U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB
(Mark One)
X Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
---- Act of 1934 for the quarterly period ended June 30, 2001
____ Transition report pursuant to 13 or 15(d) of the Securities Exchange Act of
1934 for the transition period from _____________ to _____________ .
Commission File No. 1-4385
DUNES HOTELS AND CASINOS INC.
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(Exact name of business issuer as specified in its charter)
NEW YORK 11-1687244
-------------------------------- ----------------------------------
(State or other jurisdiction or I.R.S. Employer Identification No.
incorporation or organization)
46735 County Road 32B, P.O. Box 130, Davis, California 95617
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(Address of principal executive offices)
(530) 753-4890
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(Issuer's telephone number)
NOT APPLICABLE
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(Former name, former address and former fiscal year, if changed since last
report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the exchange Act during the past 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 or the past 90 days.
Yes X No
--- ----
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: 4,470,615 shares of common
stock, $.50 par value as of August 1, 2001.
Transitional Small Business Disclosure Format (check one): Yes No X
---- ----
-1-
DUNES HOTELS AND CASINOS INC.
INDEX
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Page
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Part 1. Financial Information
Item 1. Financial Statements
----------------------------
Condensed Consolidated Balance Sheets 3
June 30, 2001 and December 31, 2000
Condensed Consolidated Statements of Loss 5
for the three months ended June 30, 2001
and 2000
Condensed Consolidated Statements of Loss 6
for the six months ended June 30, 2001
and 2000
Condensed Consolidated Statements of Cash Flows 7
for the six months ended June 30, 2001
and 2000
Notes to Condensed Consolidated Financial 8
Statements
Item 2. Management's Discussion and Analysis of
------------------------------------------------
Financial Condition and Results of Operations 14
---------------------------------------------
Part II. Other Information
Item 1. Legal Proceedings 19
------------------------------------
Item 2. Changes in Securities 19
-----------------------------
Item 3. Defaults Upon Senior Securities 19
---------------------------------------
Item 4. Submission of Matters to a Vote of Security Holders 19
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Item 5. Other Information 19
-------------------------
Item 6. Exhibits and Reports on Form 8-K 19
----------------------------------------
Signatures 20
2
DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, 2001 AND DECEMBER 31, 2000
(Dollars in thousands)
ASSETS
June December
30, 2001 31, 2000
------------ -------------
(Unaudited)
Cash and cash equivalents $ 3,705 $ 4,241
Marketable securities 450 422
Receivables
Trade 37
Real estate sales 769 526
Inventory of real estate held for sale 187 1,126
Prepaid expenses 28 56
Property and equipment, less accumulated
depreciation and amortization of $917
and $862 in 2001 and 2000 3,082 3,134
Other assets 27 4
------------ -------------
$ 8,248 $ 9,546
============ =============
See notes to condensed consolidated financial statements
3
DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
JUNE 30, 2001 AND DECEMBER 31, 2000
(Dollars in thousands)
LIABILITIES AND SHAREHOLDERS' EQUITY
June December
30, 2001 31, 2000
------------ -------------
(Unaudited)
Accounts payable $ 154 $ 143
Accrued expenses 477 478
Deferred income 68 159
Long-term debt and capital lease obligation 468 589
Accrued preferred stock dividends in arrears 875 1,389
------------ -------------
2,042 2,758
------------ -------------
Shareholders' equity
Preferred stock - authorized 10,750,000
shares ($.50 par); issued 10,512
shares Series B $7.50 cumulative
preferred stock, outstanding 5,898
shares and 9,610 shares at June 30,
2001 and December 31, 2000, respectively,
aggregate liquidation value $1,612,
including dividends in arrears 5 5
Common stock - authorized 25,000,000 shares
($.50 par); issued 7,799,780 shares,
outstanding 4,496,444 shares and 5,094,340
shares at June 30, 2001 and December 31,
2000, respectively 3,900 3,900
Capital in excess of par 25,881 25,881
Deficit (20,833) (20,960)
------------ -------------
8,953 8,826
Treasury stock at cost; Preferred -
Series B, 4,614 shares
Common 3,303,336 shares (2,747) (2,038)
------------ -------------
Total shareholders' equity 6,206 6,788
------------ -------------
$ 8,248 $ 9,546
============ =============
See notes to condensed consolidated financial statements
4
DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF LOSS
THREE MONTHS ENDED JUNE 30, 2001 AND 2000
(Dollars in thousands, except per share)
UNAUDITED
2001 2000
--------------- --------------
Revenues
Sales of real estate $ 224 $ 683
Rental income, agricultural properties 13 15
Drying and storage revenues 81 22
--------------- --------------
318 720
--------------- --------------
Cost and expenses
Cost of real estate sold 228 705
Cost and expenses of rental income 1 1
Cost of drying and storage revenues 53 71
Selling, administrative and general
Corporate 246 106
Real estate operations 5 43
Depreciation 33 33
--------------- --------------
566 959
--------------- --------------
Loss before other credits (charges) and income
taxes (248) (239)
Other credits (charges)
Interest and dividend income 38 57
Interest expense (14) (21)
Other income 3
Gain / (loss) on marketable securities, net 30 9
--------------- --------------
57 45
--------------- --------------
Loss before income taxes (191) (194)
Income taxes (4) (5)
--------------- --------------
Net loss $ (195) $ (199)
=============== ==============
Weighted average number of shares outstanding 4,612,495 5,966,973
Basic and diluted loss per common share $ (0.05) $ (0.04)
=============== ==============
See notes to condensed consolidated financial statements
5
DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF LOSS
SIX MONTHS ENDED JUNE 30, 2001 AND 2000
(Dollars in thousands, except per share)
UNAUDITED
2001 2000
--------------- --------------
Revenues
Sales of real estate $ 949 $ 1,078
Rental income, agricultural properties 27 29
Drying and storage revenues 162 35
--------------- --------------
1,138 1,142
--------------- --------------
Cost and expenses
Cost of real estate sold 983 1,164
Cost and expenses of rental income 2 2
Cost of drying and storage revenues 135 139
Selling, administrative and general
Corporate 451 467
Real estate operations 27 85
Depreciation 67 65
--------------- --------------
1,665 1,922
--------------- --------------
Loss before other credits (charges) and income
taxes (527) (780)
Other credits (charges)
Interest and dividend income 75 104
Interest expense (30) (43)
Other income 3 3
Gain / (loss) on marketable securities, net 96 30
--------------- --------------
144 94
--------------- --------------
Loss before income taxes (383) (686)
Income taxes (4) (5)
--------------- --------------
Net loss $ (387) $ (691)
=============== ==============
Weighted average number of shares outstanding 4,612,495 5,966,973
Basic and diluted loss per common share $ (0.09) $ (0.12)
=============== ==============
See notes to condensed consolidated financial statements
6
DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2001 AND 2000
(Dollars in thousands)
UNAUDITED
2001 2000
--------------- --------------
Cash flows from operating activities:
Net cash provided by operating activities $ 322 $ 487
--------------- --------------
Cash flows from investing activities:
Investment in marketable securities (28) (131)
--------------- --------------
(28) (131)
--------------- --------------
Cash flows from financing activities
Payments on long-term debt (121) (71)
Purchase of treasury stock (709)
--------------- --------------
(830) (71)
--------------- --------------
Increase in cash and cash equivalents (536) 285
Cash and cash equivalents, beginning of period 4,241 3,323
--------------- --------------
Cash and cash equivalents, end of period $ 3,705 $ 3,608
=============== ==============
See notes to condensed consolidated financial statements
7
DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
1. Basis of presentation:
The condensed consolidated financial information included herein is
unaudited, except that the balance sheet at December 31, 2000, was derived
from the audited financial statements included in the Company's 2000 Form
10-KSB. The June 30, 2001 information reflects all adjustments (consisting
solely of normal recurring adjustments) which are, in the opinion of
management, necessary for a fair presentation of the financial position,
results of operations and cash flows of the Company.
The results of operations for the six months ended June 30, 2001, are not
necessarily indicative of the results to be expected for the full year.
Further, certain information and note disclosures normally included in the
Company's annual financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted. These
condensed consolidated financial statements should be read in conjunction
with the consolidated financial statements and notes thereto included in
the Company's Form 10-KSB annual report for 2000 filed with the Securities
and Exchange Commission.
2. Consolidation:
The accompanying consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries Continental California
Corporation (Continental), M&R Corporation (MRC), and MRC's subsidiary M&R
Investment Company, Inc. (MRI) and MRI's subsidiaries SHF Acquisition
Corporation (SHF) and South Lake Acquisition Corporation (South Lake),
after elimination of all material inter-company balances and transactions.
3. Legal proceedings:
FDIC Litigation/Change of Control
---------------------------------
On January 19, 2001, General Financial Services, Inc. completed the
foreclosure of 3,000,000 shares of the Company's common stock pursuant to
the order of the court in the proceeding Federal Deposit Insurance
Corporation, et al. v. John B. Anderson et al., United States District
Court, District of Nevada, Case No. CV-S-95-00679-PMP (LRL), on July 14,
1995. The Company has no further involvement in these legal proceedings.
For additional information regarding these legal proceedings, see Note 10
to the financial statements included in the Company's Form 10-KSB for the
fiscal year ended December 31, 2000.
Injunctive Action regarding Tender Offer
----------------------------------------
On April 3, 2000, JBA, GFS and GFS Acquisition filed an action against the
USI Corp., Barney Kreutzer and Thomas Honton (collectively the "USI Group")
in the U.S. District Court for the District of Kansas alleging, among other
things, violations of the Williams Act,ss.ss.13(d), 14(d) and 14(e) of the
Securities Exchange Act of 1934, 15 U.S.C. 78a et seq. ("Williams Act").
The case is captioned J.B.A. Investments, Inc. et al. v. USI Corp.,
8
DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
et al. Case No. 00127 WEB (D. Kan. 2000). The plaintiffs allege that the
USI Group conducted a tender offer for the Company's non-convertible Series
B preferred stock in violation of the Williams Act. Upon information
believed to be reliable, USI Group was able to purchase approximately 3000
shares of the Company's Series B preferred stock. The plaintiffs further
allege that USI Group failed to file any of the necessary reports required
under the Williams Act, failed to make material disclosures to the former
Series B preferred stockholders and engaged in fraudulent practices in
conjunction with the alleged tender offer. The plaintiffs seek a
preliminary and permanent injunction prohibiting the USI Group from
completing the tender offer, recission of the Series B preferred stock
purchases by the USI Group and damages. On August 3, 2000, the Company was
joined as a plaintiff.
The USI Group and the plaintiffs have consented to an order halting any
further purchase of Series B preferred stock by the USI Group, allowing the
Company to instruct its transfer agent to stop the transfer of such shares
to the USI Group and precluding the USI Group from transferring or
otherwise disposing the acquired Series B preferred stock.
On March 9, 2001, the USI Group filed an answer and several counter-claims
against the plaintiffs, including the Company. USI subsequently withdrew
its answer and counter-claims and filed an amended answer denying
plaintiffs' claims without the previously stated counter-claims against the
plaintiffs and the Company.
While management believes in the merits of the action against the USI
Group, there can be no assurance as to the outcome of the action and
ultimate ownership of the contested Series B preferred stock.
4. Contingencies:
(a) At June 30, 2001, the Company has a net operating loss carry forward
(NOL) of approximately $53,298,000. The Board of Directors believes
that this NOL is subject to severe limits under the Internal Revenue
Code and as a result, the Board of Directors believes there is
substantial doubt as to whether the NOL has any value to the Company.
If there has been an ownership change for purposes of Section 382 of
the Internal Revenue Code of 1986, as amended (the Code), then there
is a limitation on the amount of income that can be offset by NOL
carryovers. In general, an ownership change occurs when a major
shareholder of a loss corporation increases their ownership by more
than 50%, which is tested over a three-year period. Depending on the
interpretation of the IRS, an effective change in control may have
occurred as early as January 4, 2000, upon the order vesting voting
control with GFS.
(b) SHF was advised in 1991 of possible contamination of 40 acres at Sam
Hamburg Farm of approximately 5,000 cubic yards of soil. The Company,
through its chemical and toxic clean-up consultants, has been working
with the California State Environmental Protection Agency in seeking
alternate means to the disposal in toxic dump sites of the chemical
and toxics-laden soil.
9
DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
Because of the ongoing testing, the State of California has not
imposed a disposal date upon the Company. The Company has disposed of
1,000 cubic yards of soil to date. Cost of disposal of the remaining
soil is estimated at $125 to $200 per cubic yard or approximately
$500,000 to $800,000, of which $472,000 has been accrued. However, if
on-site remediation can be achieved, it is estimated that the cost
will be no more than $170,000. The Company is unable to predict when
the ongoing testing will be complete or what the outcome of these
tests will be. Accordingly, it is reasonably possible the estimates
will change materially in the near term as the testing and remediation
work continues.
5. Loss per common share:
Loss per common share has been computed using the weighted average number
of shares outstanding during the quarter: 4,612,495 and 5,966,973 for the
quarters ended June 30, 2001 and 2000, respectively. Dividends on the
Series B preferred stock have been deducted from income or added to the
loss applicable to common shares. Dividends on the Company's Series B
preferred stock have not been paid since the first quarter of 1982. The
Company is in arrears on such dividends in the amount of approximately
$874,505 as of June 30, 2001.
During June 2001, the Company completed abandoned property reports to the
various states as required by state law. This resulted from the Company's
efforts to locate the affected Series B preferred and common stockholders
in connection with its tender offer completed during the first quarter of
2001. In general, state law requires the Company to abandon shares of stock
or their value when shareholders are deceased, without adequate asset
transfer arrangements, or change their mailing address without informing
the Company or without the Company being able to locate them. The states
accepted cash in lieu of the abandoned securities. The amounts paid per
share were the same as those paid in the Company's tender offer ($1.00 per
share of common stock share and $30.00 per share of Series B preferred
stock). By June 30, 2001, the Company abandoned 2,637 shares of Series B
preferred stock and 170,333 shares of common stock. These shares are
currently being held as treasury shares. As of August 13, 2001, the Company
had abandoned an additional 62 shares of Series B preferred stock and 3,253
shares of common stock. These additional abandoned shares are still
included in the total number of outstanding shares outstanding as of June
30, 2001, and in the per share data for the three and six months ended June
30, 2001.
As a result of the purchase of Series B preferred shares in the tender
offer and the abandonment of Series B preferred stock, the accumulated
dividends on the Series B preferred stock were decreased by $536,400. The
Company has no present intention to pay dividends on either its common or
preferred shares.
On January 1, 2000, there were 6,375,096 common shares outstanding. On
March 3, 2000, the Company foreclosed on the 1,280,756 common shares that
had been pledged as collateral in favor of a subsidiary of the Company. On
June 30, 2000, there were 5,094,340 common shares outstanding. See Note 10
to the Company's financial statements included in the Form 10-KSB for the
year ended December 31, 2000.
10
DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
On January 1, 2001, there were 5,094,340 common shares outstanding. On
February 15, 2001, the Company acquired 427,563 common shares pursuant to
its tender offer for common stock. By June 30, 2001, the Company had
acquired an additional 17,534 shares of common stock as a result of
shareholders who had submitted incomplete or defect letters of transmittal
in connection with the tender offer having cured such defects. As discussed
above, on June 1, 2001, the Company effectively abandoned to the various
states, 173,586 common shares pursuant to the abandoned property laws of
the states. On June 30, 2001, there were 4,496,444 common shares
outstanding.
The following data show the amounts used in computing loss per share and
the effect on loss and the weighted average number of shares of dilutive
potential common stock:
Six Months Ended Six Months Ended
June 30, 2001 June 30, 2000
-------------- -------------
Loss from operations $(387) $(691)
Less: preferred dividends ( 22) ( 36)
------ ------
Loss to common stockholders
used in basic EPS $(409) $(727)
====== ======
Weighted average number
of common shares used
in basic and diluted EPS 4,612,495 5,966,973
========= =========
Three Months Ended Three Months Ended
June 30, 2001 June 30, 2000
------------- -------------
Loss from Operations $(195) $(199)
Less: preferred dividends ( 11) ( 18)
------ ------
Loss to common stockholders
used in basic EPS $(206) $(217)
====== ======
Weighted average number
of common shares used
in basic and diluted EPS 4,612,495 5,966,973
========= =========
6. Segment Information:
The Company's operations are classified into three principal reporting
segments that provide different services. Separate management of each
segment is required because each business unit is subject to different
marketing, production, and technology strategies. The following table shows
external revenues, depreciation, loss and assets for the reportable
segments.
11
DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
Reportable Segments (in thousands)
Grain Drying
And Storage Real Estate Farming Total
----------- ----------- ------- -----
Six Months Ended June 30, 2001
External revenue $162 $949 $ 27 $1,138
Depreciation 67 67
(Loss)/income (40) (61) 25 (76)
Assets 3,083 809 146 4,038
Six Months Ended June 30, 2000
External revenue $35 $1,078 $ 29 $1,142
Depreciation 65 65
(Loss)/income (169) (171) 27 (313)
Assets 3,858 2,592 146 5,796
Three Months Ended June 30, 2001
External revenue $81 $224 $ 13 $318
Depreciation 33 33
(Loss)/income (5) (9) 12 (2)
Assets 3,083 809 146 4,038
Three Months Ended June 30, 2000
External revenue $22 $683 $ 15 $720
Depreciation 33 33
(Loss)/income (82) (65) 14 (133)
Assets 3,058 2,592 146 5,796
12
DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
Six Months Six Months Three Months Three Months
Ended Ended Ended Ended
June 30,2001 June 30, 2000 June 30,2001 June 30, 2000
Revenues
Total for reportable
Segments $1,138 $1,142 $318 $720
------------------------------------------------------
Total $1,138 $1,142 $318 $720
======================================================
Loss
Total for reportable
Segments $ (76) $(313) $ (2) $(133)
Corporate expenses (451) (467) (246) (106)
Interest income/
expense & other 144 94 57 45
------------------------------------------------------
Loss before income
Taxes $(383) $(686) $(191) $(194)
======================================================
Assets
Total for reportable
Segments $4,038 $5,796 $4,038 $5,796
Cash, securities &
Prepaids 4,210 4,068 4,210 4,068
------------------------------------------------------
Total $8,248 $9,864 $8,248 $9,864
======================================================
13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
-----------------------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
Certain information included herein contains statements that are
forward-looking, such as anticipated liquidity requirements for the coming
fiscal year and anticipated sources of liquidity for the coming fiscal year.
Such forward-looking information involves important risks and uncertainties that
could significantly affect the Company's financial condition and future results
of operations, and, accordingly, such future financial condition and results of
operation may differ from those expressed in any forward-looking statements made
herein. These risks and uncertainties include, but are not limited to, those
risks relating to actual costs necessary to clean-up certain real property
chemical contamination, real estate market conditions and general economic
conditions, the abilities of certain third parties to obtain financing and
otherwise perform under real estate purchase agreements, and the outcome of
certain litigation and other risks. The Company cautions readers not to place
undue reliance on any such forward-looking statements, and, such statements
speak only as of the date made.
OVERVIEW
REAL ESTATE
The Fairways consist of the remaining portion of approximately 50 acres of
developed residential land in Rancho Murieta, Sacramento County, California.
Rancho Murieta is a 3,500-acre master planned unit development community
located approximately 25 miles from Sacramento, California. The development
consists primarily of single-family homes, town houses, commercial property and
two 18-hole championship golf courses and country club facilities. The 50 acres
are located within the boundaries of one of the golf courses. The property was
subdivided into 110 single-family estate lots. As of June 30, 2001, all of the
lots have been sold.
FARMING
Sam Hamburg Farm consists of approximately 150 acres remaining from an original
4,600 acres of agricultural land. The Company leases 110 acres to one tenant,
who grows various crops. The term of the lease is for two years on a cash rent
basis. The year 2001 is the last year of the two-year lease. It is not known at
this time if the Company will lease the property to the same tenant for the
coming year.
GRAIN DRYING AND STORAGE
The Company operates a rice drying and storage facility. The drying facility is
financed by a 5-year lease, which commenced in March 1998. At the end of the
lease, the Company will have the option to buy the drying facility for $1.
As of August 5, 2001, the Company entered into a contract with Pacific
International Rice Mills, Inc. (PIRMI) to store approximately 350,000 cwt. of
dry paddy rice in the west warehouse. This agreement covers the rice currently
in storage,
14
which is a carry-over of rice that was dried during the 2000 drying season.
Payment for the storage charges on the paddy rice currently in storage was made
during the 2000 drying season with the storage period ending August 30, 2001.
The new contract period will be from September 1, 2001 to August 31, 2002. Under
the new contract, payment for storage will be 50% upon completion of filling the
warehouse and 50% within 30 days after the warehouse is emptied. As the rice is
currently in storage, the Company expects to receive the first payment of
approximately $70,000 during the month of September 2001.
Currently the Company does not have any signed agreements to store or dry paddy
rice for the east warehouse during the 2001 season. Due to the large carry-over
of inventory throughout the industry and the low market price, due to the
increased inventory, it cannot be determined at this time if there will be any
paddy rice available for drying. The Company is working with PIRMI and other
rice producers in the area to obtain contracts to dry and store paddy rice for
the 2001 season. The Company is also exploring other possibilities, such as
storing other grain, such as corn, in the east warehouse.
If the Company were to lose its drying and storage customers or if it were
unable to obtain any storage contracts for the east warehouse, it would have a
material adverse effect on the Company's grain drying and storage segment.
OTHER
The Company has no present intentions to pay dividends on either its common or
preferred stock.
Due to the success of the Company's tender offer for its common stock and Series
B preferred stock which closed in March 2001 and the elimination of certain
shareholders due to the application of state abandoned property laws, the
Company anticipates that as of January 1, 2002, it will be able to terminate its
registration of the Series B preferred stock under Section 12(g) of the
Securities Exchange Act of 1934 (the "Exchange Act") and suspend its obligation
to file periodic reports with the SEC with respect to the Series B preferred
stock.
The board of directors of the Company is also currently exploring various
options, including a second tender offer for the common stock, that might result
in the Company being able to terminate its registration of the common stock
under Section 12(g) of the Exchange Act and suspend its obligation to file
periodic reports with the SEC with respect to the common stock as of January 1,
2002. However, the board of directors has not yet made a decision to pursue any
such action and such action, if taken, may not be successful in achieving such
result.
In the event that the Company is able to suspend its filing obligations with
respect to both the Series B preferred stock and the common stock, the Company
will then no longer be considered publicly traded and shareholders will not be
able to trade their shares of common stock on the over-the-counter market. The
Company anticipates that there will be minimal affect on the trading market for
the Series B preferred stock as there in no present market or exchange for such
shares. In addition, the obligation of certain significant shareholders to file
reports under Section 13 of the Exchange Act and the related rules, the insider
short-swing trading rules contained in Section 16 of the Exchange Act and the
related rules, the proxy solicitation rules contained in Section 14 of the
Exchange Act and the related rules and certain of the rules regulating tender
offers for shares of the Company's stock contained in Section 14 of the
15
Exchange Act and related rules would no longer be applicable to the Company. The
Company expects some savings from discontinuing audited financial statements and
legal expenses in preparing periodic reports to the SEC.
The Company is also currently subject to the provisions of the New York Business
Corporation Law which restrict certain transactions between the Company and
General Financial Services, Inc., GFS Acquisition Company, Inc. and Steve
Miller. Those provisions would no longer apply to the Company if it terminates
the registration of its common stock and Series B preferred stock under Section
12 of the Exchange Act. The board of directors anticipates that if those
provisions are no longer applicable to the Company it would authorize a reverse
stock split that would have the effect of cashing out and eliminating all of the
remaining minority common stockholders. At that time, only General Financial
Services, Inc. and GFS Acquisition Company, Inc. would remain as common
stockholders.
OPERATING RESULTS
Three months ended June 30, 2001 vs. the three months ended June 30, 2000.
Real Estate
Revenue from the sale of real estate lots for the three months ended June 30,
2001, decreased by $456,300 over the same period ended June 30, 2000. There were
three lots sold through June 30, 2001, with gross revenue of $226,600 compared
with eight lots sold during the three months ended June 30, 2000, with gross
revenue of $682,900. The three lot sales during the three months ended June 30,
2001 were the final lots to be sold and this project is now completed. The
decrease in revenue was offset by a $477,000 decrease in the cost of real estate
sold and a $38,000 decrease in related expenses due to the decreased sales
activity.
Farming
Net rental income from agricultural properties for the three months ended June
30, 2001, remained constant compared to the same period in 2000. This is the
second year of a two-year lease at Sam Hamburg Farm.
Grain Drying and Storage
The loss from the grain drying and storage facility for the three months ended
June 30, 2001, decreased by approximately $74,000 when compared with the three
months ended June 30, 2000. The loss decrease was primarily the result of an
increase in storage revenue. During the fall 1999 season, there was virtually no
drying revenue, which also reduced the storage revenue, as one of the warehouses
remained empty. During the three month period ended June 30, 2000, there were
grain shipments generating revenue in the amount of approximately $32,000
compared to revenue of approximately $88,000 for the three months ended June 30,
2001. The increased storage revenue during the period ended June 30, 2001
resulted from the paddy rice dried during the fall 2000 season.
16
General
When compared with the three months ended June 30, 2000, corporate operating
expenses increased by approximately $140,000 for the period ended June 30, 2001.
Major items contributing to the increase were administrative and general
expenses consisting of legal fees ($89,000), officers salary ($25,000), expenses
relating to the tender offer ($32,000), and accounting fees ($15,000).
Offsetting this increase were decreases in officers and directors insurance
($15,000) and rent expense resulting from the office move in March 2001
($6,000).
Interest expense decreased $7,000 for the three months ended June 30, 2001
compared with the three month period ended June 30, 2000, due to decreased debt
on the grain drying and storage facility. For the three months ended June 30,
2001 compared with the three month period ended June 30, 2000, gain on
marketable securities increased by $21,000 partially offset by a decrease in
interest and dividend income of $19,000 due to the movement of short term assets
from money market accounts to short term commercial paper.
Six months ended June 30, 2001 vs. six months ended June 30, 2000.
Real Estate
Revenues from the sale of real estate lots at "The Fairways" for the six months
ended June 30, 2001, decreased by $129,000 compared to the six month period
ended June 30, 2000. There were 12 lots sold in the first six months of 2001,
with gross revenues of $949,000 compared with gross revenues of $1,078,000 for
the first six months of 2000, which consisted of the sale of 13 lots. All lots
in this development are sold as of June 30, 2001. The decrease in revenue was
offset by a $181,000 decrease in the cost of real estate sold and a $58,000
decrease in related expenses due to the decreased sales activity.
Farming
Net rental income from the property at Sam Hamburg Farm for the six months ended
June 30, 2001, remained constant compared to the same period in 2000. This is
the second year of a two-year lease.
Grain Drying and Storage
Storage revenue at the grain drying and storage facility increased by $127,000
in the six months ended June 30, 2001, compared with the six months ended June
30, 2000. The 2001 increase resulted from the operation of the rice dryer during
the 2000 fall harvest season and the resultant storage income. During 1999 there
was no rice drying at the facility. In addition, contributing to the increase,
was the storage income from approximately 350,000 cwt. of inventory carry-over
of paddy rice placed into storage during the spring of 2000.
General
Compared with the six months ended June 30, 2000, corporate operating expenses
decreased by $16,000 in the six month period ended June 30, 2001. The decrease
is made up of accounting fees ($45,000), legal fees ($38,000), directors
consulting fees ($30,000), officers/directors
17
liability insurance ($29,000) and director fees and expenses ($15,000). This
decrease is offset by increases in expenses associated with the tender offer
($77,000), officers salaries ($50,000) and officers travel ($14,000).
Interest expense decreased $13,000 for the six months ended June 30, 2001
compared with the six month period ended June 30, 2000, due to decreased debt on
the grain drying and storage facility. For the six months ended June 30, 2001
compared with the six month period ended June 30, 2000, gain on marketable
securities increased by $36,000 partially offset by a decrease in interest and
dividend income of $29,000 due to the movement of short term assets from money
market accounts to short term commercial paper.
LIQUIDITY AND CAPITAL RESOURCES
During the six months ended June 30, 2001, cash, cash equivalents and marketable
securities decreased by $508,000 from $4,663,000 at December 31, 2000, to
$4,155,000 at June 30, 2001. The most significant uses of cash during the six
months ended June 30, 2001 consisted of the purchase of shares of stock in the
Company's tender offer and the payment on long-term debt.
On March 16, 2001, the Company completed its tender offer for shares of the
common stock and Series B preferred stock. As a result of the tender offer, the
Company paid $459,813 to the former holders of the common stock and Series B
preferred stock, which amount was paid from the Company's cash and cash
equivalents. In addition, during the period ended June 30, 2001, the Company
abandoned to the various states pursuant to the state abandoned property laws
common stock and Series B preferred stock in the amount of $249,443, which was
also paid from the Company's cash and cash equivalents.
As a result of the tender offer and the abandonment of Series B preferred stock,
the Company's accrued dividends on the Series B preferred stock decreased by
$536,400.
The Company believes that its primary requirements for liquidity during the
remainder of 2001 will be to fund the required payments due on the grain dryer
financing, to fund equipment purchases and or modifications at the grain drying
facility; to fund costs that may be incurred relating to the toxic clean-up at
Sam Hamburg Farm; and to fund general and administrative expenses.
The Company anticipates that sources of required liquidity will be cash
generated from the grain drying and storage facilities, collection of notes
receivable, and the cash available at June 30, 2001. Based on known commitments,
the Company believes that the sources of cash described and the cash available
at June 30, 2001, will be adequate to fund known liquidity requirements.
In addition, the Company currently intends to acquire undeveloped real estate
for the purpose of developing and then selling the property. The Company is
focusing on property that could be developed into single family residences, but
may also consider developing commercial and/or multi-family properties. The
Company does not have any current commitments to acquire any such property and
there can be no assurance that the Company will be able to acquire such property
on terms that are favorable to the Company. The Company would seek to fund the
purchase of such property through a combination of debt and the use of the
Company's short term liquid assets.
18
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings
--------------------------
None, except for the discussion contained in footnote 3 in Notes to
Consolidated Condensed Financial Statements.
ITEM 2. Changes in Securities
------------------------------
Not applicable
ITEM 3. Default Upon Senior Securities
---------------------------------------
Dividends in arrears. See Note 5 of Notes to Condensed Consolidated
Financial Statements for the quarter ended June 30, 2000.
ITEM 4. Submission of Matters to a Vote of Security Holders
------------------------------------------------------------
None
ITEM 5. Other Information
--------------------------
None
ITEM 6. Exhibits and Reports on Form 8-K
-----------------------------------------
(a) Exhibits
10.1 Letter Agreement dated June 5, 2001 and signed August 5, 2001
between SHF Acquisition, a wholly-owned subsidiary of the Dunes
Hotels & Casinos Inc. and Pacific International Rice Mills
(b) Reports on Form 8-K
None
19
SIGNATURES
----------
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE
REGISTRANT HAS DULY CAUSE THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED THEREUNTO DULY AUTHORIZED.
DUNES HOTELS AND CASINOS INC.
-----------------------------
Registrant
Date: August 14, 2001 By: /s/ Steve K. Miller
---------------- ---------------------------
Steve K. Miller, President
By: /s/ Marvin P. Johnson
---------------------------
Marvin P. Johnson
Chief Accounting Officer
20