<PAGE> 1
EXHIBIT 13
THE SANDS REGENT
SELECTED FINANCIAL DATA
................................................................................
FOR THE YEARS ENDED JUNE 30,
<TABLE>
<CAPTION>
2000 1999(1) 1998(1) 1997(1) 1996(1)
------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Operating revenues(2)........................ $36,376 $43,535 $59,211 $57,527 $59,072
Income (loss) from operations................ 2,881 (42) 233 245 4,192
EBITDA(3).................................... 6,120 3,717 4,706 4,486 8,418
Net income (loss)............................ 1,491 (1,388) (1,219) (762) 2,042
Net income (loss) per share:
Basic................................... $ .33 $ (.31) $ (.27) $ (.17) $ .45
Diluted................................. $ .33 $ (.31) $ (.27) $ (.17) $ .45
Cash dividends per share..................... -- -- -- -- $ .15
OPERATING DATA:
Casino square footage(4)..................... 29,000 27,000 51,000 51,000 51,000
Number of slot machines(4)................... 665 686 1,459 1,409 1,407
Number of hotel rooms(4)(5).................. 836 836 938 938 938
Average hotel occupancy:
Number of room nights................... 257,000 254,000 285,000 289,000 284,000
Percentage(5)........................... 83.9% 76.4% 83.3% 84.3% 82.9%
BALANCE SHEET DATA:
Cash, cash equivalents and short-term
investments(4)............................ $ 9.940 $ 5,550 $ 9,453 $ 7,894 $11,557
Total assets(4).............................. 47,025 43,695 58,901 61,053 64,311
Long-term debt(4)............................ 10,205 491 14,643 4,658 14,816
Total stockholders' equity(4)................ 31,337 29,844 31,235 32,454 33,216
</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) "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.
(4) Information presented as of the end of the period.
(5) In April 1999, the Company discontinued the use of 102 older motel rooms
which were razed.
6
<PAGE> 2
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
................................................................................
RESULTS OF OPERATIONS
The Company sold Patrician, GCI and Artemis, including the Copa Casino, to
unrelated third parties on December 23, 1998. The Company's consolidated
statements of operations and cash flows 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.
COMPARISON OF 2000 TO 1999
For the year ended June 30, 2000, income from operations increased to $2.9
million as compared to a loss from operations of $42,000 for the year ended June
30, 1999. For the same comparable periods, revenues decreased to $36.4 million
from $43.5 million. The increase in income from operations is primarily
attributable to improved operating results at the Sands Regency. The decrease in
revenues is due to the elimination of revenues from the Copa Casino of $11.5
million. Such decrease was partially offset by a $4.3 million increase in
revenues from the Sands Regency, an increase of 13%.
The Company had net income for the year ended June 30, 2000 of $1.5
million, or income per share (basic and diluted) of $.33, as compared to a net
loss of $1.4 million, or loss per share of $.31, in the year ended June 30,
1999. This $2.9 million improvement in net income includes the elimination of
the prior year net loss from the Copa Casino of $294,000 and improved net income
from the Sands Regency from a net loss of $1.1 million in fiscal 1999 to net
income of $1.5 million in fiscal 2000.
Earnings before depreciation, interest expense, gain/(loss) and taxes
(EBITDA) also improved from $3.7 million in the year ended June 30, 1999 to $6.1
million in the year ended June 30, 2000. At the Sands Regency, EBITDA doubled
from approximately $3.1 million in fiscal 1999 to $6.1 million in fiscal 2000.
The improvements in revenue, income from operations, net income and EBITDA
at the Sands Regency are a result of improved gaming revenues and the continued
positive effect of improved methods of operations and increased efficiencies
implemented in fiscal 1999. During the last four months of fiscal 2000, the
Company was positively impacted by 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 or March and ends in June or July. Fiscal 2000
and 2001 are the two out of three years when such major bowling event has or
will take place in Reno. 1999 was the one year out of three in which such a
major bowling event was not held in Reno.
The increase in lodging revenue to $8.7 million in the year ended June 30,
2000, from $8.6 million in the year ended June 30, 1999, is due to an increase
in occupancy. Hotel occupancy improved from approximately 254,000 room nights
(76.4%) in fiscal 1999 to 257,000 room nights (83.9%) in fiscal 2000. For the
same comparable periods, the average room rate was approximately the same at
$34. In early April 1999, the Company discontinued the use of 102 older motel
rooms which were razed.
The $7.2 million decrease in gaming revenue, for the year ended June 30,
2000 versus the year ended June 30, 1999, consists of the elimination of gaming
revenues from the Copa Casino of $10.9 million and increased gaming revenues
from the Sands Regency of $3.7 million. At the Sands Regency, gaming revenues
improved from $17.9 million to $21.6 million, a 21% increase. Such increase is
attributable to an increase in casino gaming revenue per occupied room. Casino
revenue per occupied
7
<PAGE> 3
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
................................................................................
room increased from approximately $68 to $82 which reflects, in part, increased
gaming from non-hotel guests, primarily local residents. In order to attract
non-hotel guests, the Company has added new games, including Bingo in February
2000, and has liberalized rules and payouts. The Company has also implemented
various promotions to reward guest gaming activity.
The decrease in food and beverage revenue of $507,000, in fiscal 2000
versus fiscal 1999, consists of a decrease from the Copa Casino of $917,000
which was partially offset by an increase at the Sands Regency of $410,000. Such
increase at the Sands Regency is due to increased food revenue per occupied room
which increased from approximately $21 in the the year ended June 30, 1999 to
approximately $22 in the year ended June 30, 2000. Such improvement is due, in
part, to the updating of food venues and menu prices and an increase in food and
beverages provided to non-hotel guests.
The slight decrease in other revenue of $29,000, from the year ended June
30, 1999 to the year ended June 30, 2000, includes the elimination of other
revenue from the Copa Casino of $107,000 and an increase attributable to the
Sands Regency of approximately $78,000. The increase at the Sands Regency
consists primarily of improved gift shop retail sales.
The decrease in complimentary lodging, food and beverage, deducted from
revenue, of $464,000 is principally attributable to the elimination of the Copa
Casino.
The decrease in gaming costs and expenses of $5.0 million in fiscal 2000
compared to fiscal 1999 consists of a decrease from the Copa Casino of
approximately $5.5 million and an increase from the Sands Regency of $504,000.
The increase at the Sands Regency includes increases in bingo costs and expenses
and slot route costs and expenses of $221,000 and $127,000, respectively. The
Company commenced bingo operations in February 2000 and the increase in slot
route costs and expenses is due to increased rental costs paid to slot route
location owners. The remaining increase includes a decrease in salaries, wages
and benefits of approximately $162,000 and increases in various other gaming
cost and expenses primarily due to the associated increase in gaming revenue.
The increase in lodging costs and expenses of $124,000 in the year ended
June 30, 2000 compared to the year ended June 30, 1999 consists of a decrease in
salaries, wages and benefits of approximately $70,000 as offset by an increase
in various other costs and expenses of $194,000. Such increase is due, in part,
to the increase in hotel occupancy.
The decrease in food and beverage costs and expense of $362,000, from
fiscal 1999 to fiscal 2000, consists of the elimination of costs and expenses
from the Copa Casino of approximately $634,000 as offset by increased costs and
expenses from the Sands Regency of $272,000. The increase in food and beverage
costs and expenses is due to the increase in related revenue, various price
increases and increases in various other operating costs.
The decrease in maintenance and utilities costs and expenses of $1.6
million consists of the elimination of costs and expenses associated with the
Copa Casino of $1.4 million and a decline from the Sands Regency of
approximately $179,000. The decrease at the Sands Regency is primarily salaries,
wages and benefits and utility costs and is, in part, a result of the continuing
effect of improved efficiencies at the Sands Regency.
The decrease in general and administrative costs and expenses of $2.8
million, in fiscal 2000 versus fiscal 1999, consists of a decrease from the Copa
Casino of approximately $3.2 million as partially offset
8
<PAGE> 4
................................................................................
by an increase from the Sands Regency of $529,000. The increase at the Sands
Regency is due to increases in advertising and promotional costs and expenses
and in incentive compensation. The increased advertising and promotional costs
are due to expanded advertising efforts and in-house promotional programs to
attract hotel and non-hotel guests.
The decrease in depreciation and amortization expense of $521,000, in the
year ended June 30, 2000 compared to the year ended June 30, 1999, is primarily
attributable to the Copa Casino.
The decrease in interest and other expense of $552,000 includes a decrease
due to the elimination of the Copa Casino of $391,000 and a decrease at the
Sands Regency of approximately $161,000. The decrease at the Sands Regency is
primarily due to the elimination of prior accrued interest payable upon the
successful refinancing of the Company's secured bank debt.
The gain on disposition of property and equipment in fiscal 2000 is
primarily due to an insurance recovery on the fire loss of a warehouse building
and its contents. The loss on disposition of property and equipment in fiscal
1999 consists of the write-off of the undepreciated basis of 102 motel rooms and
other low-rise buildings razed in fiscal 1999 and related lease terminations
costs for the early termination of a lease located in such structure. Such
structures were 30 to 35 years old and were 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, 2000 is
different from the statutory rate due, in part, to the impact of certain tax
credits that otherwise reduce income taxes 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 bolster its hotel
occupancy during seasonally slower periods. Further, the Company has also
realized an increase in local gaming business which is not subject to as great a
decline in winter months as the tourism business. Management anticipates that
the trend of experiencing lower operating margins in the second and third
quarters of each fiscal year will continue.
COMPARISON OF 1999 TO 1998
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 was 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 consisted 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
9
<PAGE> 5
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
................................................................................
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 was 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 was 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, was 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, resulting in 836
tower hotel rooms available for use.
The decrease in gaming revenue of $14.2 million, in fiscal 1999 versus
fiscal 1998, was 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 was
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.
The decrease in food and beverage revenue of $1.2 million, for the year
ended June 30, 1999 versus the prior year, consisted of a decrease from the Copa
Casino of approximately $1.1 million and a decrease at the Sands Regency of
$111,000. Such decline at the Sands Regency was 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 was due, in part, to the
updating of food venues and increased menu prices.
The decrease in other revenue of $347,000 consisted 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 was composed of a decline in
various ancillary revenues. Approximately $58,000 of the $108,000 decrease in
other costs and expenses was due to the decrease in related revenue from the
Sands Regency. The remaining decrease in other costs and expenses of $50,000 was
attributable to the Copa Casino.
The decrease in complimentary lodging, food and beverage, deducted from
revenue, of $405,000 was 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,
consisted 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 consisted
of decreases due to reduced gaming revenues and as a result of increased
efficiencies due to
10
<PAGE> 6
................................................................................
improved operating practices and methods. Such decrease included 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, consisted 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 were 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, consisted 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 was 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 consisted of decreases from the Copa Casino of $925,000 and from the
Sands Regency of approximately $339,000. The decrease at the Sands Regency
consisted of decreases in utility costs, repair costs and various other costs
and expenses of $128,000, $111,000 and $100,000, respectively. Such decreases
were 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 consisted 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 was 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 was 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 decreases in salaries, wages and benefits, and in various other
costs and expenses, were 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, was primarily attributable to the Copa Casino.
The decrease in interest and other expense of $685,000 consisted 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 was due to a
lower effective overall interest rate on reduced long-term debt.
The loss on disposition of property and equipment in fiscal 1999 primarily
included the razing and the write-off of the undepreciated basis of 102 motel
rooms in low-rise buildings and other structures 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 were 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 was
different from the statutory rate due to certain items, primarily attributable
to the Copa Casino, that were not deductible for federal income tax purposes.
11
<PAGE> 7
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
................................................................................
CAPITAL RESOURCES AND LIQUIDITY
Cash, cash equivalents and short-term investments increased from $5.6
million at June 30, 1999 to $9.9 million at June 30, 2000. Cash and cash
equivalents provided from operating activities for the years ended June 30,
2000, 1999 and 1998 was $6.9 million, $2.3 million and $3.0 million,
respectively. In addition to cash generated from operating activities, cash was
also generated in fiscal 2000 from the maturity of short-term investments of
$1.3 million, from the receipt of funds held in escrow relative to the December
1998 sale of subsidiaries of $653,000 and from payments on the note receivable
from the sale of these former subsidiaries of $534,000. 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. The Company's short-term investments, which generally
mature in one year or less, represent temporarily invested cash funds which are
generally readily convertible to cash.
Uses of cash included the Company's purchase of short-term investments of
$1.9 million in fiscal 2000 and payments of long-term debt of $10.8 million,
$862,000 and $731,000 in fiscal 2000, 1999 and 1998, respectively. $10 million
of the long-term debt repayment in fiscal 2000 represented refinancing of bank
debt which was otherwise due in full in fiscal 2000. Approximately $443,000 in
cash was utilized in fiscal 2000 for the payment of costs relative to the
long-term debt refinancing. Cash was also utilized for the acquisition of
property and equipment in the amounts of $2.8 million, $1.7 million and $2.0
million in the years ended June 30, 2000, 1999 and 1998, 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 which was subsequently released to the Company in July 1999.
At June 30, 2000, the Company believes that its cash funds and cash
generated from operations 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 improved to approximately $7.7 million at
June 30, 2000 from a deficit of approximately $4.2 million at June 30, 1999.
Such improvement was due to positive working capital generated from operations
and the refinancing of approximately $10.0 million in long-term debt which was
due in fiscal 2000 and was classified as a current liability at June 30, 1999.
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.
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 slot machine
denominations.
YEAR 2000
The Company completed all phases of its study and evaluation of its Y2K
Systems and Components presently utilized by the Company prior to December 31,
1999 including inquiries and follow-up with material third party vendors.
Appropriate corrective actions, as necessary, were also undertaken. Upon the
change in date to the year 2000, the Company did not experience any significant
issues or adverse
12
<PAGE> 8
................................................................................
conditions relative to its Y2K Systems and Components nor was it adversely
impacted by potential Y2K failures experienced by third party vendors.
The cost to the Company to assure Y2K compliance, including remediation
efforts, was insignificant and did not materially affect the Company's financial
condition. The Company believes that there is a minimal probability of future
material adverse impacts relative to potential failures of its Y2K Systems and
Components and has discontinued further Y2K compliance efforts including the
need to develop contingency plans.
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> 9
THE SANDS REGENT
CONSOLIDATED BALANCE SHEETS
................................................................................
JUNE 30, 2000 AND 1999
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................ $ 9,186,487 $ 5,540,120
Short-term investments........................................... 753,201 10,000
Accounts receivable, less allowance for possible losses of
$21,000 and $27,000........................................... 507,175 1,095,966
Note receivable, sale of subsidiaries............................ 180,000 180,000
Inventories...................................................... 630,562 483,086
Federal income tax refund receivable............................. -- 300,001
Prepaid expenses and other assets................................ 1,041,934 1,214,734
----------- -----------
Total current assets..................................... 12,299,359 8,823,907
----------- -----------
Property and equipment:
Land............................................................. 8,486,668 8,092,923
Buildings and improvements....................................... 37,306,906 35,751,549
Equipment, furniture and fixtures................................ 18,150,063 18,508,036
Construction in progress......................................... 214,352 767,816
----------- -----------
64,157,989 63,120,324
Less accumulated depreciation and amortization................... 31,027,361 30,125,978
----------- -----------
Property and equipment, net................................. 33,130,628 32,994,346
----------- -----------
Other assets:
Note receivable, sale of subsidiaries, net....................... 1,207,893 1,741,473
Other............................................................ 454,132 135,098
----------- -----------
Total other assets....................................... 1,662,025 1,876,571
----------- -----------
$47,092,012 $43,694,824
=========== ===========
</TABLE>
---------------
See notes to consolidated financial statements.
14
<PAGE> 10
................................................................................
<TABLE>
<CAPTION>
2000 1999
------------ ------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................................. $ 2,429,720 $ 814,261
Accrued salaries, wages and benefits......................... 1,391,858 853,676
Other accrued expenses....................................... 190,685 270,452
Federal income tax payable................................... 234,327 --
Deferred federal income tax liability........................ 130,794 299,404
Current maturities of long-term debt......................... 262,997 10,752,496
------------ ------------
Total current liabilities............................ 4,640,381 12,990,289
Long-term debt................................................. 10,205,364 490,980
Deferred federal income tax liability.......................... 909,494 369,786
------------ ------------
Total liabilities.................................... 15,755,239 13,851,055
------------ ------------
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, 6,900,722 and 6,898,722 shares issued......... 345,036 344,936
Additional paid-in capital................................... 13,075,583 13,073,803
Retained earnings............................................ 40,274,616 38,783,492
------------ ------------
53,695,235 52,202,231
Treasury stock, at cost; 2,403,000 shares.................... (22,358,462) (22,358,462)
------------ ------------
Total stockholders' equity........................... 31,336,773 29,843,769
------------ ------------
$ 47,092,012 $ 43,694,824
============ ============
</TABLE>
15
<PAGE> 11
THE SANDS REGENT
CONSOLIDATED STATEMENTS OF OPERATIONS
................................................................................
FOR THE YEARS ENDED JUNE 30, 2000, 1999, 1998
<TABLE>
<CAPTION>
2000 1999 1998
----------- ----------- -----------
<S> <C> <C> <C>
Operating revenues:
Gaming............................................. $21,612,684 $28,789,544 $42,971,378
Lodging............................................ 8,651,692 8,562,860 8,878,096
Food and beverage.................................. 6,803,139 7,309,831 8,547,651
Other.............................................. 1,312,238 1,340,969 1,687,505
----------- ----------- -----------
38,379,753 46,003,204 62,084,630
Less complimentary lodging, food and beverage
included above.................................. 2,004,147 2,468,164 2,873,400
----------- ----------- -----------
36,375,606 43,535,040 59,211,230
----------- ----------- -----------
Operating costs and expenses:
Gaming............................................. 9,847,748 14,853,027 22,000,607
Lodging............................................ 4,221,314 4,097,428 4,851,303
Food and beverage.................................. 5,943,627 6,305,549 7,554,325
Other.............................................. 562,327 526,099 634,543
Maintenance and utilities.......................... 3,038,730 4,642,598 5,906,916
General and administrative......................... 6,994,927 9,746,135 13,977,577
Depreciation and amortization...................... 2,885,950 3,406,570 4,052,727
----------- ----------- -----------
33,494,623 43,577,406 58,977,998
----------- ----------- -----------
Income (loss) from operations........................ 2,880,983 (42,366) 233,232
----------- ----------- -----------
Other income (deductions):
Interest and other income.......................... 352,600 352,916 419,728
Interest expense................................... (1,195,542) (1,747,990) (2,433,271)
Gain (loss) on disposition of property and
equipment and lease termination costs........... 124,429 (511,782) (73,792)
----------- ----------- -----------
(718,513) (1,906,856) (2,087,335)
----------- ----------- -----------
Income (loss) before income taxes.................... 2,162,470 (1,949,222) (1,854,103)
Income tax (provision) benefit....................... (671,346) 561,557 634,881
----------- ----------- -----------
Net income (loss).................................... $ 1,491,124 $(1,387,665) $(1,219,222)
=========== =========== ===========
Net income (loss) per share, basic and diluted....... $ 0.33 $ (.31) $ (.27)
=========== =========== ===========
Weighted average shares outstanding:
Basic........................................... 4,496,747 4,497,703 4,498,722
=========== =========== ===========
Diluted......................................... 4,568,007 4,497,703 4,498,722
=========== =========== ===========
</TABLE>
---------------
See notes to consolidated financial statements.
16
<PAGE> 12
THE SANDS REGENT
CONSOLIDATED STATEMENTS OF
STOCKHOLDERS' EQUITY
................................................................................
FOR THE YEARS ENDED JUNE 30, 2000, 1999, 1998
<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,
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
Net income............. -- -- -- 1,491,124 -- -- 1,491,124
Issuance of Company
Common Stock, Stock
Options Exercised.... 2,000 100 1,780 -- -- -- 1,880
--------- -------- ----------- ----------- --------- ------------ -----------
Balances, June 30,
2000................. 6,900,722 $345,036 $13,075,583 $40,274,616 2,403,000 $(22,358,462) $31,336,773
========= ======== =========== =========== ========= ============ ===========
</TABLE>
---------------
See notes to consolidated financial statements.
17
<PAGE> 13
THE SANDS REGENT
CONSOLIDATED STATEMENTS OF CASH FLOWS
................................................................................
FOR THE YEARS ENDED JUNE 30, 2000, 1999, 1998
<TABLE>
<CAPTION>
2000 1999 1998
----------- ----------- -----------
<S> <C> <C> <C>
Operating activities:
Net income (loss)...................................... $ 1,491,124 $(1,387,665) $(1,219,222)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization..................... 2,885,950 3,406,570 4,052,727
(Gain) loss on disposal of property and
equipment...................................... (124,429) 460,243 73,792
(Increase) decrease in accounts receivable........ (64,539) 41,033 (131,595)
(Increase) decrease in inventories................ (147,476) 1,942 15,174
(Increase) decrease in prepaid expenses and other
current assets................................. 172,800 (197,335) (73,400)
Decrease in other assets.......................... 123,870 80,177 26,400
Increase (decrease) in accounts payable........... 1,204,054 272,988 (862,089)
Increase (decrease) in accrued salaries, wages and
benefits....................................... 538,182 (645,142) 190,255
Increase (decrease) in other accrued expenses..... (79,767) 367,255 357,581
Change in federal income taxes
payable/receivable............................. 534,328 387,268 375,388
Change in deferred federal income taxes........... 371,098 (492,780) 199,540
----------- ----------- -----------
Net cash provided by operating activities................ 6,905,195 2,294,554 3,004,551
----------- ----------- -----------
Investing activities:
Purchase of short-term investments..................... (1,993,201) -- --
Sales and maturities of short-term investments......... 1,250,000 10,000 --
Payments received on notes receivable.................. 533,580 96,343 1,237,156
Receipt of funds previously held in escrow and included
in accounts receivable relative to sale of
subsidiaries........................................ 653,330 -- --
Down payment on sale of subsidiaries held in escrow and
reflected in accounts receivable.................... -- (500,000) --
Cash retained by former subsidiary companies upon
sale................................................ -- (3,276,839) --
Additions to property and equipment.................... (2,814,181) (1,683,863) (1,995,750)
Proceeds from sale of property, equipment and other
assets.............................................. 327,783 32,369 44,650
----------- ----------- -----------
Net cash used in investing activities.................... (2,042,689) (5,321,990) (713,944)
----------- ----------- -----------
</TABLE>
---------------
See notes to consolidated financial statements.
18
<PAGE> 14
................................................................................
<TABLE>
<CAPTION>
2000 1999 1998
------------ ----------- ----------
<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............................. 10,000,000 239,368 --
Payment of costs relative to issuance of long-term
debt................................................ (442,904) -- --
Payments on long-term debt............................. (10,775,115) (862,273) (730,845)
Issuance of Company common stock....................... 1,880 -- --
Purchase of Company common stock....................... -- (3,627) --
------------ ----------- ----------
Net cash used in financing activities.................... (1,216,139) (635,887) (730,845)
------------ ----------- ----------
Increase (decrease) in cash and cash equivalents......... 3,646,367 (3,663,323) 1,559,762
Cash and cash equivalents, beginning of year............. 5,540,120 9,203,443 7,643,681
------------ ----------- ----------
Cash and cash equivalents, end of year................... $ 9,186,487 $ 5,540,120 $9,203,443
============ =========== ==========
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.... $ 411,405 $ -- $ 76,914
============ =========== ==========
Interest paid, net of amount capitalized............... $ 1,331,532 $ 1,534,329 $2,026,378
============ =========== ==========
Federal income taxes paid.............................. $ -- $ 300,000 $ --
============ =========== ==========
</TABLE>
19
<PAGE> 15
THE SANDS REGENT
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
................................................................................
FOR THE YEARS ENDED JUNE 30, 2000, 1999, 1998
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 subsidiary 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 were 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 Casino/Hotel in Reno,
Nevada and, through December 23, 1998, the Copa Casino in Gulfport, Mississippi
which was 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 casino-hotel 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>
2000 1999 1998
---------- ---------- ----------
<S> <C> <C> <C>
Hotel............................................. $ 368,969 $ 460,549 $ 442,875
Food and beverage................................. 1,383,996 1,727,192 2,202,749
Other............................................. 35,108 31,204 55,192
---------- ---------- ----------
$1,788,073 $2,218,945 $2,700,816
========== ========== ==========
</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> 16
................................................................................
(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. As of June 30, 2000, substantially all of the
Company's short-term investments are classified as available-for-sale.
(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. 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 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> 17
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, 2000.
(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")
and the Securities and Exchange Commission ("SEC")
On June 30, 1998, the FASB issued Statement of Financial Accounting
Standards ("SFAS") No. 133 entitled "Accounting for Derivative Instruments and
Hedging Activities". 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.
In December 1999, the SEC issued Staff Accounting Bulletin ("SAB") No. 101,
"Revenue Recognition in Financial Statements". SAB No. 101 clarifies existing
accounting principles related to revenue recognition in financial statements.
The Company is required to comply with the provisions of SAB No. 101 by the
fourth quarter of 2001. Due to the nature of the Company's operations,
management does not believe that SAB No. 101 will have a significant impact on
the Company's financial statements.
(m) Use of estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America 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 1999 and 1998 consolidated
financial statements to conform to the 2000 presentation.
22
<PAGE> 18
................................................................................
NOTE 2 -- SHORT-TERM INVESTMENTS
Short-term investments at June 30, 2000 primarily consist of a government
agency note carried at amortized cost, which approximates market and matures in
August 2000.
NOTE 3 -- NOTE RECEIVABLE, SALE OF SUBSIDIARIES
In December 1998, the Company closed an agreement selling all of its
ownership interest in Patrician, GCI and Artemis, which included a 100%
ownership interest in the Copa Casino, for $8.5 million. The agreement provided
for an initial payment of $500,000 with the balance payable in monthly
installments of the greater of $15,000 or 2% of the Copa's gross gaming
revenues. The initial payment and monthly payments through June 30, 1999,
aggregating $653,000, were held in escrow as security for certain
representations and warranties and are included in accounts receivable on the
consolidated balance sheet at June 30, 1999. Such amounts 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 which 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.
At June 30, 2000, the balance of the note receivable, net (the net investment)
is $1.4 million. $180,000 of the note receivable, sale of subsidiaries is
reflected as a current asset.
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 to the Company.
23
<PAGE> 19
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,
---------------------------
2000 1999
----------- -----------
<S> <C> <C>
Bank term loan; interest at 10.75% per annum; monthly
payments of interest only with the principal balance due
in full in December 2004; subject to required principal
payments to the extent that the balance exceeds certain
multiples of EBITDA (3.5 through October 2001, 3.0 from
November 2001 to October 2002, 2.75 from November 2002 to
October 2003 and 2.5 from November 2003 to October 2004);
secured by a deed of trust and security interest in all
real, personal and other property of the Company, an
assignment of the Note Receivable due from Gulfside Casino
Partnership and a pledge of the Company's 100% stock
ownership interest in its wholly owned subsidiary, Zante,
Inc. ..................................................... $10,000,000 $ --
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; 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 was 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; paid in full in December 1999. .............. -- 10,532,066
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 $1,418,000 and accumulated
depreciation of approximately $857,000 at June 30, 2000,
are included in property and equipment and are being
depreciated over their estimated useful lives. ........... 468,361 711,410
----------- -----------
10,468,361 11,243,476
Less current maturities..................................... 262,997 10,752,496
----------- -----------
Long-term portion........................................... $10,205,364 $ 490,980
=========== ===========
</TABLE>
The bank term loan, entered into in December 1999, requires the Company to
comply with certain financial and other covenants, restricts future encumbrances
and limits situations where a change in control in the Company may occur. The
financial covenants include requiring that a minimum EBITDA (earnings before
interest expense, taxes, depreciation and amortization) be maintained, that a
minimum tangible net worth be maintained and that unrestricted cash, cash
equivalents and investments be maintained in an amount of at least $1.25
million. The covenants also include a limitation on capital expenditures in each
fiscal year, restrictions on investment activities and the sale or disposition
of a significant portion of the Company's assets, restrictions on advances from
Zante, Inc. to the Company and various other reporting and financial operating
requirements and restrictions. The Company believes that it is in compliance
with the covenants, requirements and restrictions.
24
<PAGE> 20
................................................................................
Long-term debt at June 30, 2000 is payable as follows:
<TABLE>
<CAPTION>
YEAR ENDING
JUNE 30, AMOUNT
----------- -----------
<S> <C>
2001............................................................... $ 262,997
2002............................................................... 205,364
2003............................................................... --
2004............................................................... --
2005............................................................... 10,000,000
-----------
$10,468,361
===========
</TABLE>
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
serve. 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 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 25% 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,
vested on the first anniversary date of the repricing. The options granted to
replace the unvested cancelled options vest 25% each year commencing on the
first anniversary date of the repricing.
25
<PAGE> 21
THE SANDS REGENT
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (continued)
................................................................................
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, 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 granted........................................ 82,500 1.74
Options exercised...................................... (2,000) (0.94)
Options cancelled...................................... (27,000) (1.71)
-------- ------
Outstanding, June 30, 2000................................ 601,000 $ 1.59
======== ======
Options Exercisable
-----------------------
At June 30, 1998.......................................... 16,000 $ 3.50
======== ======
At June 30, 1999.......................................... 228,000 $ 1.83
======== ======
At June 30, 2000.......................................... 370,500 $ 1.65
======== ======
</TABLE>
At June 30, 2000, options to purchase 52,864 shares were available for
grant under the stock option plan.
The following table sets forth certain information with respect to stock
option grants outstanding at June 30, 2000:
<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....................... 156,500 8.4 years $0.93 76,500 $0.95
$1.66 to $2.25....................... 444,500 7.9 years 1.82 294,000 1.83
------- --------- ----- ------- -----
$ .88 to $2.25....................... 601,000 8.0 years $1.59 370,500 $1.65
======= ========= ===== ======= =====
</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
26
<PAGE> 22
................................................................................
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,
------------------------------------------
2000 1999 1998
---------- ----------- -----------
<S> <C> <C> <C>
Net income (loss):
As reported................................... $1,491,124 $(1,387,665) $(1,219,222)
Pro forma..................................... 1,409,309 (1,537,665) (1,322,397)
Basic earnings (loss) per share:
As reported................................... $0.33 $(0.31) $(0.27)
Pro forma..................................... 0.31 (0.34) (0.29)
Diluted earnings (loss) per share:
As reported................................... $0.33 $(0.31) $(0.27)
Pro forma..................................... 0.31 (0.34) (0.29)
Weighted average assumptions:
Expected stock price volatility............... 100.0% 100.0% 100.0%
Risk-free interest rate....................... 6.1% 4.6% 6.3%
Expected option lives......................... 2.6 years 2.2 years 2.3 years
Estimated fair value of options granted....... $1.03 $0.52 $1.06
</TABLE>
NOTE 6 -- FEDERAL INCOME TAXES
The Company's income tax (provision) benefit consists of the following:
<TABLE>
<CAPTION>
2000 1999 1998
--------- -------- ---------
<S> <C> <C> <C>
Current.............................................. $(300,249) $ 68,776 $ 834,421
Deferred............................................. (371,097) 492,781 (199,540)
--------- -------- ---------
$(671,346) $561,557 $ 634,881
========= ======== =========
</TABLE>
27
<PAGE> 23
THE SANDS REGENT
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (continued)
................................................................................
The Company's effective tax rate differs from the federal statutory rate as
follows:
<TABLE>
<CAPTION>
2000 1999 1998
---- ----- -----
<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)
General business credits.................................... (1.4) (1.7) (2.0)
Other....................................................... (1.6) 7.0 2.0
---- ----- -----
31.0% (28.8)% (34.2)%
==== ===== =====
</TABLE>
The components of the Company's net deferred federal income tax liability
are as follows at June 30:
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
Deferred tax assets:
Net operating loss & credit carryforwards.............. $ -- $ 356,463
Alternative minimum tax credit......................... 1,125,418 1,620,127
Accrued expenses....................................... 84,591 72,930
Deferred gain.......................................... 410,094 410,094
Other.................................................. 40,300 30,979
----------- -----------
1,660,403 2,490,593
----------- -----------
Deferred tax liabilities:
Property and equipment................................. (2,445,006) (2,756,470)
Prepaid expenses....................................... (255,685) (394,015)
Other.................................................. -- (9,298)
----------- -----------
(2,700,691) (3,159,783)
----------- -----------
Net deferred federal income tax liability............ $(1,040,288) $ (669,190)
=========== ===========
</TABLE>
The Company has a March 31 tax year-end.
NOTE 7 -- EARNINGS PER SHARE
Earnings Per Share are calculated in accordance with Financial Accounting
Standards ("SFAS") No. 128 -- "Earnings Per Share". SFAS No. 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. Diluted
earnings per share reflects the addition of potentially dilutive securities
which, for the Company, consist solely of stock options. Dilution is determined
based on the assumption that options issued pursuant to the Company's stock
option plans (see Note 5) are exercised and repurchased at the average price for
the periods presented.
28
<PAGE> 24
................................................................................
For the year ended June 30, 2000, weighted average diluted shares include
options to acquire approximately 71,000 shares issuable pursuant to the
Company's stock option plans. Options to purchase approximately 402,000 shares
of common stock at June 30, 2000 were not included in the computation of
dilutive earnings per share because the options' exercise prices were greater
than the average market price of the common shares. For the years ended June 30,
1999 and 1998, 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>
2000
Operating revenues...................... $ 9,184,266 $ 7,764,807 $8,624,079 $10,802,454
Income (loss) from operations........... 947,063 (305,969) 398,351 1,841,538
Net income (loss)....................... 610,955 (318,271) 143,428 1,055,012
Net income (loss) per share:
Basic................................ $0.14 $(0.07) $0.03 $0.23
Diluted.............................. $0.13 $(0.07) $0.03 $0.23
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
</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> 25
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, 2000 and 1999, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended June 30, 2000. 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 auditing standards generally
accepted in the United States of America. 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, 2000 and 1999, and the results of their operations
and their cash flows for each of the three years in the period ended June 30,
2000 in conformity with accounting principles generally accepted in the United
States of America.
/s/ Deloitte & Touche LLP
Reno, Nevada
August 7, 2000
30
<PAGE> 26
................................................................................
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
Chairman of the Board
Pete Cladianos, Jr.
Vice Chairman of the Board
Ferenc B. Szony
President and Chief Executive Officer
David R. Wood(1)
Executive Vice President,
Treasurer and Chief Financial Officer
Pete Cladianos III
Secretary
Jon N. Bengtson(1)
Louis J. Phillips
Larry Tuntland(1)
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 6, 2000
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
