<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
[X] Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended December 31, 1998 or
[ ] Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from ____________ to ____________
Commission file number 0-14050
-------
THE SANDS REGENT
- --------------------------------------------------------------------------------
(exact name of registrant as specified in charter)
Nevada 88-0201135
--------------------------------- ---------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
345 North Arlington Avenue, Reno, Nevada 89501
- --------------------------------------------------------------------------------
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code (702) 348-2200
---------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
At February 12, 1999, the registrant had outstanding 4,498,722 shares of its
common stock, $.05 par value.
<PAGE> 2
THE SANDS REGENT AND SUBSIDIARIES
FORM 10-Q
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
PART I FINANCIAL INFORMATION
Item 1. Financial statements. 1 - 7
Consolidated Statements of Operations 1
Consolidated Balance Sheets 2 - 3
Consolidated Statements of Cash Flows 4 - 5
Notes to Interim Consolidated Financial
Statements 6 - 7
Item 2. Managements` Discussion and Analysis
of Financial Condition and Results of
Operations. 8 - 14
PART II OTHER INFORMATION
Item 1. Legal Proceedings. 15
Item 2. Changes in Securities. 15
Item 3. Defaults Upon Senior Securities. 15
Item 4. Submission of Matters to a Vote of
Security Holders. 15
Item 5. Other Information. 16
Item 6. Exhibits and Reports on Form 8-K. 16
SIGNATURES 17
</TABLE>
<PAGE> 3
PART I FINANCIAL INFORMATION
Item 1. Financial Statements.
THE SANDS REGENT AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
(Dollars in thousands, THREE MONTHS SIX MONTHS
except per share amounts) ENDED DECEMBER 31, ENDED DECEMBER 31,
----------------------------- -----------------------------
1997 1998 1997 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Operating revenues:
Gaming $ 10,155 $ 9,860 $ 20,458 $ 19,405
Lodging 1,704 1,843 4,744 4,615
Food and beverage 1,941 1,946 4,164 4,052
Other 384 324 832 709
----------- ----------- ----------- -----------
14,184 13,973 30,198 28,781
Less complimentary lodging, food
and beverage included above 674 765 1,346 1,431
----------- ----------- ----------- -----------
13,510 13,208 28,852 27,350
----------- ----------- ----------- -----------
Operating costs and expenses:
Gaming 5,528 5,125 10,870 10,301
Lodging 1,232 947 2,519 2,128
Food and beverage 1,845 1,673 3,847 3,564
Other 146 128 322 277
Maintenance and utilities 1,451 1,337 3,237 3,098
General and administrative 3,732 3,325 6,987 6,585
Depreciation and amortization 1,013 988 2,027 2,016
----------- ----------- ----------- -----------
14,947 13,523 29,809 27,969
----------- ----------- ----------- -----------
Loss from operations (1,437) (315) (957) (619)
Other income (deductions):
Interest and other income 120 72 227 175
Interest and other expense (567) (556) (1,125) (1,083)
----------- ----------- ----------- -----------
(447) (484) (898) (908)
----------- ----------- ----------- -----------
Loss before income taxes (1,884) (799) (1,855) (1,527)
Income tax benefit 629 180 629 425
----------- ----------- ----------- -----------
Net loss $ (1,255) $ (619) $ (1,226) $ (1,102)
=========== =========== =========== ===========
Net loss per share,
basic and diluted $ (.28) $ (.14) $ (.27) $ (.25)
=========== =========== =========== ===========
Weighted average shares
outstanding 4,498,722 4,498,722 4,498,722 4,498,722
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-1-
<PAGE> 4
THE SANDS REGENT AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Dollars in thousands) JUNE 30, DECEMBER 31,
1998 1998
-------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 9,203 $ 5,004
Short-term investments 250 20
Accounts receivable less allowance for
possible losses of $72 and $11 550 948
Inventories 625 509
Federal income tax refund receivable 687 1,017
Prepaid expenses and other assets 1,371 957
-------- --------
Total current assets 12,686 8,455
PROPERTY AND EQUIPMENT:
Land 8,093 8,093
Buildings, ship and improvements 45,942 37,263
Equipment, furniture and fixtures 25,654 18,776
Construction in progress 509 129
-------- --------
80,198 64,261
Less accumulated depreciation
and amortization 34,552 30,576
-------- --------
Property and equipment, net 45,646 33,685
-------- --------
OTHER ASSETS:
Deferred federal income tax asset 258 --
Note receivable, sale of subsidiaries -- 2,171
Other 311 195
-------- --------
Total other assets 569 2,366
-------- --------
Total assets $ 58,901 $ 44,506
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-2-
<PAGE> 5
THE SANDS REGENT AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Dollars in thousands) JUNE 30, DECEMBER 31,
1998 1998
-------- ------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,927 $ 735
Accrued salaries, wages and benefits 2,006 753
Other accrued expenses 2,049 243
Deferred federal income tax liability 276 246
Current maturities of long-term debt 6,765 562
-------- --------
Total current liabilities 13,023 2,539
LONG-TERM DEBT 14,643 11,022
-------- --------
DEFERRED FEDERAL INCOME TAX LIABILITY -- 812
-------- --------
Total liabilities 27,666 14,373
-------- --------
STOCKHOLDERS' EQUITY:
Preferred stock, $.10 par value, 5,000,000
shares authorized, none issued -- --
Common stock, $.05 par value, 20,000,000
shares authorized; 6,898,722 shares
issued 345 345
Additional paid-in capital 13,074 13,074
Retained earnings 40,171 39,069
-------- --------
53,590 52,488
Treasury stock, at cost, 2,400,000 shares (22,355) (22,355)
-------- --------
Total stockholders' equity 31,235 30,133
-------- --------
Total liabilities and stockholders'
equity $ 58,901 $ 44,506
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-3-
<PAGE> 6
THE SANDS REGENT AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS
(Dollars in thousands) ENDED DECEMBER 31,
-------------------------
1997 1998
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (1,226) $ (1,102)
Adjustments to reconcile net loss
to net cash provided by
operating activities:
Depreciation and amortization 2,027 2,016
(Gain) loss on disposal of property
and equipment (5) 32
(Increase) decrease in accounts
receivable (62) 36
(Increase) decrease in inventories (20) 22
(Increase) decrease in prepaid
expenses and other current assets (231) 15
Decrease in other assets 35 21
Increase in accounts payable 412 194
Increase (decrease) in accrued expenses 18 (406)
Change in federal income taxes
payable/receivable (553) (330)
Change in deferred federal income taxes (77) (106)
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 318 392
-------- --------
INVESTING ACTIVITIES:
Payments received on note receivable 4 --
Additions to property and equipment (573) (545)
Proceeds from sale of property and
equipment 27 22
Down payment on sale of subsidiaries
held in escrow and reflected in
accounts receivable -- (500)
Cash retained by former subsidiary
companies upon sale -- (3,277)
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (542) (4,300)
-------- --------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-4-
<PAGE> 7
THE SANDS REGENT AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS
(Dollars in thousands) ENDED DECEMBER 31,
------------------------
1997 1998
-------- --------
<S> <C> <C>
FINANCING ACTIVITIES:
Payment of accounts payable on prior
period purchases of property and
equipment -- (9)
Issuance of long-term debt 256 239
Payments on long-term debt (437) (521)
-------- --------
NET CASH USED IN FINANCING ACTIVITIES (181) (291)
-------- --------
DECREASE IN CASH AND CASH EQUIVALENTS (405) (4,199)
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD 7,644 9,203
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 7,239 $ 5,004
======== ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Net investment in subsidiaries converted
to note receivable upon sale, net $ -- $ 2,171
======== ========
Property and equipment acquired by
accounts payable $ 40 $ --
======== ========
Interest paid, net of amount capitalized $ 903 $ 846
======== ========
Federal income taxes paid $ -- $ --
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-5-
<PAGE> 8
THE SANDS REGENT AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED DECEMBER 31, 1998 AND 1997
NOTE 1 - BASIS OF PREPARATION
These statements should be read in connection with the 1998 Annual Report
heretofore filed with the Securities and Exchange Commission as Exhibit 13 to
the Registrant's Form 10-K for the year ended June 30, 1998. The accounting
policies utilized in the preparation of the financial information herein are the
same as set forth in such annual report except as modified for interim
accounting policies which are within the guidelines set forth in Accounting
Principles Board Opinion No. 28.
The Consolidated Balance Sheet at June 30, 1998 has been taken from the
audited financial statements at that date. The interim consolidated financial
information is unaudited. In the opinion of management, all adjustments,
consisting only of normal recurring accruals, necessary to present fairly the
financial condition as of December 31, 1998 and the results of operations and
cash flows for the three and six months ended December 31, 1998 and 1997 have
been included. Interim results of operations are not necessarily indicative of
the results of operations for the full year.
The accompanying Consolidated Financial Statements include the accounts of
the Company and its wholly owned subsidiary Zante, Inc. ("Zante"), and, through
December 23, 1998, its wholly owned subsidiaries Patrician, Inc. ("Patrician"),
Gulfside Casino, Inc. ("GCI"), Artemis, Inc. ("Artemis") and 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. Zante, Inc. owns and operates the Sands Regency
hotel/casino in Reno, Nevada and GCP owns and operates the Copa Casino in
Gulfport, Mississippi.
NOTE 2 - EARNINGS PER SHARE
During the three and six months ended December 31, 1998 and 1997, there
were no outstanding convertible securities that would result in dilutive
potential common shares. The Company's options to purchase common stock are not
included in the computation of diluted Earnings Per Share because to do so would
have been antidilutive.
NOTE 3 - 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 includes 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 has
been 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. All
payments are to held in escrow as security for certain representations and
warranties by the Company which are expected to be fulfilled by June 30, 1999.
-6-
<PAGE> 9
THE SANDS REGENT AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED DECEMBER 31, 1998 AND 1997
NOTE 3 - SALE OF SUBSIDIARIES (continued)
Upon consummation of the sales transaction, the Company's net investment
in Patrician, GCI and Artemis was $2.2 million which includes $1.1 million in
deferred tax items retained by the sold companies. The net investment of $2.2
million has been reclassified as a note receivable. The unrecognized gain of
approximately $5.8 will be recognized after the Company's remaining investment
is recovered from the initial and subsequent payments.
The combined net assets of Patrician, GCI, Artemis and GCP sold by the
Company on December 23, 1998 consist of the following:
<TABLE>
<S> <C>
Current assets $ 4,066
Property and Equipment, net 10,439
Deferred tax benefit, non-current 1,215
Other assets 92
Current liabilities (13,641)
--------
$ 2,171
========
</TABLE>
-7-
<PAGE> 10
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Results of operations - Three months ended December 31, 1998 compared to three
months ended December 31, 1997
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.
In the three month period ended December 31, 1998, compared to the same
three months ended December 31, 1997, revenues decreased slightly to $13.2
million from $13.5 million and income from operations improved from a loss from
operations of $1.4 million in the second quarter of fiscal 1998 to a loss from
operations of $315,000 in the second quarter of fiscal 1999. The decrease in
revenues is due to decreased revenues at the Sands Regency of approximately
$330,000 to $7.4 million while revenues at the Copa Casino remained constant at
approximately $5.8 million. The decrease in the loss from operations consists of
improvements from the Sands Regency of $254,000 and from the Copa Casino of
$869,000. The prior year loss from operations at the Sands Regency decreased
from $939,000 to $685,000 and the prior year loss from operations at the Copa
Casino of $499,000 improved to income from operations in the current year second
quarter of approximately $370,000.
The Company had a net loss of $619,000, or loss per share of $.14, in the
quarter ended December 31, 1998 which is an improvement to a net loss of $1.3
million, or loss per share of $.28, in the quarter ended December 31, 1997. The
Sands Regency's portion of the net loss was $659,000 as compared to a net loss
of $810,000 in the December 31, 1997 quarter. The Copa Casino had net income of
approximately $40,000 in the current year second quarter as compared to a net
loss in the prior year second quarter of $445,000. The decline in Sands Regency
revenues is due to reduced occupancy while the improvement in income from
operations and net income is due, in part, to improved methods of operations and
efficiencies.
The increase in lodging revenue of $139,000 in the second quarter of
fiscal 1999, compared to the same quarter in the prior year, is due to an
increase in the Sands Regency's average daily room rate from approximately $26
to $30, an increase of almost 18%. For the same comparable periods, hotel
occupancy decreased from approximately 77.1% to 70.9%.
The decrease in gaming revenue of $295,000, in the December 1998 quarter
versus the December 1997 quarter, is a result of an increase in gaming revenue
from the Copa Casino of approximately $110,000 and a decrease in gaming revenue
from the Sands Regency of approximately $405,000. The decrease in gaming revenue
in Reno is primarily due to the decrease in hotel occupancy.
-8-
<PAGE> 11
Results of operations - Three months ended December 31, 1998 compared to three
months ended December 31, 1997 (continued)
The slight increase in food and beverage revenue of $5,000, in the three
months ended December 31, 1998 versus the comparable prior year quarter,
consists of an increase at the Sands Regency of $31,000 as offset by a decrease
from the Copa Casino of approximately $26,000. In spite of the decline in hotel
occupancy, food revenue per occupied room increased from approximately $18 in
the second quarter of fiscal 1998 to almost $22 in the second quarter of fiscal
1999. Such improvement is due, in part, to the updating of food venues and
increased menu prices.
The decrease in other revenue of $60,000 is primarily attributable to the
Sands Regency and is composed of a decline in various ancillary revenues.
The increase in complimentary lodging, food and beverage, deducted from
revenue, of $91,000 consists principally of an increase in complimentary rooms
provided at the Sands Regency. Such increase is due, in part, to room sales
enticements offered to certain group and wholesale providers in order to improve
room sales.
The decrease in gaming costs and expenses of $403,000 in the quarter ended
December 31, 1998, compared to the quarter ended December 31, 1997, is comprised
of decreases from the Copa Casino and Sands Regency of $112,000 and $291,000,
respectively. The decrease at the Sands Regency consists primarily of a decrease
in salaries and wages as a result of improved operating practices and methods.
The decrease in lodging costs and expenses of $285,000 in the second
quarter of fiscal 1999, compared to the same quarter in fiscal 1998, is
primarily in salaries and wages. Such decrease is a result of improved
efficiencies at the Sands Regency.
The decrease in food and beverage costs and expenses of $172,000, in the
three months ended December 31, 1998, compared to the three months ended
December 31, 1997, is primarily attributable to decreased costs and expenses at
the Copa Casino.
The decrease in maintenance and utilities costs and expenses of $114,000
is primarily attributable to the Sands Regency and consists of a decrease in
salaries and wages and various other costs and expenses of $58,000 and $59,000,
respectively. Such decreases are due, in part, to the decrease in hotel
occupancy and improvements in operational efficiency.
The decrease in general and administrative costs and expenses of $407,000
consists principally of a decrease from the Copa Casino of approximately
$558,000 and an increase from the Sands Regency of approximately $121,000. The
increase at the Sands Regency is primarily due to an increase in advertising and
promotional costs and expenses of $210,000 as offset by a decrease in salaries
and wages of $104,000. The increase in advertising and promotional costs and
expenses is due to the implementation of a new print, billboard and radio
advertising campaigns in the Reno and Northern California market areas and
expanded in-house promotional programs. The decrease in salaries and wages is
due to improved operating methods and practices.
-9-
<PAGE> 12
Results of operations - Three months ended December 31, 1998 compared to three
months ended December 31, 1997 (continued)
The effective income tax rate in the three months ended December 31, 1998
is different from the statutory rate due to certain items that are not
deductible for federal income tax purposes.
Results of operations - First six months of fiscal 1999 compared 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.
In the six months ended December 31 1998, compared to the same six months
ended December 31, 1997, revenues decreased from $28.9 million to $27.4 million
and income from operations improved from a loss from operations of $1.0 million
in the first half of fiscal 1998 to a loss from operations of $619,000 in the
first half of fiscal 1999. The decrease in revenues is due to decreased revenues
at the Sands Regency and Copa Casino of approximately $1.4 million to $15.9
million and $117,000 to $11.5 million, respectively. The decrease in loss from
operations consists of an increase in loss from operations from the Sands
Regency of $573,000 and a decrease from the Copa Casino of approximately
$913,000.
For the first half of fiscal 1999, the Company had a net loss of $1.1
million, or loss per share of $.25, which is an improvement from a net loss of
$1.2 million, or loss per share of $.27, in the first half of fiscal 1998. The
Sands Regency's portion of the net loss was $808,000 as compared to a net loss
of $410,000 in the comparable prior year six months. The Copa Casino had a net
loss of approximately $294,000 in the current year first six months as compared
to a net loss in the prior year first six months of $815,000. The decline in
Sands Regency revenues, income from operations and net income is attributable to
the first quarter and is primarily a result of a decline in hotel occupancy
which was due, in part, to an overall softening in the Reno area market and a
reduction in group business at the Sands Regency.
The decrease in lodging revenue of $129,000 in the first half of fiscal
1999 compared to the same period in the prior year, is primarily due to a
decrease in occupancy. Occupancy declined from 82.9% in the six months ended
December 31, 1997 to 74.2% in the six months ended December 31, 1998. For the
same comparable periods, the average daily rate increased by almost 9% from
approximately $33 in the six months ended December 31, 1997 to $36 in the six
months ended December 31, 1998.
The decrease in gaming revenue of $1.1 million is attributable to the
Sands Regency and is primarily due to the decrease in hotel occupancy. For the
same comparable periods, casino gaming revenue per occupied room also decreased
slightly from $65.60 in the first half of fiscal 1998 to $64.40 in the first
half of fiscal 1999.
-10-
<PAGE> 13
Results of operations - First six months of fiscal 1999 compared to 1998
(continued)
The decrease in food and beverage revenue of $112,000, in the six months
ended December 31, 1998 versus the six months ended December 31, 1997, consists
of decreases at the Copa Casino and Sands Regency of $40,000 and $72,000,
respectively. Such decline at the Sands Regency is due to the decline in hotel
occupancy. Food revenue per occupied room increased from approximately $19 in
the first half of fiscal 1998 to almost $22 in the first half of 1999 which
improvement is due, in part, to the updating of food venues and increased menu
prices.
The decrease in other revenue of $123,000 is primarily attributable to the
Sands Regency and is composed of a decline in various ancillary revenues. The
decrease in other costs and expenses of $45,000 is likewise related to the
decrease in related revenue.
The increase in complimentary lodging, food and beverage, deducted from
revenue, of $85,000 consists principally of an increase in complimentary rooms
provided at the Sands Regency. Such increase is due, in part, to room sales
enticements offered to certain group and wholesale providers in order to improve
room sales.
The decrease in gaming costs and expenses of $569,000 in the six months
ended December 31, 1998, compared to the six months ended December 31, 1997,
consists of decreases from the Copa Casino and Sands Regency of $121,000 and
$448,000, respectively. The decrease at the Sands Regency consists of a decrease
in salaries and wages of approximately $326,000 and a decrease in various other
costs and expenses of $122,000. Such decreases are due, in part, to improved
operating practices and methods.
The decrease in lodging costs and expenses of $391,000 in the first half
of fiscal 1999, compared to the period in fiscal 1998, consists of a decrease in
salaries and wages of approximately $252,000 and a decrease in various other
costs and expenses of $139,000. Such declines are due, in part, to improved
efficiencies at the Sands Regency.
The decrease in food and beverage costs and expenses of $283,000, in the
six months ended December 31, 1998, compared to the six months ended December
31, 1997, consists of a decrease from the Copa Casino of approximately $238,000
and a decrease from the Sands Regency of $45,000. The decrease from the Sands
Regency is due, in part, to the decline in hotel occupancy.
The decrease in maintenance and utilities costs and expenses of $139,000
consists of a decrease from the Sands Regency of approximately $202,000 as
offset by an increase from the Copa Casino of $63,000. The decrease at the Sands
Regency consists of a decrease in utility costs, salaries and wages and various
other costs and expenses of $72,000, $50,000 and $80,000, respectively. Such
decreases are due, in part, to the decrease in hotel occupancy and improvements
in operational efficiency.
The decrease in general and administrative costs and expenses of $402,000
consists of a decrease from the Copa Casino of approximately $752,000 and
increases from the Sands Regency and The Sands Regent of approximately $292,000
and $58,000, respectively. The increase at the Sands
-11-
<PAGE> 14
Results of operations - First six months of fiscal 1999 compared to 1998
(continued)
Regency is primarily due to an increase in advertising and promotional costs and
expenses of $356,000 as offset by a decrease in salaries and wages of $147,000.
The increase in advertising and promotional costs and expenses is due to the
implementation of new print, billboard and radio advertising campaigns in the
Reno and Northern California market areas and expanded in-house promotional
programs. The decrease in salaries and wages is due to improved operating
methods and practices.
The effective income tax rate in the six months ended December 31, 1998 is
different from the statutory rate due to certain items that are not deductible
for federal income tax purposes.
Capital resources and liquidity
On December 23, 1998, the Company closed on an agreement selling all of
its ownership interest in Patrician, GCI and Artemis, which includes 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 has
been deposited into escrow, with the balance payable in monthly installments of
$15,000 or 2% of the Copa's gross gaming revenues, whichever is greater. All
payments are to be held in escrow as security for certain representations and
warranties by the Company which are expected to be fulfilled by June 30, 1999.
The Company's consolidated balance sheet at December 31, 1998 excludes the
assets and liabilities of the former subsidiary companies which previously have
been included upon consolidation. The Company believes that its remaining cash,
cash equivalents and short-term investments, and cash generated from operations,
will continue to be sufficient to meet its needs for the ensuing fiscal year.
The Company's net investment in the former subsidiaries of $2.2 million, after
recording the initial down payment which is held in escrow and is included as a
receivable, has been reclassified as a note receivable on the consolidated
balance sheet.
Other than above, there were no material changes in The Sands Regent's
financial condition nor were there any substantive changes relative to matters
discussed in the Capital Resources and Liquidity section of Management's
Discussion and Analysis of Financial Condition and Results of Operations as
presented in the 1998 Annual Report appearing as Exhibit 13 to the Company's
Form 10-K for the year ended June 30, 1998.
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.
-12-
<PAGE> 15
Year 2000 (continued)
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.
The Company has generally completed the identification phase of its study
and evaluation with respect to those Y2K Systems and Components presently
utilized by the Company. The evaluation phase, which includes internal reviews
and testing as well as inquires to third parties supplying or maintaining Y2K
Systems, is also nearing completion. It is anticipated that the evaluation phase
will be finalized in the third quarter of fiscal 1999. The corrective actions
implementation phase is also in progress which is anticipated to be completed by
the fourth quarter of fiscal 1999.
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 will generally be 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 anticipates that the
Y2K Problem study and assessment, relative to its material third party vendors,
suppliers, customers and other business associates, will be completed by the
fourth quarter of fiscal 1999.
The Company 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 $100,000, to be incurred
over the next 12 months. Such estimate is based upon the Company's study and
assessment and is subject to modification as the study and assessment
progresses. 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
-13-
<PAGE> 16
Year 2000 (continued)
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.
-14-
<PAGE> 17
PART II OTHER INFORMATION
Item 1. Legal Proceedings.
As a result of the December 23, 1998 sale of Patrician, GCI and Artemis,
including the Copa Casino, to Terry W. Green and Joel R. Carter, Sr., the
Company has been extricated from the following legal proceedings as previously
described in the Company's Form 10-K for the year ended June 30, 1998.
The lawsuit by Terry W. Green and Joel R. Carter, Sr. against GCI,
Patrician and the Copa Casino, in Chancery Court of Harrison County,
Mississippi, First Judicial District, is pending dismissal with prejudice on a
joint motion filed by all parties. Further, the related appeal of the Chancery
Court rulings to the Mississippi Supreme Court by GCI, Patrician and the Copa
Casino is also pending dismissal on a joint motion filed by all parties.
The lawsuits by Terry W. Green and Joel R. Carter against The Sands
Regent, in U. S. District Court of the Southern District of Mississippi, Biloxi
Division, was dismissed with prejudice on December 29, 1998. The Bankruptcy
filings of Patrician and GCI were dismissed on February 4, 1999.
As a result of the above sale, the Company is no longer indirectly
involved in, or a party to, the Chancerty Court of Harrison County, Mississippi
lawsuit between the Copa Casino and Mississippi State Port Authority at Gulfport
and The Mississippi Department of Economic and Community Development
Item 2. Changes in Securities.
NONE
Item 3. Defaults Upon Senior Securities.
NONE
Item 4. Submission of Matters to a Vote of Security Holders.
The Annual Meeting of Shareholders was held on November 2, 1998 for the
following purposes:
1. Proposal One - The election of the following members of the Board of
Directors:
<TABLE>
<CAPTION>
Name For Withheld
---- --------- --------
<S> <C> <C>
Ferenc B. Szony 4,062,298 85,264
Louis J. Phillips 4,066,298 81,264
</TABLE>
The remaining continuing Directors are Katherene Latham, Pete
Cladianos, Jr., Jon N. Bengtson, David R. Wood and Pete Cladianos III.
2. Proposal Two - To approve an amendment to the Company's Amended and
Restated Stock Option Plan for Executive and Key Employees of The Sands Regent:
<TABLE>
<CAPTION>
For Against Abstain
--------- ------- -------
<S> <C> <C>
3,771,044 257,874 10,457
</TABLE>
-15-
<PAGE> 18
PART II OTHER INFORMATION (continued)
Item 5. Other information.
NONE
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
10(a) Third Amendment to the Amended and Restated Stock Option Plan
for Executive and Key Employees of The Sands Regent, dated
November 2, 1998
27 Financial Data Schedule.
(b) Reports on Form 8-K:
Form 8-K dated December 23, 1998, filed on January 5, 1999; Amended
on Form 8-K/A filed on February 5, 1999. Includes reporting under
Item 2 - Acquisition of Disposition of Assets and Item 7 - Financial
Statements, Pro Forma Financial Information and Exhibits.
-16-
<PAGE> 19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE SANDS REGENT
(Registrant)
Date: February 12, 1998 By /s/ DAVID R. WOOD
------------------------------------------
David R. Wood, Executive Vice President
Principal Accounting and Financial Officer
-17-
<PAGE> 20
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered
Number Page
------- ------------
<S> <C>
10(a) Third Amendment to the Amended and Restated
Stock Option Plan for Executive and Key
Employees of The Sands Regent, dated
November 2, 1998................................
27 Financial Data Schedule.........................
</TABLE>
<PAGE> 1
THIRD AMENDMENT TO THE
AMENDED AND RESTATED STOCK OPTION
PLAN FOR EXECUTIVE AND KEY EMPLOYEES
OF
THE SANDS REGENT
This Third Amendment to the Amended and Restated Stock Option
Plan for Executive and Key Employees of the Sands Regent (the "Amendment") is
adopted by The Sands Regent, a Nevada corporation (the "Company), effective as
of August 17, 1998, subject to receipt of required shareholder approval.
RECITALS
A. The Amended and Restated Stock Option Plan for Executive and
Key Employees of the Sands Regent (the "Restated Plan") was adopted by the Board
of Directors of the Company (the "Board") on September 16, 1992 and approved by
the shareholders of the Company on November 2, 1992.
B. On February 26, 1993, the Company effected a 100% stock
dividend which, pursuant to the terms of the Restated Plan, resulted in an
automatic increase in the number of shares the Company's Common Stock reserved
for issuance under the Restated Plan from 250,000 shares to 500,000 shares.
C. On August 4, 1997 the Board adopted, and on November 3, 1997
the shareholders of the Company approved, an amendment to the Restated Plan as
follows: (i) increasing the number of shares of the Company's common stock
reserved for issuance under the Restated Plan from 500,000 shares to 800,000
shares, (ii) extending the expiration on the period during which options to
purchase Common Stock may be granted under the Restated Plan from
<PAGE> 2
September 16, 2002 to August 4, 2007 and (iii) deleting all reference to
"Special Committee" and instead provide that all option grants to Officers be in
compliance with Rule 16b-3 and related rules, as amended from time to time,
promulgated under the Securities Exchange Act of 1934, as amended.
D. On December 12, 1997, the Restated Plan was amended to permit
repricing of incentive stock options, in addition to the repricing of
non-qualified options then permitted under the Restated Plan.
E. The Board of Directors desires to amend the Restated Plan,
subject to shareholder approval, to provide for the automatic grant of options
to non-employee directors of the Company on the terms specified herein and to
provide for expanded means of exercising options granted under the Restated
Plan, including cashless exercises of options.
AMENDMENTS
The Restated Plan is amended as follows:
1. Section 1.11 of the Restated Plan entitled "Optionee" is
hereby amended and restated in its entirety to read as follows:
SECTION 1.11 - OPTIONEE
"Optionee" shall mean an Employee or Independent Director
to whom an Option is granted under the Plan.
2. Section 1.19 of the Restated Plan entitled "Independent
Director" is hereby added and reads in its entirety as follows:
2
<PAGE> 3
SECTION 1.19 - INDEPENDENT DIRECTOR
"Independent Director" shall mean a member of the Board
who is not an Employee of the Company.
3. Section 1.20 of the Restated Plan entitled "Termination of
Directorship" is hereby added and reads in its entirety as follows:
SECTION 1.20 - TERMINATION OF DIRECTORSHIP
"Termination of Directorship" shall mean the time when an
Optionee who is an Independent Director ceases to be a member of the Board for
any reason, including but not by way of limitation, a termination by
resignation, failure to be re-elected, death, disability or retirement. The
Board, in its sole and absolute discretion, shall determine the effect of all
matters and question relating to Termination of Directorship with respect to
each Independent Director.
4. Section 2.5 of the Restated Plan entitled "Granting of Options
to Independent Directors" is hereby added and reads in its entirety as follows:
SECTION 2.5 - GRANTING OF OPTIONS TO INDEPENDENT DIRECTORS
(a) During the term of the Plan, a person who continues as an
Independent Director at the 1998 Annual Meeting of Stockholders of the Company
automatically shall be granted (i) an Option to purchase seven thousand five
hundred (7,500) shares of Common Stock on the date of the 1998 Annual Meeting of
Stockholders of the Company, and (ii) an Option to purchase seven thousand five
hundred (7,500) shares of Common Stock on the date of each annual meeting of
stockholders following the 1998 Annual Meeting of Stockholders at which
3
<PAGE> 4
such Independent Director is re-elected to the Board or continues to serve on
the Board; provided, however, that there shall be no grant of Options to an
Independent Director pursuant to clause (i) if the date of the 1998 Annual
Meeting of Stockholders is less than six months following the date of an initial
grant of options to such Independent Director in connection with such
Independent Director's initial appointment or election to the Board.
(b) During the term of the Plan, a person who is initially
elected or appointed to the Board on or after the effective date of this Section
2.5 (i.e., August 17, 1998) and is at the time of such election or appointment
an Independent Director (i) may be granted, by the Board, an Option to purchase
not more that twenty-five thousand (25,000) shares of Common Stock effective as
of the date of such initial election or appointment to the Board and (ii)
automatically shall be granted an Option to purchase seven thousand five hundred
(7,500) shares of Common Stock on the date of each annual meeting of
stockholders following such initial election or appointment to the Board at
which the Independent Director is re-elected to the Board or continues to serve
on the Board; provided, however, that there shall be no grant of Options to an
Independent Director pursuant to clause (ii) if the annual meeting date
referenced in clause (ii) is less than six months following the date of an
initial grant of Options to such Independent Director pursuant to clause (i).
(c) A member of the Board who is an employee of the Company but
whose employment with the Company is terminated after the effective date of this
Section 2.5 (i.e., August 17, 1998) and who remains on the Board as an
Independent Director after such terminated employment will not receive an
initial Option grant pursuant to subparagraph (b)(i),
4
<PAGE> 5
but to the extent that he or she is otherwise eligible, will receive, after
termination of employment with the Company, Options as described in subparagraph
(b)(ii).
5. Section 4.8 entitled "Terms of Options Granted to Independent
Directors" of the Restated Plan is hereby added and reads in its entirety as
follows:
SECTION 4.8 - TERMS OF OPTIONS GRANTED TO INDEPENDENT DIRECTORS
Notwithstanding anything in the Plan to the contrary, the terms
set forth in this Section 4.8 shall apply to Options granted to Independent
Directors.
(a) Each Option granted to an Independent Director shall be a
Non-Qualified Option.
(b) The price per share of the shares subject to each Option
granted to an Independent Director shall equal 100% of the fair market value of
a share of Common Stock (as determined pursuant to the provisions of Section
4.2(b)) on the date the Option is granted.
(c) Options granted to Independent Directors shall become
exercisable in full on the first anniversary of the date of Option grant,
without variation or acceleration hereunder except as provided in Section 4.7.
No portion of an Option which is unexercisable at Termination of Directorship
shall thereafter become exercisable.
(d) No Option granted to an Independent Director may be exercised
to any extent by anyone after the first to occur of the following events:
(i) The expiration of one (1) year following the date of
the Optionee's death, permanent and total disability (within the
meaning of Section 22(e)(3) of
5
<PAGE> 6
the Code), retirement, resignation, failure to be re-elected,
discharge or termination; or
(ii) The expiration of ten (10) years from the date the
Option was granted.
(e) The Board shall administer the Plan, and assume all duties of
the Committee under the Plan, as to all Options granted to Independent
Directors.
6. Section 4.3 (b) of the Restated Plan is hereby amended and
restated in its entirety to read as follows:
(b) Full payment (in cash or check) for the shares with respect
to which such Option or portion thereof is exercised. The Committee (or the
Board, in the case of Options granted to Independent Directors), however, may in
its discretion:
(i) allow a delay in payment of not more than thirty (30)
days following the date the Option, or portion thereof, is
exercised;
(ii) allow payment, in whole or in part, through the
delivery of shares of the Company's Common Stock which have been
owned by the Optionee for at least six months, duly endorsed for
transfer to the Company with a fair market value (as determined
pursuant to the provisions of Section 4.2(b))on the date of
delivery equal to the aggregate exercise price of the Option or
exercised portion thereof;
(iii) allow payment, in whole or in part, through the
surrender of shares of the Company's Common Stock then issuable
upon exercise of the Option having a
6
<PAGE> 7
fair market value (as determined pursuant to the provisions of
Section 4.2(b)) on the date of Option exercise equal to the
aggregate exercise price of the Option or exercised portion
thereof;
(iv) allow payment, in whole or in part, through the
delivery of a full recourse promissory note bearing interest (at
no less than such rate as shall then preclude the imputation of
interest under the Code) and payable upon such terms as may be
prescribed by the Committee (or the Board, in the case of Options
granted to Independent Directors);
(v) allow payment, in whole or in part, through the
delivery of a notice that the Optionee has placed a market sell
order with a broker with respect to shares of Common Stock then
issuable upon exercise of the Option, and that the broker has
been directed to pay a sufficient portion of the net proceeds of
the sale to the Company in satisfaction of the aggregate exercise
price of the Option or exercised portion thereof; or
(vi) allow payment through any combination of the
consideration provided in the foregoing subparagraphs (i), (ii),
(iii), (iv) and (v).
In the case of a promissory note, the Committee (or the Board, in
the case of Options granted to Independent Directors) may also prescribe the
form of such note and the security to be given for such note. The Option may not
be exercised, however, by delivery of a promissory note or by a loan from the
Company when or where such loan or other extension of credit is prohibited by
law.
7
<PAGE> 8
7. Section 5.4 (d) of the Restated Plan is hereby amended and
restated in its entirety to read as follows:
(d) The payment to the Company of all amounts which it is
required to withhold under federal, state or local laws in connection with the
exercise of the Option, which in the discretion of the Committee (or the Board,
in the case of Options granted to Independent Directors) may be in the form of
consideration used by the Optionee to pay for such shares under Section 5.3(b).
I hereby certify that the foregoing Third Amendment to the
Amended and Restated Stock Option Plan for Executive and Key Employees of The
Sands Regent was duly adopted by the Board of Directors of the Company as of
August 17, 1998 and approved by the shareholders of the Company on November 2,
1998.
Executed this 2nd day of November 1998.
/s/ Pete Cladianos III
--------------------------------------
Pete Cladianos III,
Executive Vice President and Secretary
8
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 5,004
<SECURITIES> 20
<RECEIVABLES> 959
<ALLOWANCES> 11
<INVENTORY> 509
<CURRENT-ASSETS> 12,686
<PP&E> 64,261
<DEPRECIATION> 30,576
<TOTAL-ASSETS> 44,506
<CURRENT-LIABILITIES> 2,539
<BONDS> 11,022
0
0
<COMMON> 345
<OTHER-SE> 29,788
<TOTAL-LIABILITY-AND-EQUITY> 44,506
<SALES> 4,052
<TOTAL-REVENUES> 27,350
<CGS> 3,564
<TOTAL-COSTS> 16,270
<OTHER-EXPENSES> 11,699
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,083
<INCOME-PRETAX> (1,527)
<INCOME-TAX> (425)
<INCOME-CONTINUING> (1,102)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,102)
<EPS-PRIMARY> (.25)
<EPS-DILUTED> (.25)
</TABLE>
