in the discretion of the Nevada
Commission. Thereafter, Licensees are required to comply with certain reporting
requirements imposed by the Nevada Act. Licensees are also subject to
disciplinary action by the Nevada Commission if it knowingly violates any laws
of the foreign jurisdiction pertaining to the foreign gaming operation, fails to
conduct the foreign gaming operation in accordance with the standards of honesty
and integrity required of Nevada gaming operations, engages in activities that
are harmful to the State of Nevada or its ability to collect gaming taxes and
fees, or employs a person in the foreign operation who has been denied a license
or finding of suitability in Nevada on the ground of personal unsuitability.
REGULATION AND LICENSING - ALCOHOLIC BEVERAGES
The sale of alcoholic beverages by the Company is subject to supervision,
control and regulation by the City of Reno, which issues licenses deemed to be
nontransferable, revocable privileges, and which has full power to limit,
condition, suspend or revoke such licenses. The Company is presently licensed to
sell alcoholic beverages. Any adverse regulatory act with respect to this
license could have an adverse effect upon the operations of the Company.
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ITEM 2. PROPERTIES
The Company operates the casino and hotel towers at the Sands Regency on a
Company-owned 6.3 acre site in downtown Reno. The casino/hotel site also
includes a large outdoor swimming pool, pool house and other buildings and
facilities. Garage and surface parking are provided at the casino/hotel site and
also on a 2.7 acre site located adjacent to the casino/hotel site. In addition,
the Company's personnel office is located one-half block from the casino/hotel
site on a Company-owned .5 acre lot. Management considers the Company's facility
to be in good condition and well-maintained.
In addition to the main casino/hotel facility, the Company owns a smaller
property in Reno consisting of an area of approximately .2 acres.
The Company's Reno casino/hotel property is subject to aggregate
encumbrances of approximately $10.5 million as of June 30, 1999.
ITEM 3. LEGAL PROCEEDINGS
The Company is a party to various legal actions, proceedings and pending
claims arising in the normal course of its business. Management does not expect
the outcome of these claims or suits to have a material adverse effect on the
Company's financial position or results of future operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company did not submit any matters to a vote of security holders in the
fourth quarter of fiscal 1999.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER
MATTERS
Trading under the symbol "SNDS", the Common Stock of the Company has been
listed on the Nasdaq SmallCap Market since January 6,1999. Prior to such date,
the Company was traded on the Nasdaq National Market. The following table sets
forth the range of high and low closing sales prices as reported by Nasdaq.
FOR THE YEARS ENDED JUNE 30,
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
1998
First Quarter............................................ $3.00 $ 1.94
Second Quarter........................................... 2.50 1.63
Third Quarter............................................ 2.63 1.56
Fourth Quarter........................................... 2.64 1.63
1999
First Quarter............................................ $2.00 $ .75
Second Quarter........................................... 1.50 .75
Third Quarter............................................ 1.44 .88
Fourth Quarter........................................... 2.56 .94
</TABLE>
- -----------
The Shareholders approved a one-for-two reverse stock split at a Special
Meeting of Shareholders on March 2, 1999. The purpose for the reverse split was
to increase the market price per share so as to aid the Company in remaining
eligible for continued listing on the Nasdaq SmallCap Market. Management of the
Company has neither effectuated, nor does it presently intend to effectuate, the
reverse split because the trading price of the Company's Common Stock presently
exceeds the minimum eligibility requirements.
The declaration and payment of dividends in the future, if any, will be
determined by the Board of Directors in light of the conditions then existing,
including the Company's earnings, financial condition, capital requirements and
other factors.
As of September 22, 1999, the Company had 148 shareholders of record and in
excess of 400 beneficial shareholders.
ITEM 6. SELECTED FINANCIAL DATA
There is hereby incorporated by reference the information appearing under
the caption "The Sands Regent - Selected Financial Data" in the Company's 1999
Annual Report, filed as Exhibit 13 to this Form 10-K.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
There is hereby incorporated by reference the information appearing under
the caption "The Sands Regent - Management's Discussion and Analysis of
Financial Condition and Results of Operations" in the Company's 1999 Annual
Report, filed as Exhibit 13 to this Form 10-K.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
There is hereby incorporated by reference the Consolidated Financial
Statements and the Notes to the Consolidated Financial Statements in the
Company's 1999 Annual Report, filed as Exhibit 13 to this Form 10-K. Reference
is made to the Consolidated Financial Statements and the Notes to Consolidated
Financial Statements in Item 14(a)(1) hereof.
With the exception of the aforementioned information and the information in
Items 6 and 7, the Company's 1999 Annual Report is not deemed filed as part of
this Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
There is hereby incorporated by reference the information appearing under
the caption "Directors and Executive Officers" in the Company's definitive Proxy
Statement for the Annual Meeting of Shareholders to be held on November 1, 1999,
filed or to be filed with the Securities and Exchange Commission.
ITEM 11. EXECUTIVE COMPENSATION
There is hereby incorporated by reference the information appearing under
the caption "Compensation of Executive Officers" in the Company's definitive
Proxy Statement for the Annual Meeting of Shareholders to be held on November 1,
1999, filed or to be filed with the Securities and Exchange Commission.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
There is hereby incorporated by reference the information appearing under
the captions "Principal Shareholders" and "Directors and Executive Officers" in
the Company's definitive Proxy Statement for the Annual Meeting of Shareholders
to be held on November 1, 1999, filed or to be filed with the Securities and
Exchange Commission.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There is hereby incorporated by reference the information appearing under
the caption "Certain Relationships and Related Transactions" in the Company's
definitive Proxy Statement for the Annual Meeting of Shareholders to be held on
November 1, 1999, filed or to be filed with the Securities and Exchange
Commission.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) FINANCIAL STATEMENTS.
Included in Part II of this Report:
Independent Auditors' Report
Consolidated Balance Sheets -- June 30, 1999 and 1998
Consolidated Statements of Operations -- Years Ended June 30,
1999, 1998 and 1997
Consolidated Statements of Stockholders' Equity -- Years Ended
June 30, 1999, 1998 and 1997
Consolidated Statements of Cash Flows -- Years Ended June 30,
1999, 1998 and 1997
Notes to Consolidated Financial Statements
(a)(2) FINANCIAL STATEMENT SCHEDULES.
Included in Part IV of this Report:
As of and for the Years Ended June 30, 1999, 1998 and 1997:
Independent Auditors' Report on Schedules
Schedule II -- Valuation and Qualifying Accounts
All other schedules have been omitted because they are not applicable or
the required information is shown in the financial statements or notes thereto.
12
<PAGE> 14
(a)(3) EXHIBITS
3(a)(i) Restated Articles of Incorporation of the Company (Exhibit
3(a) to the Company's Registration Statement (Registration
No. 2-93453) on Form S-1).*
3(a)(ii) Certificate of Amendment to the Restated Articles of
Incorporation of the Company, dated November 2, 1987
(Exhibit 4(a) to the Company's Form 10-Q for the quarter
ended December 31, 1987).*
3(b)(i) Amended and Restated Bylaws of the Company, as amended
April 29, 1985, and currently in effect (Exhibit 3(b) to
the Company's Form 10-K for the fiscal year ended June 30,
1985).*
3(b)(ii) Resolution of Amendment to the Bylaws of the Company,
dated November 2, 1987 (Exhibit 4(b) to the Company's Form
10-Q for the quarter ended December 31, 1987).*
3(b)(iii) Certificate of Amendment of the Amended and Restated Code
of Bylaws, as Amended, of The Sands Regent, dated January
10, 1996 (Exhibit 3(b)(iii) to the Company's Form 10-K for
the fiscal year ended June 30, 1996).*
4(a) Amended Trust Agreement, dated February 22, 1987, among
Antonia Cladianos II as trustor and beneficiary and Pete
Cladianos, Jr. as trustee (Exhibit 4(a) to the Company's
Form 10-K for the fiscal year ended June 30, 1987).*
4(b) Amended Trust Agreement, dated February 19, 1987, among
Pete Cladianos III as trustor and beneficiary and Pete
Cladianos, Jr. as trustee (Exhibit 4(b) to the Company's
Form 10-K for the fiscal year ended June 30, 1987).*
10(a) Amended and Restated Stock Option Plan for Executive and
Key Employees of the Sands Regent and Forms of Stock
Option Agreements (Exhibit 4(a) to the Company's
Registration
Statement (Registration No. 33-59574) on Form S-8).*
10(b) Amendment to the Amended and Restated Stock Option Plan
for Executive and Key Employees of The Sands Regent, dated
November 4, 1997 (Exhibit 10(a) to the Company's Form 10-Q
for the quarter ended December 31, 1997).*
10(c) Amendment to the Amended and Restated Stock Option Plan
for Executive and Key Employees of The Sands Regent, dated
December 12, 1997 (Exhibit 10(b) to the Company's Form
10-Q for the quarter ended December 31, 1997).*
10(d) Third Amendment to the Amended and Restated Stock Option
Plan for Executive and Key Employees of The Sands Regent,
dated November 2, 1998 (Exhibit 10(a) to the Company's
Form 10-Q for the quarter ended December 31, 1998).*
10(e) Non-Qualified Stock Option Agreement, dated May 11, 1998,
by and between Louis J. Phillips and The Sands Regent.
(Exhibit 10(d) to the Company's Form 10-K for the fiscal
year ended June 30, 1998).*
10(f) Deferred Compensation Plan for Directors of the Company
(Exhibit 10(e) to the Company's Registration Statement
(Registration No. 2-93453) on Form S-1).*
13
<PAGE> 15
10(g) Form of Indemnity Agreement for Directors and Officers of
the Company (Exhibit 10(f) to the Company's Form 10-K for
the fiscal year ended June 30, 1988).*
10(h) Amended and Restated Loan Agreement, dated January 31,
1998, by and between Wells Fargo Bank, National
Association, The Sumitomo Bank, Limited and Zante, Inc.;
and the related Amended and Restated Term Promissory Note;
Amended and Restated Guaranty of Loan (by The Sands
Regent); First Amendment to Deed of Trust, Fixture Filing
and Security Agreement with Assignment of Rents (on the
casino/hotel properties); Deed of Trust, Fixture Filing
and Security Agreement with Assignment of Rents (on
non-casino/hotel properties); and Pledge and Assignment
(Exhibit 10(g) to the Company's Form 10-K for the fiscal
year ended June 30, 1998).*
10(i) International Swap Dealers Association, Inc. Master
Agreement for interest rate swap, dated March 23,1994, by
and between First Interstate Bank of Nevada N.A. and
Zante, Inc., and the related Guarantee by The Sands Regent
and Letter Agreement of Confirmation (Exhibit 10(f) to the
Company's Form 10-K for the fiscal year ended June 30,
1994).*
10(j) General Partnership Agreement, effective as of December
31, 1992, between Gulfside Casino, Inc. and Patrician,
Inc. (a wholly-owned subsidiary of the Sands Regent)
(Exhibit 10(a) to the Company's Form 10-Q for the Quarter
ended March 31, 1993).*
10(k) First Amendment to Gulfside Casino, a Mississippi General
Partnership, General Partnership Agreement, dated April
15, 1994, between Gulfside Casino, Inc. and Patrician,
Inc. (both wholly owned subsidiaries of The Sands Regent)
(Exhibit 10(a) to the Company's Form 10-Q for the Quarter
ended March 31, 1994).*
10(l) 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)(Exhibit 10(a) to the Company's Form 10-Q for the
Quarter ended December 31, 1994).*
10(m) Settlement Agreement dated November 2, 1984, by and
between Hughes Properties, Inc., and Zante, Inc. (Exhibit
10(u) to the Company's Registration Statement
(Registration No. 2-93453) on Form S-1).*
10(n) Agreement, dated November 6, 1998, by and between Terry W.
Green, Joel R. Carter, Sr., Gulfside Casino Partnership
and The Sands Regent (Exhibit 10(a) to the Company's Form
10-Q for the quarter ended September 30, 1998).*
10(o) First Amendment to Agreement, dated December 23, 1998, by
and between Terry W. Green, Joel R. Carter, Sr., Gulfside
Casino Partnership and The Sands Regent; and the related
Promissory Note and Royalty Agreement. **
10(p) Franchise Agreement dated October 9, 1986 and as amended
on October 9, 1986, by and between Roma Corporation and
Zante, Inc. (Exhibit 10(r) to the Company's Form 10-K for
the fiscal year ended June 30, 1987).*
10(q) Agreement, dated as of January 2, 1995, between David R.
Wood and The Sands Regent (Exhibit 10(n) to the Company's
Form 10-K for the fiscal year ended June 30, 1995).*
14
<PAGE> 16
10(r) Employment Agreement, dated December 15, 1998, by and
between Ferenc B. Szony (as President and Chief Executive
Officer) and The Sands Regent (Exhibit 10(a) to the
Company's Form 10-Q for the quarter ended March 31,
1999).*
10(s) Employment Agreement, dated January 29, 1998, by and
between Patrick Bassney (as Vice President and General
Manager) and the Sands Regency (Zante, Inc.). **
10(t) Lease Agreement by and between the Mississippi Department
of Economic and Community Development and the Mississippi
State Port Authority at Gulfport and Gulfside Casino,
Inc., dated August 20, 1992 (Exhibit 10(o) to the
Company's Form 10-K for the fiscal year ended June 30,
1996).*
10(u) Amendment to Lease and Approval of Stock Purchase by and
between the Mississippi Department of Economic and
Community Development and the Mississippi State Port
Authority at Gulfport and Gulfside Casino, Inc., dated
October 28, 1992 (Exhibit 10(p) to the Company's Form 10-K
for the fiscal year ended June 30, 1996).*
10(v) Second Lease Amendment by and between the Mississippi
Department of Economic and Community Development and the
Mississippi State Port Authority at Gulfport and Gulfside
Casino, Inc., Lessee, and Gulfside Casino Partnership,
Substitute Lessee, dated May 12, 1993 (Exhibit 10(q) to
the Company's Form 10-K for the fiscal year ended June 30,
1996).*
10(w) Third Lease Amendment by and between the Mississippi
Department of Economic and Community Development and the
Mississippi State Port Authority at Gulfport and Gulfside
Casino Partnership, dated June 21, 1994 (Exhibit 10(r) to
the Company's Form 10-K for the fiscal year ended June 30,
1996).*
13 1999 Annual Report to Shareholders.**
21 Subsidiaries: Zante, Inc., a Nevada Corporation, which
owns and operates the Sands Regency Casino/Hotel.
23 Independent Auditors' Consent to the incorporation by
reference into specified registration statement on Form
S-8 of their reports contained in or incorporated by
reference into this report.**
27 Financial Data Schedule.**
----------
* Incorporated by reference
** Filed herewith
(b) REPORTS ON FORM 8-K.
The Company did not file any reports on Form 8-K during the last quarter of
fiscal 1999.
(c) INDEX TO EXHIBITS.
(d) FINANCIAL STATEMENT SCHEDULES.
Financial statement schedules required by Regulation S-X are excluded from
the 1999 Annual Report to the Shareholders by Rule 14a-3(b)(1). See
Schedule II to the Financial Statements appearing under Item 14(a)(2)
hereof.
15
<PAGE> 17
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
Date: September 24, 1999 By: FERENC B. SZONY
------------------------------------
Ferenc B. Szony, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
- --------- -------- ----
<S> <C> <C>
FERENC B. SZONY President (Chief September 24, 1999
- ---------------------------------- Executive Officer)
Ferenc B. Szony and Director
KATHERENE LATHAM Chairman of the September 24, 1999
- ---------------------------------- Board of Directors
Katherene Latham
PETE CLADIANOS, JR. Vice Chairman of the September 24, 1999
- ---------------------------------- Board of Directors
Pete Cladianos, Jr.
DAVID R. WOOD Executive Vice President, September 24, 1999
- ---------------------------------- Treasurer, Chief Financial and
David R. Wood Accounting Officer and Director
PETE CLADIANOS III Secretary and Director September 24, 1999
- ----------------------------------
Pete Cladianos III
JON N. BENGTSON Director September 24, 1999
- ----------------------------------
Jon N. Bengtson
LOUIS J. PHILLIPS Director September 24, 1999
- ----------------------------------
Louis J. Phillips
Director September 24, 1999
- ----------------------------------
Larry Tuntland
</TABLE>
16
<PAGE> 18
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of The Sands Regent:
We have audited the consolidated financial statements of The Sands Regent and
subsidiaries as of June 30, 1999 and 1998, and for each of the three years in
the period ended June 30, 1999, and have issued our report thereon dated August
6, 1999. Such consolidated financial statements and report are included in your
1999 Annual Report to Shareholders and are incorporated herein by reference. Our
audits also included the consolidated financial statement schedule of The Sands
Regent and subsidiaries, listed in Item 14. This financial statement schedule is
the responsibility of the Company's management. Our responsibility is to express
an opinion based on our audits. In our opinion, such consolidated financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.
Deloitte & Touche LLP
Reno, Nevada
August 6, 1999
17
<PAGE> 19
The Sands Regent
Schedule II
Valuation and Qualifying Accounts
(in thousands)
<TABLE>
<CAPTION>
Additions
Balance at Charged to
Beginning Costs and Balance at
Description of Year Expenses Deductions(1) Other End of Year
----------- --------- ---------- ------------- ----- -----------
<S> <C> <C> <C> <C> <C>
Allowance for Doubtful Accounts Receivable:
Year ended June 30, 1999 . . . . . . . . . . . . $ 72 $ 91 $ (76) $ (60)(2) $ 27
Year ended June 30, 1998 . . . . . . . . . . . . 119 143 (190) --- 72
Year ended June 30, 1997 . . . . . . . . . . . . 107 103 (91) --- 119
</TABLE>
- ---------------
(1) Write-offs of uncollectible accounts receivable, net of recoveries
(2) Represents balance for subsidiaries disposed of during the year
18
<PAGE> 20
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER PAGE
- ------- ------------
<S> <C> <C>
10(o) First Amendment to Agreement, dated December 23, 1998, by and
between Terry W. Green, Joel R. Carter, Sr., Gulfside Casino
Partnership and The Sands Regent; and the related Promissory
Note and Royalty Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10(s) Employment Agreement, dated January 29, 1998, by and between
Patrick Bassney (as Vice President and General Manager) and
the Sands Regency (Zante, Inc.) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
13 1999 Annual Report to Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . .
23 Independent Auditors' Consent to the incorporation by reference
into specified registration statement on Form S-8 of their
reports contained in or incorporated by reference into this report . . . . . . . . . . .
27 Financial Data Schedule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
</TABLE>
<PAGE> 1
EXHIBIT 10(O)
FIRST AMENDMENT TO AGREEMENT
This First Amendment entered into on December 23, 1998, to that certain
Agreement (the "Agreement") made November 6, 1998, by and between The Sands
Regent, a Nevada corporation (the "Seller") and Terry W. Green and Joel R.
Carter, Sr., (the "Purchasers") and Gulfside Casino Partnership d/b/a Copa
Casino ("Gulfside Partnership").
WHEREAS, on November 6, 1998, the parties entered into the Agreement; and
now desire to amend certain provisions of said Agreement.
NOW, THEREFORE, for and in consideration of the Mutual Covenants contained
herein, and other good and valuable consideration the parties AGREE:
1. Paragraph 4 of the Agreement shall be amended to the extent that
the existing Ship Mortgages which secure certain debts and
obligations owed by Gulfside Partnership to Seller and to
Patrician, Inc. shall not be canceled or released but that said
Ship Mortgages will be amended to secure the $8,000,000.00
indebtedness described in the Agreement and in the Promissory
Note attached thereto; provided that an undivided 50% interest in
the Ship Mortgage to The Sands Regent shall be assigned by Seller
to Purchasers and the Ship Mortgage to Patrician, Inc. shall be
assigned to Seller and to Purchasers.
2. Paragraph 5(a) of the Agreement shall be amended to provide that
Seller shall waive the condition that the Order of the Bankruptcy
Court shall have become final and not appealed or stayed pending an
appeal.
3. Paragraph 5(c) of the Agreement shall be amended to provide that the
approval of the Mississippi Slate Port Authority shall be deemed
complete upon the approval of a Resolution in the form attached as
Exhibit "A".
4. That subsequent to the closing of the sale described in the
Agreement the Purchasers shall cooperate with and permit Seller to
continue to prepare and update the books and records of Gulfside
Partnership, Patrician, Artemis and GCI through December 31, 1998,
to include both financial statements and tax basis calculations.
5. Purchasers shall cause Gulfside Partnership to retain Deloitte and
Touche to
<PAGE> 2
prepare the transition year tax returns for Gulfside Partnership,
Patrician, Artemis and GCI.
6. Purchasers shall cooperate and shall cause Gulfside Casino
Partnership to cooperate with Seller in allowing Deloitte & Touche
to perform certain audit procedures deemed necessary for The Sands
Regent's audited financial statements.
7. That closing of the sale shall be deemed effective as of the close
of the business day December 23, 1998.
8. Paragraph 7(6) shall be amended to provide that Seller has disclosed
to Purchasers additional liens as shown by a UCC Search dated
December 11, 1998 and Purchasers agree to close the sale with said
liens in place.
9. Paragraph 3(D) shall be amended to provide that the $500,000.00
shall be wire transferred to an attorney's trust account and paid to
Escrow Agent.
10. Seller and Purchasers agree and stipulate that additional documents
are required to be delivered and executed to close the transaction
and the parties hereby agree to execute and deliver such other
documents as may be necessary to close the transaction contemplated
by the Agreement.
IN WITNESS WHEREOF, the parties have duly executed this First Amendment to
that certain Agreement dated November 6, 1998.
THE SANDS REGENT
DATED: 12/23/, 1998 BY: /s/ Ferenc B. Szony
-------------------------------------
PRESIDENT
GULFSIDE CASINO PARTNERSHIP D/B/A
COPA CASINO, a Mississippi General
Partnership
BY: GULFSIDE CASINO, INC.,
It's General Partner
DATED: 12/23, 1998 BY: /s/ DAVID R. WOOD
-------------------------------------
Vice President of Gulfside
Casino, Inc.
TERRY W. GREEN
DATED: 12/23, 1998 /s/ TERRY W. GREEN
-----------------------------------------
JOEL R. CARTER, SR.
DATED: 12/23, 1998 /s/ JOEL R. CARTER, SR.
-----------------------------------------
<PAGE> 3
PROMISSORY NOTE
$8,000,000.00 Dec. 23, 1998
Gulfport, Mississippi
FOR VALUE RECEIVED, as more particularly set forth in the Agreement and
Royalty Agreement of even date herewith, the receipt and sufficiency of all of
which is hereby acknowledged, GULFSIDE CASINO PARTNERSHIP D/B/A COPA CASINO, a
Mississippi General Partnership, ("Maker") promises to pay to the order of THE
SANDS REGENT, a Nevada corporation, ("Payee") or HOLDER, at 345 North Arlington
Avenue, Reno, Nevada 89501, or such other place as may be designated in writing,
the principal sum of $8,000,000.00 without interest in installments as follows:
Beginning on the 10th day of January, 1999 and continuing on the 10th day
of each succeeding month thereafter until this Note shall be paid in full, in
accordance with the terms of the Agreement and the Royalty Agreement, Maker
shall pay to Payee a sum equal to (i) 2% of the monthly Gross Gaming Revenue of
the Gulfside Partnership or any successor to Gulfside Partnership or to its
interest in the Copa Casino as defined in that certain Agreement and Royalty
Agreement of even date herewith by and between The Sands Regent and Gulfside
Partnership, or (ii) $15,000.00 in cash, whichever is greater.
The Makers, endorsers, sureties, guarantors and all other persons who may
become liable for this Note, each severally waive demand, presentment, protest
of any kind and notice of non-payment of this Note except as expressly provided
below. Maker shall, at its option, have the right to prepay this Note without
penalty. This Note is secured by a Security Agreement and UCC Financing
Statements of even date herewith.
This Note is issued pursuant to the Agreement and the Royalty Agreement of
even date. In case an event of default as described in the Agreement shall
occur, Payee shall give Maker three (3) days notice by facsimile of said default
and if said default shall continue thereafter, then, without further notice or
demand, Payee may declare the entire unpaid principal balance at once due and
payable and may invoke all remedies permitted by law or the Agreement or Royalty
Agreement.
In the event of default in repayment of this Note, Maker agrees to pay all
costs, including a reasonable attorney's fee, of enforcing payment and
collection of this Note.
This Promissory Note shall be construed in accordance with the laws of
Mississippi.
Dated: December 23, 1998.
ATTEST: GULFSIDE CASINO PARTNERSHIP D/B/A
COPA CASINO, a Mississippi general
partnership
By: Gulfside Casino, Inc.,
Its General Partner
/s/ FERENC B. SZONY By: /s/ DAVID R. WOOD
- --------------------------------- -------------------------------------
Vice-President of Gulfside
Casino, Inc.
<PAGE> 4
GUARANTEE OF PAYMENT AND COLLECTION
The undersigned, Gulfside Casino, Inc., Patrician, Inc., and Artemis,
Inc., hereby jointly and severally guarantee payment and collection of the above
and foregoing Installment Promissory Note in the principal amount of
$8,000,000.00.
Dated: December 23, 1998.
GULFSIDE CASINO, INC.
BY: /s/ DAVID R. WOOD
-------------------------------------
PATRICIAN, INC.
BY: /s/ DAVID R. WOOD
-------------------------------------
ARTEMIS, INC.
BY: /s/ DAVID R. WOOD
-------------------------------------
<PAGE> 5
ROYALTY AGREEMENT
THIS ROYALTY AGREEMENT (the "Royalty Agreement") is entered into as of
this the 23 day of December, 1998 (the "Effective Date"), by and among The Sands
Regent, a Nevada corporation ("Sands Regent") and Gulfside Casino Partnership
d/b/a Copa Casino, a Mississippi General Partnership ("GCP").
RECITALS
WHEREAS, on even date herewith, Sands Regent entered into an
Agreement (the "Agreement") with Terry W. Green and Joel R. Carter, Sr.
(collectively, the "Purchasers") pursuant to which Sands Regent sold its 100%
interest in each of the three general partners of GCP to the Purchasers; and
WHEREAS, pursuant to the Agreement, the Purchasers agreed to cause GCP to
enter into a Royalty Agreement with Sands Regent, and Sands Regent agreed to
enter into a Royalty Agreement with GCP, on the terms set forth herein; and
WHEREAS, the Royalty Payments hereunder are for purposes of the repayment
of certain indebtedness as described in the Agreement and a Promissory Note of
even date therewith;
NOW, THEREFORE, in consideration of the promises, covenants, agreements
and conditions contained in this Royalty Agreement, the Parties AGREE:
AGREEMENT
1. Definitions. As used in this Agreement, the following terms will
have the respective meanings indicated below:
1.1 "Gross Gaming Revenue" shall mean Gross Revenue Computations as
defined in the Regulations of the Mississippi Gaming Commission, as such
Regulations may be amended from time to time.
1.2 "Royalty Payments" shall mean those sums that are to be paid to
Sands Regent pursuant to Section 2 below.
1.3 "Successor Entity" shall mean any person(s) or legal entity
which directly or indirectly by sale, merger, consolidation, operation of law
or otherwise, shall acquire or otherwise succeed to a controlling or majority
ownership interest in the business and/or assets of the Gulfside Partnership
d/b/a Copa Casino whether such casino remains at its current location or is
relocated or whether the current facilities are replaced, augmented or otherwise
modified.
EXHIBIT "B"
<PAGE> 6
2. Royalties.
2.1 Royalty Amount. Beginning January 10, 1999 and continuing on or
before the tenth (10th) day of each calendar month thereafter, GCP or any
Successor Entity, for so long as they are engaged in the gaming business, shall
pay to Sands Regent an aggregate Royalty Payment equal to the greater of (i) two
percent (2%) of the Gross Gaming Revenue for the immediately preceding calendar
month or (ii) $15,000 in cash; provided, however, that the amount of such
Royalty Payment with respect to a partial month shall be pro rated as
appropriate; and provided further, that the aggregate amount of Royalty Payments
paid hereunder shall not exceed $8,000,000 (the "Maximum Royalty Payment).
2.2 Payment of Royalties. All Royalty Payments shall be paid by
electronic funds transfer effective on or before the date payment is due to such
bank account as from time to time may be specified by Sands Regent. The Royalty
Payments are not refundable or subject to offset of any amount due or claimed to
be due from The Sands Regent to GCP, any Successor Entity or the Purchasers.
Each monthly Royalty Payment shall be accompanied by a statement (a "Royalty
Statement") signed by the Chairman, President or Chief Financial Officer of GCP
or its Successor Entity attesting to the accuracy of the Gross Gaming Revenue
from which each such Royalty Payment was calculated and shall include copies of
the related Weekly Reports of Gaming Revenue and Monthly Gaming Reconciliation
Return filed with the Mississippi Gaming Commission along with any further
detailed reconciliations necessary to reflect Gross Gaming Revenue.
2.3 Failure to Pay. In the event that GCP or any Successor Entity
shall fail to pay a required Royalty Payment or fail to deliver the Royalty
Statement within ten (10) days after such Royalty Payment is due and payable
then such unpaid Royalty Payment shall accrue interest at the rate of twelve
percent (12%) per annum until paid. The accrual and payment of such interest
shall not effect or constitute a waiver of any other rights or remedies Sands
Regent may have as a result of such late payment or nonpayment.
2.4 Security. The Royalty Payments due Sands Regent hereunder are
secured under that certain Security Agreement between Sands Regent and GCP of
even date herewith.
3. Inspection of Records. Sands Regent or its designee shall have the
right upon reasonable notice from time to time, to have its representatives
enter the premises of GCP and each Successor Entity or any other location or
facility which any of GCP or a Successor Entity may use in connection with the
operation of its business for the purpose of inspecting the books and records
of account and condition and operation of GCP's or the Successor Entity's
business. Sands Regents' representatives shall have the right at all times
during normal business hours to inspect and reproduce the records, books, tax
returns and reports of GCP and any Successor Entity at the expense of The Sands
Regent. All such books, records and tax returns shall be maintained at the
premises of GCP or such other place as may be agreed upon by the parties in
writing. If any inspection reveals that a Royalty Statement submitted to Sands
Regent understates Gross Gaming Revenues, then GCP or the Successor Entity shall
2
<PAGE> 7
immediately pay Sands Regent all additional amounts owing by reason of the
understatement of Gross Gaming Revenue previously reported, together with
interest thereon in accordance with Section 2.3. In the event that any Royalty
Statement understates Gross Gaming Revenue by more than five percent (5%), GCP
or the Successor Entity, as applicable, shall, in addition to the making the
payment provided for above, make an additional Royalty Payment to Sands Regent
equal to ten percent (10%) of the understated revenue and shall reimburse Sands
Regent for any and all expenses incurred in connection with such inspection,
including, but not limited to, Sands Regents' actual accounting and legal fees.
Such payment shall be made without prejudice to any other rights or remedies
which Sands Regent may have under this Agreement or otherwise.
4. Assignment. GCP shall not (i) sell, assign or transfer its obligations
under this Royalty Agreement including, but not limited to, its obligations to
make Royalty Payments to Sands Regent hereunder, except in compliance with
paragraph 6 "Successors" of that certain Agreement of even date herewith; or
(ii) take any action to circumvent or avoid its obligation to make Royalty
Payments hereunder.
5. Governing Law and Jurisdiction. This Agreement shall be governed by
and interpreted in accordance with the laws of Mississippi. Each of the parties
hereto consents to said jurisdiction for enforcement of this Royalty Agreement.
6. Attorneys' Fees. In the event a dispute arises with respect to this
Royalty Agreement, the party prevailing in such dispute shall be entitled to
recover all expenses, including, without limitation, reasonable attorneys' fees
and expenses incurred in ascertaining such party's rights, in preparing to
enforce, or in enforcing such party's rights under this Royalty Agreement,
whether or not it was necessary for such party to institute suit.
7. Complete Agreement of the Parties. This Royalty Agreement and the
Agreement supersede any and all other agreements whether oral or in writing,
between the parties with respect to the subject matter hereof and contain all of
the covenants and agreements between the parties with respect to such matter in
any manner whatsoever. Each party to this Royalty Agreement acknowledges that no
representations, inducements, promises or agreements, oral or otherwise, have
been made by any party, or anyone herein, and that no other agreement, statement
or promise not contained in this Royalty Agreement shall be valid or binding.
This Royalty Agreement may be changed or amended only by an amendment in writing
signed by all of the parties or their respective successors-in-interest.
8. Binding. This Royalty Agreement shall be binding upon and inure to the
benefit of the successors and assigns of the respective parties.
9. Failure to Object Not a Waiver. The failure of either party to this
Royalty Agreement to object to, or to take affirmative action with respect to,
any conduct of the other which is in violation of the terms of this Royalty
Agreement, shall not be construed as a waiver of the violation or breach or of
any future violation, breach or wrongful conduct.
3
<PAGE> 8
10. Unenforceable Terms. Any provision hereof prohibited by law or
unenforceable under any applicable law of any jurisdiction shall as to such
jurisdiction be ineffective without affecting any other provisions of this
Royalty Agreement. To the full extent, however, that the provisions of such
applicable law may be waived, they are hereby waived to the end that this
agreement be deemed to be a valid and binding agreement enforceable in
accordance with its terms.
11. Execution in Counterparts. This Royalty Agreement may be executed in
several counterparts and, when so executed, shall constitute one agreement
binding on all the parties, notwithstanding that all the parties are not
signatory to the original and same counterpart.
12. Further Assurance. From time to time, each party will execute and
deliver such further instruments and will take such other action as any other
party may reasonably request in order to discharge and perform their obligations
and agreements hereunder and to give effect to the intentions express in this
Royalty Agreement.
IN WITNESS WHEREOF, the Parties hereto have duly executed this Royalty
Agreement.
DATED: 12/23/98 THE SANDS REGENT, a Nevada corporation
By: /s/ FERENC B. SZONY
-------------------------------------
President
DATED: 12/23/98 THE GULFSIDE CASINO PARTNERSHIP D/B/A
COPA CASINO, a Mississippi general
partnership
By: Gulfside Casino, Inc., Its General
Partner
By: /s/ DAVID R. WOOD
-------------------------------------
Vice President of Gulfside
Casino, Inc.
4
<PAGE> 9
STATE OF Mississippi
COUNTY OF Harrison
PERSONALLY came and appeared before me, the undersigned authority in and
for the aforesaid County and State, the within named Ferenc Szony who
acknowledged to me that he is the President of THE SANDS REGENT, a Nevada
corporation, and that for and on behalf of said corporation and as its act and
deed, he signed, executed and delivered the above and foregoing Agreement on the
day and year therein mentioned and for the purposes therein stated, after having
first duly read and understood said Agreement and having been duly authorized by
said corporation so to do.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, this the 23rd day of December
1998.
/s/ LISA L. PARKER
-----------------------------------------
NOTARY PUBLIC
My Commission Expires:
January 5, 2000
STATE 0F Mississippi
COUNTY OF Harrison
PERSONALLY came and appeared before me, the undersigned authority in and
for the aforesaid County and State, the within named Dave Wood who acknowledged
to me that he is the Vice President of GULFSIDE CASINO, INC., A Mississippi
corporation and a General Partner of GULFSIDE CASINO PARTNERSHIP D/B/A COPA
CASINO, a Mississippi general partnership, and that for and on behalf of said
corporation and as its act and deed on behalf of said partnership as General
Partner, he signed, executed and delivered the above and foregoing Agreement on
the day and year therein mentioned and for the purposes therein stated, after
having first duly read and understood said Agreement and having been duly
authorized by said corporation so to do.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, this the 23rd day of December
1998.
/s/ LISA L. PARKER
-----------------------------------------
NOTARY PUBLIC
My Commission Expires:
January 5, 2000
5
<PAGE> 1
EXHIBIT 10(S)
[THE SANDS REGENCY HOTEL CASINO LETTERHEAD]
Patrick Bassney
Dear Pat:
I am pleased to offer you the position of Vice President General Manager at
the Sands Regency with the following terms:
1. Weekly salary of $2,019.23 (an annual rate of $105,000). The position
will be evaluated in 90 days for performance and annually for salary
review.
2. Two weeks vacation granted after the first and second years of
employment and three weeks after the third year of employment.
3. All normal benefits including group health, life, dental and vision
benefits afforded Executive-level Managers at the Sands with immediate
enrollment.
4. All reasonable moving expenses paid by the Company. Two trips to New
York and one trip for spouse to come to Reno prior to family moving.
5. Reasonable temporary accommodations in the hotel while finding
suitable housing.
6. A stock option grant of 30,000 shares pursuant to the Company's stock
option plan. The shares shall be granted at an exercise price equal to
the fair market value at date of employment and shall vest 25% upon
each anniversary over the first four years of employment.
7. Bonus potential of 30% of salary based on Company performance.
8. This shall constitute a two year agreement. Should you be released
during this period, you will be paid six months' severance and should
you resign within this two year period, you shall reimburse the
Company for all moving expenses.
I enjoyed the opportunity discussing this position with you. I hope to hear from
you soon.
Best wishes,
/s/ FERENC B. SZONY
- ---------------------------
Ferenc Szony, President and
Chief Executive Officer
Agreed to and Accepted this 29
day of January, 1998.
/s/ PATRICK BASSNEY
- --------------------------
Patrick Bassney
<PAGE> 1
EXHIBIT 13
THE SANDS REGENT
SELECTED FINANCIAL DATA
................................................................................
FOR THE YEARS ENDED JUNE 30,
<TABLE>
<CAPTION>
1999(1) 1998 1997 1996 1995
------- ------- ------- ------- --------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Operating revenues(2)..................... $43,535 $59,211 $57,527 $59,072 $ 60,497
Income (loss) from operations............. (42) 233 245 4,192 (11,748)(3)
EBITDA(4)................................. 3,665 4,706 4,486 8,418 10,796
Net income (loss)......................... (1,388) (1,219) (762) 2,042 (11,428)(3)
Net income (loss) per share:
Basic................................ $ (.31) $ (.27) $ (.17) $ .45 $ (2.54)(3)
Diluted.............................. $ (.31) $ (.27) $ (.17) $ .45 $ (2.54)(3)
Cash dividends per share.................. -- -- -- $ .15 $ .20
OPERATING DATA:
Casino square footage(5).................. 27,000 51,000 51,000 51,000 51,000
Number of slot machines(5)................ 686 1,459 1,409 1,407 1,459
Number of hotel rooms(5).................. 836 938 938 938 938
Average hotel occupancy rate.............. 76.4% 83.3% 84.3% 82.9% 87.1%
BALANCE SHEET DATA:
Cash, cash equivalents and short-term
investments(5)......................... $ 5,550 $ 9,453 $ 7,894 $11,557 $ 12,214
Total assets(5)........................... 43,695 58,901 61,053 64,311 66,253
Long-term debt(5)......................... 491 14,643 4,658 14,816 17,808
Total stockholders' equity(5)............. 29,844 31,235 32,454 33,216 31,849
</TABLE>
- ---------------
(1) On December 23, 1998, the Company sold its wholly owned subsidiaries
Patrician, Inc. ("Patrician"), Artemis, Inc. ("Artemis") and Gulfside
Casino, Inc. ("GCI"), and their general partnership Gulfside Casino
Partnership ("GCP"), to unrelated third parties. GCP owned and operated the
Copa Casino in Gulfport, Mississippi. The Selected Financial Data presented
herein includes such subsidiaries through the date of sale.
(2) Revenues are net of complimentaries.
(3) Includes a write-off attributable to an impairment in long-lived assets of
GCP and GCI. The negative impact of such write-off on income (loss) from
operations, net income (loss) and net income (loss) per share was
approximately $17.4 million, $13.9 million and $3.08, respectively.
(4) "EBITDA" consists of net income plus interest expense, income taxes,
depreciation and amortization, and any loss (gain) on the disposition of
property and equipment inclusive of impairment write-offs.
(5) Information presented as of the end of the period.
5
<PAGE> 2
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
................................................................................
RESULTS OF OPERATIONS
COMPARISON OF 1999 TO 1998
As further described in Note 3 to the Company's Consolidated Financial
Statements, the Company sold Patrician, GCI and Artemis, including the Copa
Casino, to unrelated third parties on December 23, 1998. The Company's
consolidated results of operations include the operating results of such
companies through this date. Management's Discussion and Analysis of Financial
Condition and Results of Operations will be directed at continuing operations
with only general and otherwise pertinent information provided regarding
operating results for the companies sold.
For the year ended June 30, 1999, revenues decreased to $43.5 million from
$59.2 million in the prior year and income from operations decreased from
$233,000 to a loss from operations of $42,000. The decrease in revenues is due
to the elimination of revenues from the Copa Casino of approximately $12.9
million and a decline in revenues at the Sands Regency from $34.9 million in
fiscal 1998 to $32.1 million in fiscal 1999. The decrease in income from
operations consists of an increase from the Copa Casino of approximately $84,000
which was offset by a decrease from the Sands Regency of $359,000.
For the same comparable fiscal years, the Company had a net loss of $1.4
million, or $.31 per share, in fiscal 1999 compared to a net loss of $1.2
million, or $.27 per share, in fiscal 1998. The Copa Casino had a net loss of
approximately $294,000 in the current fiscal year as compared to a net loss in
the prior fiscal year of $531,000. The Sands Regency's portion of the net loss
was $1.1 million as compared to a net loss of $688,000 in fiscal 1998.
The decline in Sands Regency revenues, income from operations and net
income is attributable to a decline in hotel occupancy due, in part, to an
overall softening in the Reno area market, a reduction in group business at the
Sands Regency and the lack of a major city-wide bowling event. Every two out of
three years, the City of Reno hosts a major mens' or womens' bowling event which
starts in February and ends in July. Fiscal 1999 was the one year out of three
in which such a major bowling event was not held in Reno. Revenues were also
somewhat negatively impacted in the fourth quarter due to construction on the
Company's premises which included the razing of 102 older motel rooms and other
older buildings. Nonetheless, this decline in revenue was partially offset by
reduced costs and expenses commencing primarily in the second quarter of fiscal
1999. Such decline in costs and expenses is due to improved efficiencies and
methods of operations.
The decrease in lodging revenue of $315,000 in the year ended June 30,
1999, compared to the year ended June 30, 1998, is due to a decrease in hotel
occupancy from 83.3%, or 285,000 room nights to 76.4% or 254,000 room nights.
The average daily room rate increased by over 8% to approximately $34 in fiscal
1999 from $31 in fiscal 1998. In early April 1999, the Company discontinued the
use of 102 older motel rooms, which were subsequently razed, leaving 836 tower
hotel rooms available for use.
The decrease in gaming revenue of $14.2 million, in fiscal 1999 versus
fiscal 1998, is a result of a decrease in gaming revenue from the Copa Casino of
approximately $12.0 million and a decrease from the Sands Regency, primarily
slot revenue, of $2.1 million. The decrease in gaming revenue in Reno is
primarily due to a decrease in hotel occupancy. For the year ended June 30,
1999, casino gaming revenue per occupied room increased to approximately $75.50
from $72.80 in fiscal 1998.
6
<PAGE> 3
................................................................................
The decrease in food and beverage revenue of $1.2 million, for the year
ended June 30, 1999 versus the prior year, consists of a decrease from the Copa
Casino of approximately $1.1 million and decrease at the Sands Regency of
$111,000. Such decline at the Sands Regency is primarily due to the decline in
hotel occupancy. Food revenue per occupied room increased from approximately $19
in fiscal 1998 to $21 in fiscal 1999 which improvement is due, in part, to the
updating of food venues and increased menu prices.
The decrease in other revenue of $347,000 consists of a decrease from the
Sands Regency of approximately $178,000 and a decrease from the Copa Casino of
$169,000. The decrease from the Sands Regency is composed of a decline in
various ancillary revenues. Approximately $58,000 of the $108,000 decrease in
other costs and expenses is due to the decrease in related revenue from the
Sands Regency. The remaining decrease in other costs and expenses of $50,000 is
attributable to the Copa Casino.
The decrease in complimentary lodging, food and beverage, deducted from
revenue, of $405,000 is principally attributable to the Copa Casino.
The decrease in gaming costs and expenses of $7.1 million in the twelve
months ended June 30, 1999, compared to the twelve months ended June 30, 1998,
consists of a decline from the Copa Casino of $5.9 million and a decline from
the Sands Regency of $1.2 million. The decrease at the Sands Regency consists of
decreases due to reduced gaming revenues and as a result of increased
efficiencies due to improved operating practices and methods. Such decrease
includes a decrease in salaries, wages and benefits of approximately $632,000.
The decrease in lodging costs and expenses of $754,000 in fiscal 1999,
compared to fiscal 1998, consists of a decrease in salaries, wages and benefits
of approximately $579,000 and a decrease in various other costs and expenses of
$175,000. Such declines are due to the decline in hotel occupancy and to
improved efficiencies at the Sands Regency.
The decrease in food and beverage costs and expenses of $1.2 million, in
the current year compared to the prior year, consists of a decrease from the
Copa Casino of approximately $1.1 million and a decrease at the Sands Regency of
approximately $177,000. The decline at the Sands Regency is primarily
attributable to a decrease in restaurant operating costs and expenses resulting
in an improved restaurants profit margin.
The decrease in maintenance and utilities costs and expenses of $1.3
million consists of decreases from the Copa Casino of $925,000 and from the
Sands Regency of approximately $339,000. The decrease at the Sands Regency
consists of decreases in utility costs, repair costs and various other costs and
expenses of $128,000, $111,000 and $100,000, respectively. Such decreases are
due, in part, to the decrease in hotel occupancy and improvements in operating
efficiencies.
The decrease in general and administrative costs and expenses of $4.2
million consists of a decrease from the Copa Casino of approximately $4.4
million and increases from the Sands Regency and The Sands Regent of
approximately $58,000 and $132,000, respectively. The slight increase at the
Sands Regency is primarily due to an increase in advertising and promotional
costs and expenses of $568,000 as offset by decreases in salaries, wages and
benefits of approximately $442,000 and in various other costs and expenses. The
increase in advertising and promotional costs and expenses is due to the
7
<PAGE> 4
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
................................................................................
implementation of new print, billboard and radio advertising campaigns in the
Reno and Northern California market areas and expanded in-house promotional
programs. The decreases in salaries, wages and benefits, and in various other
costs and expenses, are due, in part, to improved operating methods and
practices.
The decrease in depreciation and amortization expense of $646,000, in
fiscal 1999 versus fiscal 1998, is primarily attributable to the Copa Casino.
The decrease in interest and other expense of $685,000 consist of a decline
from the Sands Regency of $258,000 and a decrease relative to the Copa Casino
operation of $427,000. The decrease from the Sands Regency is due to a lower
effective overall interest rate on reduced long-term debt.
The loss on razing of buildings and related lease terminations costs in
fiscal 1999 includes the write-off of the undepreciated basis of 102 motel rooms
in low-rise buildings and other structures primarily rented to third parties,
and certain costs related to the early termination of a lease located in the
rental structure. Such structures were 30 to 35 years old and are being replaced
with a paved open area utilized for parking and special events/promotions.
The effective income tax rate for the twelve months ended June 30, 1999 is
different from the statutory rate due to certain items, primarily attributable
to the Copa Casino, that are not deductible for federal income tax purposes.
As is true for other hotel/casinos in the Reno area, demand for the
Company's facilities declines in the winter. Due to lower room rates and a lower
level of gaming play per occupied room, operating margins and, to a lesser
extent, revenues are lower during the second and third fiscal quarters. The
Sands Regency has not historically been 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.
COMPARISON OF 1998 TO 1997
For the year ended June 30, 1998, revenues increased to $59.2 million from
$57.5 million in the prior year and income from operations decreased slightly
from $245,000 to $233,000. The increase in revenue is attributable to the Sands
Regency where revenue increased from $32.2 million in fiscal 1997 to $34.8
million in fiscal 1998, over an 8% increase. Such increase at the Sands Regency
was partially offset by a decrease in revenue at the Copa Casino of $1.0 million
to $24.4 million in fiscal 1998. The slight decrease in income from operations
consists of an increase in income from operations from the Sands Regency of $2.2
million to $304,000 which was offset by a decline in income from operations from
the Copa Casino of approximately $2.2 million to a loss from operations of
$71,000.
For the same comparable fiscal years, the Company had a net loss of $1.2
million, or loss per share of $.27, in fiscal 1998 compared to a net loss of
$762,000, or loss per share of $.17, in fiscal 1997. The Sands Regency had a net
loss of approximately $688,000 in fiscal 1998 which compared favorably to a net
loss in fiscal 1997 of $1.5 million. Such improvement from the Sands Regency was
offset by a decline at the Copa Casino. For the year ended June 30 1998, the
Copa Casino incurred a net loss of approximately $532,000 as compared to net
income in the prior year of approximately $741,000.
8
<PAGE> 5
................................................................................
The increases at the Sands Regency are due to an increase in gaming,
lodging and food and beverage revenue per occupied room. The declines in
revenues, income (loss) from operations and net income (loss) at the Copa Casino
are due to a decline in customer counts and an increase in costs and expenses.
The decline in customers is due, in part, to the construction on Highway 90
which significantly impaired access to the Copa Casino for most of fiscal 1998.
The increase in lodging revenue of $416,000 in the year ended June 30,
1998, compared to the year ended June 30, 1997, is primarily due to an increase
in the average daily rate from approximately $29 in fiscal 1997 to $31 in fiscal
1998. For the same comparable periods, hotel occupancy declined slightly from
84.3% to 83.3%.
The increase in gaming revenue of $487,000 includes a 9% increase in gaming
revenue from the Sands Regency of $1.6 million. Such increase was offset by a
decline in gaming revenue from the Copa Casino of approximately $1.1 million.
The increase in gaming revenue in Reno is primarily due to an increase in gaming
revenue from hotel guests and an increase in local patrons. Gaming revenue per
occupied room increased from approximately $62 in the year ended June 30, 1997
to $69 in the year ended June 30, 1998. The decline in gaming revenue at the
Copa Casino is due to a reduction in the number of customers which the Company
attributes, in part, to the curtailment of access to the Copa because of
construction on Highway 90. Not until July 1998 had construction progressed to
the point where access to the Copa Casino had finally improved to any
significance.
The increase in food and beverage revenue of $638,000, in fiscal 1998
compared to fiscal 1997, includes an increase in restaurant revenue at the Sands
Regency of approximately $472,000 and an increase at the Copa Casino of
$174,000. At the Sands Regency, food revenue per occupied room increased from
approximately $17 in the fiscal 1997 to $19 in fiscal 1998. This increase is
partially attributable to improvements and upgrades to the Sands Regency's
restaurant facilities. The increase in restaurant revenue at the Copa Casino,
partially offset by a decrease in Copa Casino beverage revenue, is due to the
Copa's operation of a buffet restaurant in fiscal 1998. Previously operated by a
third party through May 1997, the buffet restaurant was subsequently eliminated
in July 1998 due to low customer counts and high operating costs.
The increase in other revenue of $142,000 is in ancillary revenue from the
Sands Regency.
The increase in gaming costs and expense of $247,000, in the year ended
June 30, 1998 compared to the year ended June 30, 1997, is comprised of an
increase from the Copa Casino of approximately $387,000 and a decrease from the
Sands Regency of approximately $140,000. The increase in Copa Casino costs and
expenses is primarily attributable to added costs and expenses associated with
the slot player's club, which was commenced in April 1997, of $555,000. This
increase was partially offset by a reduction in gaming taxes due to reduced
gaming revenue. The decrease at the Sands Regency is composed of increases in
gaming player's club costs and gaming taxes and licenses related to the
increased revenue, respectively, of $154,000 and $140,000 which were more than
offset by decreases in various other gaming cost and expense items due,
partially, to improved efficiency.
The increase in food and beverage costs and expense of $987,000 in the
fiscal 1998, compared to fiscal 1997, consists of increases at the Copa Casino
and Sands Regency, respectively, of $735,000 and $252,000. The increase at the
Copa Casino includes $404,000 in added food costs associated with the buffet
restaurant and increased other food operating costs and expenses in the Copa's
other food
9
<PAGE> 6
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
................................................................................
operation due to changes in products being offered to the public. The Copa's
buffet restaurant was operated by the Copa from May 1997 to July 1998 when it
was closed due to low customer counts and high operating costs. The increase at
the Sands Regency consists primarily of promotional discounts offered on certain
restaurant food products of approximately $308,000 and a decrease in various
other food and beverage costs and expenses.
The increase in maintenance and utilities costs and expenses of $249,000 is
primarily attributable to the Copa Casino. It includes an increase in hurricane
evacuation expenses of $202,000 as a result of preparedness actions necessary
during Hurricane Danny in July 1997 and increases in other maintenance and
repair costs aggregating approximately $103,000. Such increases have been offset
by a decrease in costs and expenses associated with maintenance dredging
performed under and around the ship during the fourth quarter of fiscal 1997.
The increase in general and administrative costs and expenses of $77,000,
in the year ended June 30, 1998 compared to the year ended June 30, 1997,
consists principally of a decrease from the Copa Casino of approximately
$189,000 and an increase from the Sands Regency of approximately $266,000. The
decrease from the Copa Casino is attributable to a decrease in advertising and
promotional costs of approximately $412,000. This decrease was partially offset
by an increase in legal and professional costs of $183,000. The decrease in
direct advertising and promotional costs is due, in part, to the implementation
of the slot player's club which includes various promotional costs that
supercede some prior promotional programs. The increase in legal and
professional costs is related to the legal actions with the State Port of
Mississippi at Gulfport which culminated in a trial in October 1997.
The increase in general and administrative costs and expenses at the Sands
Regency includes an increase in performance based compensation for the facility
of approximately $287,000, increases due to the implementation of a casino
marketing department in mid-fiscal 1998 of approximately $153,000 and increases
in various other general and administrative costs and expenses aggregating
approximately $103,000. Such increases were offset by a decrease in various
promotional costs and expenses due to the refinement of promotional programs in
the gaming player's club included in gaming costs and expenses.
The increase in depreciation and amortization expense of $247,000 is
primarily due to additional depreciation taken on assets placed in service in
fiscal 1998 and 1997 at the Copa Casino. During such years, significant property
and equipment additions and replacements were undertaken including the
acquisition of a new slot player tracking/monitoring and accounting system.
The decrease in interest and other income of approximately $75,000, in
fiscal 1998 compared to fiscal 1997, includes a decrease from the Sands Regency
of approximately $365,000 and an increase from the Copa Casino of approximately
$290,000. The decrease from the Sands Regency is primarily due to the
non-recurrence of a gain on the sale of a non-casino property in Reno in fiscal
1997. The increase from the Copa Casino is due to the non-recurrence of a prior
year loss from the write-off of the undepreciated cost of the slot
monitoring/accounting system replaced in the fourth quarter of fiscal 1997 and
the write-off of certain capitalized costs for projects no longer deemed viable.
The increase in interest expense of $507,000 is primarily attributable to
the Sands Regency. It includes the write-off of unamortized loan fees of
approximately $138,000, due to the amendment of the Sands Regency's bank debt
effective January 31, 1998, and the non-recurrence of approximately
10
<PAGE> 7
................................................................................
$77,000 in interest expense capitalized into property and equipment for projects
undertaken in fiscal 1997. It also includes an increase in interest expense due
to an increase in the interest rate to a default rate of interest of prime plus
three percent in the six months preceeding the January 1998 amendment. The
amended loan agreement presently specifies an interest rate of prime plus one
and one-half percent.
CAPITAL RESOURCES AND LIQUIDITY
Cash, cash equivalents and short-term investments decreased from $9.5
million at June 30, 1998 to $5.6 million at June 30, 1999. Approximately $3.3
million of this decrease was due to cash retained by the former subsidiaries.
Cash and cash equivalents provided from operating activities for the years ended
June 30, 1999, 1998 and 1997 was $2.3 million, $3.0 million and $3.3 million,
respectively. In fiscal 1999, cash was generated through the issuance of
long-term debt of approximately $239,000. In fiscal 1998, the Company received
cash of approximately $1.2 million as a result of the early repayment of a note
receivable which was not otherwise due to be paid until fiscal 1999. In fiscal
1997, cash was also generated through the issuance of long-term debt of $498,000
and from the sale of non-hotel/casino properties located in Reno, Nevada of
$475,000. The Company's short-term investments, which generally mature in one
year or less, represent temporarily invested cash funds which are generally
readily convertable to cash.
Uses of cash included the Company's payments of long-term debt of $862,000,
$731,000 and $4.9 million in fiscal 1999, 1998 and 1997, respectively. Cash was
also utilized for the acquisition of property and equipment in the amounts of
$1.7 million, $2.0 million and $3.1 million in the years ended June 30, 1999,
1998 and 1997, respectively. The property and equipment acquisition amounts, for
the years indicated, represent primarily furniture, fixtures and equipment
replacements and additions. In fiscal 1999, $500,000 of cash from the former
subsidiaries was deposited into an escrow as security for certain
representations and warranties by the Company which was subsequently released to
the Company in July 1999.
At June 30, 1999, the Company believes that its cash funds and cash
generated from operations, coupled with the refinancing of its existing bank
debt, will be sufficient to meet its needs for the next fiscal year. The Company
generally invests its excess cash in securities which are readily marketable and
that are not subject to significant market value fluctuations.
The Company's working capital declined to a deficit of approximately $4.2
million at June 30, 1999 primarily as a result of the reclassification to
current of approximately $10.4 million of long-term debt due to its bank. Such
decrease was partially offset by the sale of Patrician, Inc., Gulfside Casino,
Inc. and Artemis, Inc., which included the 100% ownership interest in the Copa
Casino ("former subsidiaries") to third parties in December 1998 as further
discussed in Note 3 to the Company's Consolidated Financial Statements. Such
former subsidiaries had a deficit working capital at the date of sale of
approximately $9.6 million. The long-term bank debt is due in full in January
2000 and the Company is presently in discussions to refinance such obligation.
Future expansion plans for the Reno facility will be considered based upon
future market conditions, available financial resources and the need to add
hotel rooms and other major facilities.
11
<PAGE> 8
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
................................................................................
Inflation has had only a slight impact on the Company's operating results.
Cost and expense increases have generally been passed on to the customers
through moderate price increases, higher table limits and upgraded lot machine
denominations.
YEAR 2000
The Year 2000 issue is the result of information technology ("IT") and
non-IT (embedded technology such as microcontrollers) hardware and software
systems and components utilizing two digits, rather than four digits, to define
the year. Date-sensitive hardware and software systems and components may
recognize a date using "00" as the year 1900 rather than the year 2000. This is
generally referred to as the "Year 2000 Problem" or the "Y2K Problem". This
could result in IT and non-IT hardware or software system and component ("Y2K
Systems and Components") failures or miscalculations causing disruptions of
operations and the ability to engage in normal business activities.
The Company has undertaken a study and assessment of its Y2K Systems and
Components in order to determine the impact of the Y2K Problem on such Y2K
Systems and Components. This study and evaluation includes specifically
identifying those Y2K Systems and Components utilized by the Company that may be
non-Y2K compliant, evaluating necessary corrective actions and implementing
corrective actions, including appropriate testing, so as to minimize the impact
of the Y2K Problem on the Company. Corrective actions may include software or
hardware modifications or the replacement of Y2K Systems and Components that are
non-Y2K compliant. The Company's Y2K study and assessment has also been, and
will be, utilized with respect to those Y2K Systems and Components that may be
subsequently acquired by the Company with greater reliance given to third party
representations.
The Company has generally completed the identification, evaluation and
corrective actions phases which includes internal reviews and testing as well as
inquires to third parties supplying or maintaining Y2K Systems. The
implementation phase is also in progress and is anticipated to be significantly
completed by October 1999. Certain additional follow-up testing is also
anticipated to take place and will continue through the second quarter of fiscal
2000.
The Company has also undertaken a more limited study and assessment of the
Y2K Problem with respect to third party vendors, suppliers, customers and other
business associates. Such study and assessment is directed toward third parties
that have a material relationship with the Company or may materially affect the
Company's operations such as major customers and suppliers, financial
institution and communications providers. The scope of such limited study and
assessment has been limited, by necessity, to appropriate inquiries of such
third parties. The Company believes, based on the wide attention that the Y2K
Problem has received, the relative size and prominence of certain third parties
and the preliminary information received, to date, from select third parties,
that the impact of the Y2K Problem on such third parties will not have a
material affect on the Company's operations. The Company has generally completed
the study and assessment of the Y2K Problem relative to its material third party
vendors, suppliers, customers and other business associates and will continue to
follow up on incomplete and failed responses.
The Company has, and will, utilize both internal and external resources to
achieve Y2K compliance which will include modifying certain Y2K Systems and
Components and replacing others. The Company presently estimates that the
remaining costs to assure material Y2K compliance will be less than
12
<PAGE> 9
................................................................................
$100,000, to be incurred over the next 6 months. Such estimate is based upon the
Company's study and assessment and is subject to modification as conditions
change or more information is obtained. There can be no guarantee that this
estimate will be achieved and actual results could materially differ from the
estimate. Costs to date have been immaterial.
The Company believes that the scope and time table of its study and
assessment of Y2K Systems and Components, to achieve Y2K compliance, is adequate
and realistic. Further, the Company believes that those Y2K Systems and
Components with a greater likelihood of adversely impacting the Company's
business and financial performance will be Y2K compliant in a timely manner.
Nevertheless, if one or more of the Company's Y2K Systems and Components fail to
achieve Y2K compliance, or are overlooked, there could be a material adverse
impact on the Company's business operations or financial performance.
Additionally, there can be no assurances that the Y2K Systems and Components of
third parties, which may materially affect the Company, will be timely converted
to assure Y2K compliance.
The Company has not formulated a contingency plan in the event one or more
of the Company's, or third party's, Y2K Systems and Components fail to achieve
Y2K compliance. The Company will continue to review the necessity for a
contingency plan as its Y2K study and assessment progresses. The decision to
develop a contingency plan will be based upon an evaluation of potential future
unavoided or unavoidable risks of Y2K noncompliance and the adverse impact to
the Company.
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 contains 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. Such statements
are identified by the words "anticipates", "believes", "expects", "intends",
"future", or words of similar import. Various important factors that could cause
actual results to differ materially from those in the forward-looking statements
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> 10
THE SANDS REGENT
CONSOLIDATED BALANCE SHEETS
................................................................................
JUNE 30, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 5,540,120 $ 9,203,443
Short-term investments.................................... 10,000 250,000
Accounts receivable, less allowance for possible losses of
$27,000 and $72,000.................................... 1,095,966 549,613
Note receivable, sale of subsidiaries -- current.......... 180,000 --
Inventories............................................... 483,086 579,016
Federal income tax refund receivable...................... 300,001 687,269
Prepaid expenses and other assets......................... 1,214,734 1,416,625
----------- -----------
Total current assets.............................. 8,823,907 12,685,966
----------- -----------
Property and equipment:
Land...................................................... 8,092,923 8,092,923
Buildings, ship and improvements.......................... 35,751,549 45,941,607
Equipment, furniture and fixtures......................... 18,508,036 25,654,167
Construction in progress.................................. 767,816 509,247
----------- -----------
63,120,324 80,197,944
Less accumulated depreciation and amortization............ 30,125,978 34,551,822
----------- -----------
Property and equipment, net.......................... 32,994,346 45,646,122
----------- -----------
Other assets:
Deferred federal income tax asset......................... -- 258,752
Note receivable, sale of subsidiaries, net................ 1,741,473 --
Other..................................................... 135,098 310,473
----------- -----------
Total other assets................................ 1,876,571 569,225
----------- -----------
$43,694,824 $58,901,313
=========== ===========
</TABLE>
- ---------------
See notes to consolidated financial statements.
14
<PAGE> 11
................................................................................
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 814,261 $ 1,927,356
Accrued salaries, wages and benefits...................... 853,676 2,006,096
Other accrued expenses.................................... 270,452 2,049,138
Deferred federal income tax liability..................... 299,404 275,541
Current maturities of long-term debt...................... 10,752,496 6,764,949
------------ ------------
Total current liabilities......................... 12,990,289 13,023,080
Long-term debt.............................................. 490,980 14,643,172
Deferred federal income tax liability....................... 369,786 --
------------ ------------
Total liabilities................................. 13,851,055 27,666,252
------------ ------------
Commitments and contingencies............................... -- --
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.................... 344,936 344,936
Additional paid-in capital................................ 13,073,803 13,073,803
Retained earnings......................................... 38,783,492 40,171,157
------------ ------------
52,202,231 53,589,896
Treasury stock, at cost; 2,403,000 and 2,400,000 shares... (22,358,462) (22,354,835)
------------ ------------
Total stockholders' equity........................ 29,843,769 31,235,061
------------ ------------
$ 43,694,824 $ 58,901,313
============ ============
</TABLE>
15
<PAGE> 12
THE SANDS REGENT
CONSOLIDATED STATEMENTS OF OPERATIONS
................................................................................
FOR THE YEARS ENDED JUNE 30, 1999, 1998, 1997
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Operating revenues:
Gaming............................................. $28,789,544 $42,971,378 $42,484,575
Lodging............................................ 8,562,860 8,878,096 8,461,714
Food and beverage.................................. 7,309,831 8,547,651 7,910,110
Other.............................................. 1,340,969 1,687,505 1,545,345
----------- ----------- -----------
46,003,204 62,084,630 60,401,744
Less complimentary lodging, food and
beverage included above......................... 2,468,164 2,873,400 2,874,795
----------- ----------- -----------
43,535,040 59,211,230 57,526,949
----------- ----------- -----------
Operating costs and expenses:
Gaming............................................. 14,853,027 22,000,607 21,753,369
Lodging............................................ 4,097,428 4,851,303 4,918,433
Food and beverage.................................. 6,305,549 7,554,325 6,566,859
Other.............................................. 526,099 634,543 678,566
Maintenance and utilities.......................... 4,642,598 5,906,916 5,658,004
General and administrative......................... 9,746,135 13,977,577 13,901,048
Depreciation and amortization...................... 3,406,570 4,052,727 3,805,522
----------- ----------- -----------
43,577,406 58,977,998 57,281,801
----------- ----------- -----------
Income (loss) from operations........................ (42,366) 233,232 245,148
----------- ----------- -----------
Other income (deductions):
Interest and other income.......................... 320,482 345,936 420,490
Interest expense................................... (1,747,990) (2,433,271) (1,926,378)
Loss on razing of buildings and related lease
termination costs............................... (479,348) -- --
----------- ----------- -----------
(1,906,856) (2,087,335) (1,505,888)
----------- ----------- -----------
Loss before income taxes............................. (1,949,222) (1,854,103) (1,260,740)
Income tax benefit................................... 561,557 634,881 498,928
----------- ----------- -----------
Net loss............................................. $(1,387,665) $(1,219,222) $ (761,812)
=========== =========== ===========
Net loss per share:
Basic........................................... $ (.31) $ (.27) $ (.17)
=========== =========== ===========
Diluted......................................... $ (.31) $ (.27) $ (.17)
=========== =========== ===========
Weighted average shares outstanding.................. 4,497,703 4,498,722 4,498,722
=========== =========== ===========
</TABLE>
- ---------------
See notes to consolidated financial statements.
16
<PAGE> 13
THE SANDS REGENT
CONSOLIDATED STATEMENTS OF
STOCKHOLDERS' EQUITY
................................................................................
FOR THE YEARS ENDED JUNE 30, 1999, 1998, 1997
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TREASURY STOCK
-------------------- PAID-IN RETAINED ------------------------
SHARES AMOUNT CAPITAL EARNINGS SHARES AMOUNT TOTAL
--------- -------- ----------- ----------- --------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, July 1,
1996................. 6,898,722 $344,936 $13,073,803 $42,152,191 2,400,000 $(22,354,835) $33,216,095
Net loss............... -- -- -- (761,812) -- -- (761,812)
--------- -------- ----------- ----------- --------- ------------ -----------
Balances, June 30,
1997................. 6,898,722 344,936 13,073,803 41,390,379 2,400,000 (22,354,835) 32,454,283
Net loss............... -- -- -- (1,219,222) -- -- (1,219,222)
--------- -------- ----------- ----------- --------- ------------ -----------
Balances, June 30,
1998................. 6,898,722 344,936 13,073,803 40,171,157 2,400,000 (22,354,835) 31,235,061
Net loss............... -- -- -- (1,387,665) -- -- (1,387,665)
Purchase of Company
Common Stock......... -- -- -- -- 3,000 (3,627) (3,627)
--------- -------- ----------- ----------- --------- ------------ -----------
BALANCES, JUNE 30,
1999................. 6,898,722 $344,936 $13,073,803 $38,783,492 2,403,000 $(22,358,462) $29,843,769
========= ======== =========== =========== ========= ============ ===========
</TABLE>
- ---------------
See notes to consolidated financial statements.
17
<PAGE> 14
THE SANDS REGENT
CONSOLIDATED STATEMENTS OF CASH FLOWS
................................................................................
FOR THE YEARS ENDED JUNE 30, 1999, 1998, 1997
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- ----------
<S> <C> <C> <C>
Operating activities:
Net loss................................................ $(1,387,665) $(1,219,222) $ (761,812)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depreciation and amortization...................... 3,406,570 4,052,727 3,805,522
Loss on disposal of property and equipment......... 460,243 73,792 15,341
(Increase) decrease in accounts receivable......... 41,033 (131,595) (18,000)
Decrease in inventories............................ 1,942 15,174 149,176
(Increase) in prepaid expenses and other current
assets.......................................... (197,335) (73,400) (317,837)
Decrease in other assets........................... 80,177 26,400 128,420
Increase (decrease) in accounts payable............ 272,988 (862,089) 207,268
Increase (decrease) in accrued salaries, wages and
benefits........................................ (645,142) 190,255 128,909
Increase in other accrued expenses................. 367,255 357,581 315,456
Change in federal income taxes
payable/receivable.............................. 387,268 375,388 (921,288)
Change in deferred federal income taxes............ (492,780) 199,540 590,688
Decrease in other liability........................ -- -- (18,723)
----------- ----------- ----------
Net cash provided by operating activities................. 2,294,554 3,004,551 3,303,120
----------- ----------- ----------
Investing activities:
Purchase of short-term investments...................... -- -- (50,000)
Sale and maturity of short-term investments............. 10,000 -- --
Payments received on note receivable.................... -- 1,237,156 7,107
Down payment on sale of subsidiaries held in escrow and
reflected in accounts receivable..................... (500,000) -- --
Payments received on note receivable, sale of
subsidiaries, net.................................... 96,343 -- --
Cash retained by former subsidiary companies upon
sale................................................. (3,276,839) -- --
Additions to property and equipment..................... (1,683,863) (1,995,750) (3,105,448)
Proceeds from sale of property, equipment and other
assets............................................... 32,369 44,650 501,490
----------- ----------- ----------
Net cash used in investing activities..................... (5,321,990) (713,944) (2,646,851)
----------- ----------- ----------
</TABLE>
- ---------------
See notes to consolidated financial statements.
18
<PAGE> 15
................................................................................
<TABLE>
<CAPTION>
1999 1998 1997
----------- ---------- -----------
<S> <C> <C> <C>
Financing activities:
Payment of accounts payable for prior year purchases of
property and equipment............................... $ (9,355) $ -- $ --
Issuance of long-term debt.............................. 239,368 -- 497,940
Payments on long-term debt.............................. (862,273) (730,845) (4,867,508)
Purchase of Company common stock........................ (3,627) -- --
----------- ---------- -----------
Net cash used in financing activities..................... (635,887) (730,845) (4,369,568)
----------- ---------- -----------
Increase (decrease) in cash and cash equivalents.......... (3,663,323) 1,559,762 (3,713,299)
Cash and cash equivalents, beginning of year.............. 9,203,443 7,643,681 11,356,980
----------- ---------- -----------
Cash and cash equivalents, end of year.................... $ 5,540,120 $9,203,443 $ 7,643,681
=========== ========== ===========
Supplemental cash flow information:
Net investment in subsidiaries converted to note
receivable upon sale, net............................ $ 2,171,147 $ -- $ --
=========== ========== ===========
Payments received on note receivable from sale of
subsidiaries held in escrow and reflected in accounts
receivable........................................... $ 153,330 $ -- $ --
=========== ========== ===========
Property and equipment acquired by accounts payable..... $ -- $ 76,914 $ 223,977
=========== ========== ===========
Property and equipment acquired by long-term debt....... $ -- $ -- $ 903,227
=========== ========== ===========
Property and equipment acquired by conversion of other
assets............................................... $ -- $ -- $ 400,000
=========== ========== ===========
Interest paid, net of amount capitalized................ $ 1,534,329 $2,026,378 $ 1,594,085
=========== ========== ===========
Federal income taxes paid............................... $ 300,000 $ -- $ --
=========== ========== ===========
</TABLE>
19
<PAGE> 16
THE SANDS REGENT
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
................................................................................
FOR THE YEARS ENDED JUNE 30, 1999, 1998, 1997
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Principles of consolidation and basis of presentation
The consolidated financial statements include the accounts of The Sands
Regent and its wholly-owned subsidiaries Zante, Inc. ("Zante"), and, through
December 23, 1998, its wholly owned subsidiaries Patrician, Inc. ("Patrician"),
Artemis, Inc. ("Artemis") and Gulfside Casino, Inc. ("GCI"), and their general
partnership Gulfside Casino Partnership ("GCP") (together the "Company"). On
December 23, 1998, the Company sold Patrician, GCI and Artemis, which are the
sole partners in GCP, to unrelated third parties.
All significant intercompany balances and transactions have been eliminated
in consolidation.
(b) Nature of operations
The Company owns and operates The Sands Regency Hotel/Casino in Reno,
Nevada and, through December 23, 1998, the Copa Casino in Gulfport, Mississippi
which is owned and operated by GCP. The Company also owns and operates a slot
route service with various locations in the general Reno area. The Company's
operations are conducted in the hotel-casino industry and include gaming
activities, hotel, restaurant and other related support facilities. Because of
the integrated nature of these operations, the Company is considered to be
engaged in one industry segment.
Casino operations are subject to extensive regulation in the States of
Nevada and Mississippi by the respective state Gaming Authorities. Management
believes that the Company's procedures for supervising casino operations and
recording casino and other revenues comply in all material respects with the
applicable regulations.
(c) Operating revenues
In accordance with industry practice, the Company recognizes as casino
revenue the net win from gaming activities, which is the difference between
gaming wins and losses.
Lodging, food and beverage furnished without charge to customers are
included in gross revenues at a value which approximates retail and then
deducted as complimentary services to arrive at net revenues. The cost of such
complimentary services is charged to gaming operating costs and expenses.
The estimated costs of providing the complimentary services are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Hotel............................................. $ 460,549 $ 442,875 $ 445,572
Food and beverage................................. 1,727,192 2,202,749 2,221,535
Other............................................. 31,204 55,192 51,843
---------- ---------- ----------
$2,218,945 $2,700,816 $2,718,950
========== ========== ==========
</TABLE>
Other operating revenue is comprised of hotel/casino ancillary services.
Related costs and expenses are included in other operating costs and expenses.
20
<PAGE> 17
................................................................................
(d) Cash and cash equivalents
Cash equivalents include all short-term investments with an original
maturity of three months or less. Such investments, carried at cost which
approximates market, are readily marketable with no significant investment in
any individual issuer.
(e) Short-term investments
The Company accounts for its short-term investments in accordance with the
provisions of Statement of Financial Accounting Standards ("SFAS") No.
115 -- "Accounting for Certain Investments in Debt and Equity Securities". This
statement requires that unrealized gains and losses on securities defined as
"available-for-sale" be excluded from income and be reported in a separate
component of stockholders' equity. Securities that the Company has the ability
and positive intent to hold to maturity are classified as "held-to-maturity" and
are reported at the lower of aggregate cost or market. As of June 30, 1999, the
Company's short-term investments were not subject to the provisions of SFAS No.
115.
(f) Inventories
Inventories consist primarily of food, beverage and operating supplies and
are stated at the lower of cost (determined on an average cost basis) or market.
(g) Property and equipment
Property and equipment are stated at cost, net of impairment write-downs to
estimated net realizable values. Depreciation and amortization is computed
primarily by the straight line method over the estimated useful lives of the
assets. These lives range between 5 to 35 years for buildings, ship and
improvements and 5 to 20 years for equipment, furniture and fixtures. Assets
sold or otherwise disposed of are removed from the property accounts and the
resulting gains or losses are included in income.
(h) Impairment of long-lived assets
The Company reviews the carrying values of its long-lived and identifiable
intangible assets for possible impairment whenever events or changes in
circumstances indicate that the carrying amount of assets may not be
recoverable.
(i) Income taxes
Income taxes are accounted for in accordance with the provisions of
Statement of Financial Accounting Standards ("SFAS") No. 109 -- "Accounting for
Income Taxes". In accordance with SFAS No. 109, the asset and liability method
of accounting for income taxes is utilized whereby deferred tax assets and
liabilities are recognized for future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. Under SFAS No. 109, the effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date.
21
<PAGE> 18
THE SANDS REGENT
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (continued)
................................................................................
(j) Fair value of financial instruments
The Company calculates the fair value of financial instruments and includes
this additional information in the Company's Notes to Consolidated Financial
Statements when the fair value is different than the book value of those
financial instruments. When fair value is equal to book value, no additional
disclosure is made. Fair value is determined using quoted market prices whenever
available. When quoted market prices are not available, the Company uses
alternative valuation techniques such as calculating the present value of
estimated future cash flows utilizing discount rates commensurate with the risks
involved. It is estimated that the carrying amounts of the Company's financial
instruments approximate fair value at June 30, 1999.
(k) Concentrations of credit risk
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of cash and cash equivalents
and short-term investments. The Company maintains cash in bank accounts with
balances, at times, in excess of Federally insured limits. The Company has not
experienced any losses in such accounts.
(l) Recent Pronouncements of the Financial Accounting Standards Board ("FASB")
On June 30, 1998, the FASB issued SFAS No. 133 entitled "Accounting for
Derivative Instruments and Hedging Activies". This statement establishes
accounting and reporting standards for derivative instruments and hedging
activities and is effective for fiscal years beginning after June 15, 2000.
Management does not believe this new SFAS will have a material impact on the
financial statements of the Company but because of the complexity of SFAS No.
133, the ultimate impact has not yet been determined.
(m) Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(n) Reclassifications
Certain reclassifications have been made to the 1998 consolidated financial
statements to conform to the 1999 presentation.
22
<PAGE> 19
................................................................................
NOTE 2 -- SHORT-TERM INVESTMENTS
Short-term investments consist of certificates of deposit which are carried
at cost, which approximates market.
NOTE 3 -- NOTE RECEIVABLE, SALE OF SUBSIDIARIES
On December 23, 1998, the Company closed on an agreement selling all of its
ownership interest in Patrician, GCI and Artemis, which included a 100%
ownership interest in the Copa Casino, to two former GCI shareholders for $8.5
million. The agreement provided for an initial payment of $500,000, which was
deposited into escrow, with the balance payable in monthly installment of
$15,000 or 2% of the Copa's gross gaming revenues, whichever is greater. The
payments held in escrow as security for certain representations and warranties
aggregated $653,000 at June 30, 1999 and are included in accounts receivable on
the consolidated balance sheet. Such amounts held in escrow, including earned
interest, were released to the Company in July 1999.
Upon consummation of the sales transaction, the Company's net investment in
Patrician, GCI and Artemis was $2.2 million. This net $2.2 million investment
was reclassified as a note receivable, net. The difference to the original $8.0
million face value of the note, after the initial $500,000 payment, represents
an unrecognized gain of approximately $5.8 million. Such gain will be recognized
by the Company as it receives subsequent payments after recovering the $2.2
million net investment. $180,000 of the note receivable, sale of subsidiaries is
reflected as a current asset.
The combined net assets of Patrician, GCI, Artemis and GCP sold by the
Company on December 23, 1998 consisted of the following:
<TABLE>
<S> <C>
Current assets.............................................. $ 4,065,998
Property and Equipment, net................................. 10,439,417
Deferred tax benefit, non-current........................... 1,214,957
Other assets................................................ 92,238
Current liabilities......................................... (13,641,463)
------------
$ 2,171,147
============
</TABLE>
The new owners of Patrician, GCI, Artemis and GCP have made certain claims
that GCP had previously made payments for the benefit of the Company and are
seeking to recover such payments. Preliminary discussions are in progress.
Management believes that the claims are without merit and that the ultimate
outcome will not have a material adverse affect on the Company.
23
<PAGE> 20
THE SANDS REGENT
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (continued)
................................................................................
NOTE 4 -- LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
June 30,
-------------------------
1999 1998
----------- -----------
<S> <C> <C>
Bank term loan; interest at prime plus 2.5% per annum from
February 1, 1999 to maturity in January 2000, subject to a
maximum of 14% per annum; at June 30, 1999, the interest
rate was 10.25% per annum; monthly principal and interest
payments of the greater of $120,000 or the monthly accrued
interest from February 1, 1999 to maturity when the
remaining balance is due in full; semi-annual principal
payments due in the amount of average cash and cash
equivalents in excess of $5.5 million for June and
December of each year; secured by deeds of trust on all
real property and otherwise collateralized by all
furniture, fixtures, equipment and all other properties of
the Company............................................... $10,532,066 $10,849,143
Capital lease obligation; imputed interest at 8.6%; payable
in monthly principal and interest payments in the amount
of $26,794 over 60 months at which time a one dollar
purchase option is exercisable; assets under the capital
lease, with an original cost of $1,481,000 and accumulated
depreciation of approximately $614,000 at June 30, 1999,
are included in property and equipment and are being
depreciated over their estimated useful lives............. 711,410 980,767
Contract payable by GCP to International Game Technology
("IGT"); principal and interest payments of $55,000,
including interest at 10% per annum, due monthly
commencing September 1, 1996 through August 1, 1999 at
which time the remaining unpaid principal balance of $3.2
million is due in full; secured by certain gaming
equipment................................................. -- 3,537,143
Notes payable by GCI to former minority stockholders of GCI
as issued pursuant to a settlement agreement in August
1993; interest at 6% per annum and unpaid since May 1994;
secured by GCI's ownership interest in GCP which is .006%
at June 30, 1998; principal payments past due since 1994;
in accordance with a Chancery Court judgement, as further
discussed in Note 9, the entire principal balance, is due
in full and is included in current maturities at June 30,
1998...................................................... -- 6,000,000
Other....................................................... -- 41,068
----------- -----------
11,243,476 21,408,121
Less current maturities..................................... 10,752,496 6,764,949
----------- -----------
Long-term portion........................................... $ 490,980 $14,643,172
=========== ===========
</TABLE>
As discussed in Note 3, The Company closed on an agreement selling all of
its ownership interest in Patrician, GCI and Artemis, which included a 100%
ownership interest in GCP, on December 23, 1998. The long-term debt obligations
due IGT and GCI above were included in such sale.
The bank term loan, which was restructured effective January 31, 1998,
requires the Company to comply with certain financial covenants, restricts
future encumbrances and requires certain existing major shareholders of the
Company to continue to hold a significant ownership interest in and to be
involved in the management of the Company. The financial covenants include
restrictions on investment activities and the sale or disposition of a
significant portion of the Company's assets and also require
24
<PAGE> 21
................................................................................
minimum capital expenditures in each fiscal year, subject to a maximum per
fiscal year. The financial covenants additionally require that a minimum EBITDA
(earnings before interest expense, taxes, depreciation and amortization, and any
loss (gain) on the disposition of property and equipment inclusive of impairment
write-offs) be maintained and restrict advances by Zante to the Company. The
loan agreement also requires that no shareholder, other than the existing major
shareholders, may own 20% or more of the issued and outstanding voting stock of
the Company. The Company believes that it is in compliance with these covenants.
The Company is also presently in discussions to refinance such obligation which
comes due in January 2000.
Long-term debt at June 30, 1999 is payable as follows:
<TABLE>
<CAPTION>
YEAR ENDING
JUNE 30, AMOUNT
----------- -----------
<S> <C>
2000...................................................... $10,752,496
2001...................................................... 285,346
2002...................................................... 205,634
-----------
$11,243,476
===========
</TABLE>
The Company entered into an interest rate swap agreement, effective April
1, 1994, to fix the variable interest rate due under the original,
pre-restructured, bank term and revolving line of credit loan. Under such
agreement, the Company pays the bank interest at a fixed rate of 6.25% per annum
on the notional amount and the bank pays the Company interest at a variable rate
(currently 5.06%) based on the London Interbank Offer Rate ("LIBOR") on the
notional amount. The notional amount of the swap coincides with the original
principal reduction schedule of the superceded bank term and revolving line of
credit loan (currently $3.2 million) which will be fully amortized in April
2000. The notional amount may be reduced by the Company, in whole or in part,
upon notice by the Company to the bank and a fair market settlement of such
reduction between the parties. The fair value of the interest rate swap
agreement is a liability of approximately $5,000 at June 30, 1999 which was
based on estimated termination values. The interest rate swap, which is also
secured by a deed of trust and all properties of the Company, is subject to
market risk as interest rates fluctuate.
Of the total interest expense of $1,926,000 in 1997, $97,000 has been
capitalized into construction costs.
NOTE 5 -- STOCK OPTION AND STOCK INCENTIVE PLANS
The Company's amended and restated stock option plan provides for the
granting of incentive stock options, as well as non-qualified stock options, to
executives and key employees. The plan also provides for the grant of
non-qualified stock options to independent (non-employee) directors. With
respect to grants of stock options to independent directors, the stock option
plan provides for the automatic grant of options to purchase 7,500 shares to an
independent director on each annual meeting date that such director continues to
service. Further, the Board of Directors may grant an option to purchase up to
25,000 shares upon the appointment of a new independent director.
The plan presently permits for the grant of options covering a maximum of
800,000 shares of the Company's common stock. The Company has reserved shares to
cover these requirements. The plan will
25
<PAGE> 22
THE SANDS REGENT
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (continued)
................................................................................
continue until the year 2007, unless terminated earlier. Under the plan, the per
share exercise price of an option cannot be less than 100% of the fair market
value of the shares at date of grant or 110% of the fair market value in the
case of incentive stock options granted to stockholders owning more than 10% of
the outstanding common shares. The options generally vest 20% to 50% each year
after grant for employees and vest in full in one year for grants to independent
directors.
Prior to the approval of an amendment to the Company's Stock Option Plan at
the November 1998 annual shareholders' meeting, allowing for the grant of stock
options to independent directors, the Board of Directors approved a
non-qualified stock option grant in fiscal 1998 to a then newly appointed
independent director to purchase 10,000 shares of common stock. Granted at fair
market value, the option vested one year from the date of grant and is subject
to a separate Non-Qualified Stock Option Agreement.
In December 1997, The Board of Directors of the Company authorized the
repricing of certain incentive stock options. The effect of the repricing
resulted in the cancellation and reissuance of 318,000 options with a price
equal to the market value of the common stock at the date of repricing. The
options granted to replace the cancelled options that were previously vested
will vest on the first anniversary date of the repricing. The options granted to
replace the unvested cancelled options will vest 25% each year commencing on the
first anniversary date of the repricing.
The following table summarizes activity of the Company's stock option
plans:
<TABLE>
<CAPTION>
WEIGHTED
NUMBER OF AVERAGE
OPTIONS EXERCISE PRICE
--------- --------------
<S> <C> <C>
Options Outstanding
Outstanding, July 1, 1996................................. 334,000 $ 4.71
-------- ------
Outstanding, June 30, 1997................................ 334,000 4.71
Options granted........................................ 404,000 1.83
Options cancelled...................................... (318,000) (4.77)
-------- ------
Outstanding, June 30, 1998................................ 420,000 1.90
Options granted........................................ 165,500 0.94
Options cancelled...................................... (38,000) (2.46)
-------- ------
OUTSTANDING, JUNE 30, 1999................................ 547,500 $ 1.57
======== ======
Options Exercisable
At June 30, 1997.......................................... 122,000 $ 5.78
======== ======
At June 30, 1998.......................................... 16,000 $ 3.50
======== ======
AT JUNE 30, 1999.......................................... 228,000 $ 1.83
======== ======
</TABLE>
At June 30, 1999, options to purchase 108,364 shares were available for
grant under the stock option plan.
26
<PAGE> 23
................................................................................
The following table sets forth certain information with respect to
incentive stock option grants outstanding at June 30, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
------------------------------------ OPTIONS EXERCISABLE
WEIGHTED ----------------------
AVERAGE WEIGHTED WEIGHTED
RANGE OF REMAINING AVERAGE AVERAGE
EXERCISE NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
-------- ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$ .88 to $1.19....................... 161,500 9.5 years $0.93 -- $--
$1.81 to $2.25....................... 386,000 8.5 years 1.83 228,000 1.83
------- --------- ----- ------- -----
$1.81 to $3.50....................... 547,500 8.8 years $1.57 228,000 $1.83
======= ========= ===== ======= =====
</TABLE>
The Company follows the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 123-- "Accounting for Awards of Stock-Based Compensation"
which establishes financial accounting and reporting standards for stock-based
employee compensation plans and for transactions where equity securities are
issued for goods and services. It defines a fair value based method of
accounting for an employee stock option, or similar equity instrument, and
encourages such method of accounting for all employee stock compensation plans.
As provided by SFAS No. 123, the Company has elected to continue to follow the
provisions of APB Opinion No. 25-- "Accounting for Stock Issued to Employees"
which measures compensation costs for employee stock compensation plans using
the intrinsic value based method of accounting. Accordingly, no compensation
cost has been recognized.
The following table indicates the Company's net income and net income per
share assuming that compensation costs for the Company's stock option plan
grants were determined using the fair value based method prescribed by SFAS 123.
The table also discloses the weighted average assumptions used in estimating the
fair value of each option grant on the date of the grant, using the
Black-Scholes option pricing model, and the estimated weighted average fair
value of the options granted. The model assumes no expected future dividend
payments on the Company's common stock for the options granted:
<TABLE>
<CAPTION>
June 30,
--------------------------------------
1999 1998 1997
----------- ----------- ----------
<S> <C> <C> <C>
Net income (loss):
As reported.................................... $(1,387,665) $(1,219,222) $(761,812)
Pro forma...................................... (1,537,665) (1,322,397) (888,768)
Net income (loss) per share:
As reported, Basic and diluted................. $(0.31) $(0.27) $(0.17)
Pro forma, Basic and diluted................... (0.34) (0.29) (0.20)
Weighted average assumptions:
Expected stock price volatility................ 100.0% 100.0% --
Risk-free interest rate........................ 4.6% 6.3% --
Expected option lives.......................... 2.2 YEARS 2.3 years --
Estimated fair value of options granted........ $0.52 $1.06 --
</TABLE>
27
<PAGE> 24
THE SANDS REGENT
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (continued)
................................................................................
NOTE 6 -- FEDERAL INCOME TAXES
The Company's income tax (provision) benefit consists of the following:
<TABLE>
<CAPTION>
1999 1998 1997
-------- --------- ----------
<S> <C> <C> <C>
Current............................................. $ 68,776 $ 834,421 $1,089,616
Deferred............................................ 492,781 (199,540) (590,688)
-------- --------- ----------
$561,557 $ 634,881 $ 498,928
======== ========= ==========
</TABLE>
The Company's effective tax rate differs from the federal statutory rate as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
----- ----- -----
<S> <C> <C> <C>
Federal statutory tax rate.................................. (35.0)% (35.0)% (35.0)%
Surtax exemption............................................ 1.0 1.0 1.0
Tax effect of tax-free interest income...................... (0.1) (0.2) (3.0)
General business credits.................................... (1.7) (2.0) (2.3)
Other....................................................... 7.0 2.0 (0.3)
----- ----- -----
(28.8)% (34.2)% (39.6)%
===== ===== =====
</TABLE>
The components of the Company's net deferred federal income tax asset
(liability) are as follows at June 30:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Deferred tax assets:
License acquisition costs.............................. $ -- $ 1,419,009
Pre-opening costs...................................... -- 43,046
Net operating loss & credit carryforwards.............. 356,463 --
Alternative minimum tax credit......................... 1,620,127 1,670,777
Accrued expenses....................................... 72,930 147,993
Deferred gain.......................................... 410,094 --
Other.................................................. 30,979 38,650
----------- -----------
2,490,593 3,319,475
----------- -----------
Deferred tax liabilities:
Property and equipment................................. (2,756,470) (2,859,429)
Prepaid expenses....................................... (394,015) (455,725)
Other.................................................. (9,298) (21,110)
----------- -----------
(3,159,783) (3,336,264)
----------- -----------
Net deferred federal income tax liability............ $ (669,190) $ (16,789)
=========== ===========
</TABLE>
The Company has a March 31 tax year-end. The Company has a net operating
loss carryforward of $1.1 million and a credit carryforward of $64,937 which can
be used to offset future tax liabilities. Such net operating loss and credit
carryforwards expire in 2019.
28
<PAGE> 25
................................................................................
NOTE 7 -- EARNINGS PER SHARE
Earnings Per Share are calculated in accordance with Financial Accounting
Standards ("SFAS") No. 128 -- "Earnings Per Share" which was issued by the
Financial Accounting Standards Board and became effective for periods ending
after December 15, 1997. SFAS 128 provides for the reporting of "basic", or
undiluted earnings per share, and "diluted" earnings per share. Basic earnings
per share is computed by dividing net income by the weighted average number of
shares outstanding during the period, while diluted earnings per share reflects
the additional dilution for all potentially dilutive securities, such as stock
options. For each of the years ended June 30, 1999, 1998 and 1997, there were no
outstanding convertible securities that would result in dilution of basic
earnings per common share.
NOTE 8 -- CONTINGENCIES
The Company is party to various legal actions, proceedings and pending
claims arising in the normal conduct of business. Management believes that the
final outcomes of these matters will not have a material adverse effect upon the
Company's financial position and results of operations.
NOTE 9 -- CONDENSED QUARTERLY RESULTS (UNAUDITED)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
1999
OPERATING REVENUES..................... $14,143,149 $13,208,098 $ 7,366,115 $ 8,817,680
INCOME (LOSS) FROM OPERATIONS.......... (303,288) (314,842) (297,962) 873,726
NET INCOME (LOSS)...................... (482,580) (619,870) (377,510) 92,295
NET INCOME (LOSS) PER SHARE:
BASIC............................... $(0.11) $(0.14) $(0.08) $0.02
DILUTED............................. $(0.11) $(0.14) $(0.08) $0.02
1998
Operating revenues..................... $15,341,466 $13,510,048 $14,316,046 $16,043,670
Income (loss) from operations.......... 479,429 (1,436,957) (48,833) 1,239,593
Net income (loss)...................... 28,509 (1,254,550) (378,923) 385,742
Net income (loss) per share:
Basic............................... $0.01 $(0.28) $(0.08) $0.09
Diluted............................. $0.01 $(0.28) $(0.08) $0.09
</TABLE>
In December 1998, the Company sold its 100% interest in subsidiaries which
owned and operated the Copa Casino. The Condensed Quarterly Results included the
operating results of the Copa Casino through the fiscal 1999 second quarter.
29
<PAGE> 26
INDEPENDENT AUDITORS' REPORT
................................................................................
To the Board of Directors and
Shareholders of The Sands Regent:
We have audited the accompanying consolidated balance sheets of The Sands
Regent and subsidiaries as of June 30, 1999 and 1998, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended June 30, 1999. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of The Sands Regent and
subsidiaries as of June 30, 1999 and 1998, and the results of their operations
and their cash flows for each of the three years in the period ended June 30,
1999 in conformity with generally accepted accounting principles.
/s/ DELOITTE & TOUCHE LLP
Deloitte & Touche LLP
Reno, Nevada
August 6, 1999
30
<PAGE> 27
................................................................................
CORPORATE OFFICERS
Katherene Latham
Chairman of the Board
Pete Cladianos, Jr.
Vice Chairman of the Board
Ferenc B. Szony
President and Chief Executive Officer
David R. Wood
Executive Vice President,
Treasurer and Chief Financial Officer
Patrick Bassney
Vice President/General Manager,
Sands Regency
Pete Cladianos III
Secretary
BOARD OF DIRECTORS
Katherene Latham(1)
Chairman of the Board
Pete Cladianos, Jr.(1)
Vice Chairman of the Board
Ferenc B. Szony
President and Chief Executive Officer
David R. Wood
Executive Vice President,
Treasurer and Chief Financial Officer
Pete Cladianos III(1)
Secretary
Jon N. Bengtson
Louis J. Phillips
Larry Tuntland
PUBLIC ACCOUNTANTS
Deloitte & Touche LLP
Reno, Nevada
SECURITIES COUNSEL
Latham & Watkins
Costa Mesa, California
TRANSFER AGENT & REGISTRAR
U.S. Stock Transfer Corporation
Glendale, California
- ------------
(1) Standing for election to the Board of Directors at the November 1, 1999
Annual Meeting.
FORM 10-K REPORT
A copy of the Company's Annual Report to the Securities and Exchange
Commission on Form 10-K is available to shareholders without charge by writing
to The Sands Regent, Attention: David R. Wood, 345 North Arlington Avenue, Reno,
Nevada 89501.
31
<PAGE> 1
Exhibit 23
INDEPENDENT AUDITORS' CONSENT
The Sands Regent:
We consent to the incorporation by reference in Registration Statement No.
33-59574 of The Sands Regent on Form S-8 of our reports dated August 6, 1999,
appearing in and incorporated by reference in the Annual Report on Form 10-K of
The Sands Regent for the year ended June 30, 1999.
Deloitte & Touche LLP
Reno, Nevada
September 27, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> JUN-01-1999
<CASH> 5,540
<SECURITIES> 10
<RECEIVABLES> 1,303
<ALLOWANCES> 27
<INVENTORY> 483
<CURRENT-ASSETS> 8,823
<PP&E> 63,120
<DEPRECIATION> 30,126
<TOTAL-ASSETS> 43,694
<CURRENT-LIABILITIES> 12,990
<BONDS> 0
0
0
<COMMON> 345
<OTHER-SE> 29,499
<TOTAL-LIABILITY-AND-EQUITY> 43,694
<SALES> 7,310
<TOTAL-REVENUES> 46,003
<CGS> 6,306
<TOTAL-COSTS> 25,782
<OTHER-EXPENSES> 17,795
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,748
<INCOME-PRETAX> (1,949)
<INCOME-TAX> (562)
<INCOME-CONTINUING> (1,388)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,388)
<EPS-BASIC> (.31)
<EPS-DILUTED> (.31)
</TABLE>
