Edgar Filing: DUNES HOTELS & CASINOS INC

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C., 20549
FORM 10-KSB
(Mark One)
X Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
---- Act of 1934 for the fiscal year ended December 31, 2001 or
Transition report pursuant to Section 13 or 15(d) of the Securities
---- Exchange Act of 1934 for the transition period from _________________
to _________________.
Commission File No. 1-4385
DUNES HOTELS AND CASINOS INC.
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(Exact name of registrant as specified in its charter)

NEW YORK 11-1687244
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
46735 County Rd. 32B, P.O. Box 130, Davis, California 95617
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (530)753-4890
-------------

Securities Registered Pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
NONE NONE
------------------- ---------------------
Securities Registered Pursuant to Section 12(g) of the Act:
Series B, $7.50 Cumulative
--------------------------
Common Stock, $.50 par value Preferred Stock, $.50 par value
---------------------------- -------------------------------
(Title of class) (Title of class)

Check whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
YES X NO
---- ----
Check if there is no disclosure of delinquent filers pursuant to Item 405
of Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. (__)

State issuer's revenues for its most recent fiscal year: $1,372,000

The aggregate market value of the voting and non-voting common equity held
by non-affiliates of the Registrant computed by reference to the bid price at
January 23, 2002 ($1.01 per share) was approximately $365,325. See "Item 5.
Market for Registrant's Common Equity and Related Matters".

The number of shares of common stock outstanding as of March 14, 2002 was
4,365,255.
Documents Incorporated by Reference Not Applicable

Transitional Small Business Disclosure Format: Yes ; No X.
--- ---

PART I

ITEM 1. DESCRIPTION OF BUSINESS
--------------------------------

Dunes Hotels and Casinos Inc. was incorporated in New York in 1956. In this
report the term the "Company" refers to Dunes Hotels and Casinos Inc.,
individually, or with 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 ("SAC").

The Company, through its subsidiaries, operates in three principal business
segments: real estate (development and sale of residential lots and rental of
agricultural land), grain drying and storage, and distressed assets. See Note 12
of Notes to Consolidated Financial Statements for information relating to
industry segments and class of services.

The Company's real estate segment previously sold completed residential
lots primarily to builders of custom homes and to the general public in and
around the greater Sacramento, California area. The Company now looks for real
estate development opportunities nationwide. The agricultural property is leased
to tenants in the area where the agricultural property is located.

The grain drying and storage segment dries harvested rice over a two-month
period (approximately September 15 to November 15) and stores, for a fee, the
dried rice (or other grains) until it is removed, normally within the following
year. The Company stores rice principally for one customer under a contract
which expires in August 2002. This contract currently accounts for approximately
50% of the storage capacity and 50% of the storage revenue. The Company is
currently storing yellow corn in the other 50% of its storage capacity under an
agreement with a local grain broker. If the Company were to lose either of these
storage customers, fail to obtain drying contracts for the coming year, or if
the crop yields are low, it would have a material adverse effect on the
Company's agricultural segment.

Effective with the third quarter of 2001, we have changed the organization
of our business segments. Prior to the third quarter of 2001, we reported the
rental revenue from the Sam Hamburg Farm under our Farming segment. Beginning
with the third quarter, we are including the rental income from the Sam Hamburg
Farm under our Real Estate segment. In addition, we are reporting a new business
segment, Distressed Assets, which reflects our intention to pursue the
acquisition and work-out of distressed assets.

RECENT DEVELOPMENTS

On November 30, 2001, the Company acquired 115,053 shares of its common
stock at $1.05 per share pursuant to a tender offer to acquire all of the shares
of its common stock not owned by Mr. Steve Miller and his affiliates. The
acquired shares represented approximately 2.6% of the then outstanding shares of
common stock. The Company paid for the acquired shares with a portion of its
short term, liquid assets. Additional shares of common stock were defectively
tendered in the tender offer. The Company agreed to accept such tendered shares
if the shareholders subsequently correct such defects. These shares are not
included in the above numbers or percentages. As of March 14, 2002, 256 of these
shares had been accepted by the Company.

Since the Company's common stock and Series B preferred stock were each
held of record by less than 500 persons as of January 1, 2002 and the Company
had less than $10 million of assets as of

the end of each of its last three fiscal years, the Company terminated its
registration of the common stock and Series B preferred stock under Section
12(g) of the Securities Exchange Act of 1934 (the "Exchange Act") and suspended
its obligation to file periodic reports with the SEC with respect to the common
stock and Series B preferred stock as of January 1, 2002. This Form 10-KSB is
the last periodic report that the Company is required to file with the SEC.

In addition, as a result of the termination of the registration of the
common stock and Series B preferred stock under Section 12 of the Exchange Act,
the Company was no longer subject to those provisions of the New York Business
Corporation Law that restrict certain transactions between the Company and
General Financial Services, Inc., GFS Acquisition Company, Inc. and Steve
Miller.

REAL ESTATE SEGMENT:

The Fairways

The Company, through SHF, developed approximately 50 acres of residential
land located at Rancho Murieta, California as a residential planned unit
development known as "The Fairways". Rancho Murieta is a 3,500-acre master
planned unit development located approximately 25 miles from Sacramento,
California. Rancho Murieta consists primarily of single-family homes, town
houses, commercial property and two 18-hole championship golf courses, including
country club facilities. The Fairways, located within the boundaries of one of
the golf courses at Rancho Murieta, was subdivided into 110 single-family estate
lots. As of December 31, 2001, all lots have been sold.

In connection with its development of The Fairways, SHF was required to
construct certain improvements that benefited not only The Fairways, but other
properties that lay outside of the boundaries of The Fairways (the "Benefited
Properties"). The net cost of the improvements to the Benefited Properties was
$1,140,900. SHF expects to be reimbursed for these costs as the Benefited
Properties are developed. SHF's right to reimbursement will expire in September
2015 and the Company is unable to predict what amount, if any, will be received
as reimbursement. The rights to reimbursement are personal to SHF and do not run
with The Fairway's property unless assigned by SHF.

Sam Hamburg Farm

MRI owns approximately 150 acres of agricultural property called Sam
Hamburg Farm ("Sam Hamburg Farm") in Merced County, California. MRI's 150 acres
are operated by SHF. Of the 150 acres, 40 acres contain an airstrip and shop
area, which is the focus of continuing attempts at chemical clean-up. The
remaining 110 acres are leased to one tenant at an annual aggregate rental of
approximately $24,000 which expired in 2001. The lease has not been renewed,
however, the tenant and the Company have agreed that the tenant may farm the
property during the year 2002 under the terms of the original lease.

The Company was advised in 1991 of possible contamination of 40 acres at
Sam Hamburg Farm of approximately 5,000 cubic yards of contaminated soil. The
Company has disposed of 1,000 cubic

yards of contaminated soil to date. 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 toxic-laden soil.

Because of ongoing testing, the State has not imposed a disposal date upon
the Company. Cost of disposal of the remaining soil is estimated at $125 to $200
per cubic yard or approximately $500,000 to $800,000. However, if on-site
remediation can be achieved, it is estimated the cost should be no more than
$170,000. The Company is unable to predict when the ongoing testing will be
completed or what the outcome of these tests will be. Accordingly, it is
reasonably possible the estimates will change materially in the near term.

Real Estate Development

The Company is actively pursuing real estate development opportunities on a
nationwide basis. Although the Company intends to focus primarily on residential
real estate development opportunities, it may also consider commercial real
estate development opportunities. Since December 31, 2001, the Company has
acquired one property located in New York and is actively negotiating to acquire
a second property in California. The Company has reached an agreement in
principle to sell the New York property at a profit, although no assurance can
be given that the sale will occur at the anticipated price.

GRAIN DRYING AND STORAGE SEGMENT:

Grain Drying and Storage Facilities

Since 1990, SHF has owned a grain storage facility (the "Storage Facility")
located in Yolo County, California. The Storage Facility generally stores rice
for a fee, however, the Storage Facility is capable of storing other types of
grain. The Storage Facility can store approximately 700,000 cwt. of grain.

In 1997, the Company entered into a financing lease agreement for its
drying facility which is adjacent to the Storage Facility. The lease is for five
years commencing March 1998, the monthly rental is $25,122 and the Company can
buy the drying facility for $1 at the end of the lease. The lease is
collateralized by the drying facility, a deed of trust on certain parcels of
property, including the parcel on which the Storage Facility is located, and the
guarantees of MRI and the Company. Before the Guarantors are liable for any
deficiency, the leasing company must first proceed against the drying facility
and the additional collateral.

Prior to May 2000, the Company stored wheat principally for one customer,
Adams Grain Co. ("Adams") under a contract which expires May 2002 ("Adams
Contract"). In May 2000, the Company negotiated an end to the Adams Contract.
The terms of ending the storage agreement, effective May 18, 2000 require the
Company to only store rice at the Storage Facility and if the Company stores any
grain other than rice, Adams retains a first right of refusal to store
commodities under the Adams Contract. These conditions will remain in effect
until May 31, 2002 (the original expiration date of the Adams Contract).

On August 5, 2001, the Company entered into an agreement with Pacific
International Rice Mills, Inc. (PIRMI) to store approximately 350,000 cwt. of
dry paddy rice for the period commencing September 1, 2001, to August 31, 2002,
in the west warehouse. This agreement covers the rice currently in storage,
which is a carry-over of rice that was dried during the 2000 drying season. The
gross revenue is approximately $140,000. Under this agreement payment for
storage was due 50% upon completion

of filling the warehouse, with the remaining 50% due within 30 days after the
warehouse is emptied. The Company received the first payment of approximately
$70,000 during the month of September 2001.

The Northern California rice market is currently experiencing an excess
supply of rice. Many of the farmers in the area have taken their land out of
production and are selling their water rights to down-stream users. In addition,
rice growers in the area are experiencing increasing competition from foreign
sources. Due to the current market conditions for rice in Northern California
and the seasonal nature of grain drying and the filling of grain storage
facilities, the Company was unable to obtain any rice drying or storage
contracts to fill the east warehouse during the fall of 2001. At this time,
management is unable to determine how long the market for rice in Northern
California will remain depressed. A prolonged depression in the market for rice
in Northern California could have a material adverse effect on the Company's
grain drying and storage segment.

In view of the foregoing, the Company actively sought contracts for the
storage of grain other than rice (such as yellow corn) during 2001. However,
contracts for the storage of corn are generally less profitable than those for
the storage of rice due to the fact that (1) more rice can be stored in the same
amount of space, (2) the storage rates per hundredweight of grain is higher for
rice than corn and (3) contracts for the storage of rice usually include related
charges for the drying of the rice.

During September 2001, the Company entered into an agreement with a local
grain broker, Levine Grain Co., Inc. to store yellow corn in the east warehouse.
Total yellow corn placed into storage was 259,800 cwt. on behalf of various
growers in the area with the storage revenue totaling approximately $90,000. As
of December 31, 2001, storage revenue realized on the yellow corn was
approximately $28,000. Adams waived its right of first refusal under the Adams
Contract to store corn in the east warehouse. The remaining revenue will be
collected during 2002 as the agreement provides for the storage charges to be
paid quarterly. However, all storage charges are to be paid within 30 days after
the warehouse is emptied.

DISTRESSED ASSETS:

Beginning with the third quarter of 2001, the Company has established a new
business segment: Distressed Assets. The Company's president, Steve K. Miller,
has over 13 years experience investing in similar types of assets through
General Financial Services, Inc., a corporation he wholly-owns. General
Financial Services is the majority shareholder of the Company.

The Company currently intends to acquire distressed real estate for the
purpose of developing or rehabilitating and then selling or operating the
property. The Company is focusing on property that could be developed or
converted into single family or multi-family residences, but may also consider
developing commercial 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.

In addition, the Company will seek to acquire other distressed assets that
management believes can be resolved or worked-out at a profit. The Company has
invested in two distressed non-performing promissory notes owed by debtors in
bankruptcy. The notes are secured by accounts receivables, second mortgages and
interests in two limited partnerships. The notes were purchased for $480,000,
which is a discount from their outstanding principal, interest and payable
expenses of approximately $650,000. To date, the Company has not realized any
income from this investment.

There is substantial risk with this type of business and there can be no
assurance that the Company will recover the principal of its investment or make
a profit after additional incurred expenses.

COMPETITION

Real Estate Segment:

The real estate investment and development business is highly competitive.
The Company competes for real estate investments with investors of all types,
including domestic and foreign corporations, financial institutions, other real
estate investment companies and individuals, many of which have substantially
greater resources than the Company. In addition, the Company's properties are
subject to local competitors from the surrounding areas. The Company does not
consider its real estate business to be seasonal in nature.

With respect to the Company's agricultural real estate, the Company
competes for tenants with other regional or local agricultural properties in the
area of California where the Company's property is located. Leasing property to
prospective tenants is generally determined on the basis of, among other things,
lease rates and quality of soil. The Company's leases of agricultural property
are generally for a period of 2 years.

Grain Drying and Storage Segment:

With respect to the Company's grain drying and storage operations, the
Company competes with other grain drying and storage companies in Northern
California. The grain drying operation is seasonal and runs from approximately
September 15 to November 15. The storage facility, depending on the demand and
shipment of grain from storage, operates on a year around basis. The drying and
storage operations are impacted by the number of acres grown, the yield per
acre, weather conditions, trucking expense and government programs. The storage
facility is located on the southern edge of the California rice growing region.
If there is a significant change in any of the above factors, it could have a
material adverse effect on the grain drying and storage revenues. Because the
Company currently is storing rice for one customer and yellow corn for another
customer, the loss of either customer could have a material adverse effect on
the grain drying and storage operation.

SALES AND MARKETING

The agricultural property is marketed to farmers in the surrounding area
where the agricultural property is located. The grain drying and storage
operation is marketed to principally two customers but the Company is attempting
to obtain additional customers.

REGULATION

The Company must comply with various federal, state and local zoning,
building, pollution, environmental, health, and advertising ordinances, rules
and regulations, including regulations relating to specific building materials
to be used, building design, minimum elevations of properties and emissions from
the grain drying and storage facilities.

EMPLOYEES

At March 14, 2002, the Company had 4 employees. None of the Company's
employees are covered by collective bargaining agreements. The Company believes
its employee relations to be satisfactory.

ITEM 2. DESCRIPTION OF PROPERTY
--------------------------------

REAL ESTATE SEGMENT:

The Fairways

The Fairways is comprised of approximately 50 acres of land which has been
developed into 110 single family estate lots of which all have been sold as of
December 31, 2001. It is located in Rancho Murieta, California, adjacent to
Highway 16, approximately 25 miles southeast of Sacramento.

Sam Hamburg Farm

Sam Hamburg Farm consists of approximately 150 acres remaining from an
original 4,600 acres of agricultural land. The remaining land is located in the
most southwesterly corner of Merced County, California approximately two miles
east of Interstate Highway 5. It is approximately ten miles south of the city of
Los Banos, California. The Company leases 110 acres to one tenant, who grows
various crops. The remaining 40 acres has possible soil contamination and is not
being used for agricultural purposes. See "Item 1. Business-Real Estate
Segment-Sam Hamburg Farm".

GRAIN DRYING AND STORAGE SEGMENT:

Grain Drying and storage Facility

The drying and storage facilities are located in Yolo County, California,
approximately 15 miles west of the city of Sacramento. The storage facility can
store approximately 700,000 cwt. of rice. The drying facility can dry
approximately 17,600 cwt. of rice in a 24 hour period. The drying facility dries
enough rice to fill approximately one-half of the storage facility. See "Item 1.
Business--Agricultural Segment--Grain Drying and storage Facilities."

EXECUTIVE OFFICES:
------------------

The Company's executive office is located in Davis, California adjacent to
the grain drying and storage facility. The executive offices are approximately
1,000 square feet and the Company believes that the executive offices are
suitable for its needs.

ITEM 3. LEGAL PROCEEDINGS
--------------------------

See "Note 10. - Legal Proceedings" to the Company's consolidated financial
statements included elsewhere in this report.

ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
----------------------------------------------------------

No matter was submitted during the fourth quarter of the fiscal year
covered by this report to a vote of security holders, through the solicitation
of proxies or otherwise.

PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
-----------------------------------------------------------------

Prior to January 1, 2002, the principal United States market in which the
Company's common stock was traded was the over-the-counter market. The Company's
symbol for its common stock is "DUNE". Since the Company's common stock and
Series B preferred stock were each held of record by less than 500 persons as of
January 1, 2002 and the Company had less than $10 million of assets as of the
end of each of its last three years, the Company terminated its registration of
the common stock and Series B preferred stock under Section 12(g) of the
Securities Exchange Act of 1934 (the "Exchange Act") and suspended its
obligation to file periodic reports with the SEC with respect to the common
stock and Series B preferred stock as of January 1, 2002. Since January 1, 2002,
there has been no established trading market for the Company's common stock.
There is no established public trading market for the Company's Series B
preferred stock. Neither the Company's common stock nor the Company's preferred
stock is listed for trading on an exchange.

The following table sets forth for the periods indicated the range of the
high and low bid quotations for the Company's common stock as quoted on the OTC
Bulletin Board. The reported bid quotations reflect inter-dealer prices, without
retail markup, markdown or commissions, and may not necessarily represent actual
transactions.

2001 HIGH LOW
------------ ----- -----
1st Quarter $1.06 $0.72
2nd Quarter $1.01 $0.93
3rd Quarter $1.05 $0.91
4th Quarter $1.03 $0.76

2000 HIGH LOW
------------- ----- -----
1st Quarter $1.31 $0.75
2nd Quarter $0.75 $0.59
3rd Quarter $0.75 $0.62
4th Quarter $0.88 $0.50

At March 14, 2002, the Company had approximately 221 holders of record of
the Company's common stock, and approximately 77 holders of record of the
Company's Series B $7.50 cumulative, voting and non-convertible preferred stock.

Dividends on the Company's common stock have not been paid since the second
quarter of 1979. 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
dividends on the preferred stock in the amount of approximately $829,000 as of
December 31, 2001. The Company has no present intention to pay dividends on
either its common or preferred shares in the near future.

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATION
----------------------------------------------------------

The Consolidated Financial Statements and Notes thereto are an integral
part of this report, including this Item 6, and are incorporated herein by this
reference and should be read in conjunction herewith.

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
operations 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. 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 December 31, 2001, all of the lots
have been sold.

Grain Drying and Storage

The Company operates a grain 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 obtain title to the drying
facility for $1.00.

OPERATING RESULTS

Net loss for the year ended December 31, 2001, decreased by approximately
$504,000 when compared with the year ended December 31, 2000. The major items
contributing to the loss decrease were the following:

(1) an increase in profit from the sale of real estate,
(2) a decrease in corporate expense,
(3) an increase in profit in storage revenue, and
(4) a decrease in interest expense.

2001 vs. 2000

Real estate

Real estate revenues and profits increased during 2001. Sales at The
Fairways were completed during 2001 with the remaining lots sold. However, there
was no gain on these sales as the existing cost basis approximated net sales
proceeds. During the third quarter of 2001, a "Success Payment" of $55,000 was
paid to the Company on one lot that had previously been sold. Selling expenses
associated with the real estate operation decreased by approximately $143,000 as
the remaining lots were sold by the second quarter of 2001 eliminating the
expenses of the commissioned sales person, the sales trailer, association dues
and other related sales expenditures.

Grain drying and storage

Grain drying and storage income in 2001 increased by approximately $83,000
when compared with 2000. For the year ended December 31, 2001, drying and
storage revenue was $305,000 compared to $342,000 for the prior year, however,
the cost of drying and storage revenue decreased by $120,000 in 2001.
Contributing to the decrease in the cost of drying and storage was management's
decision to eliminate one supervisory employee at the facility. In addition,
during the year 2000, there was a significant expenditure for preventative
maintenance. In the years prior to 2000, there had been practically no
preventative maintenance done, and as a result, due to the work done in 2000,
preventative maintenance costs were down in 2001.

Distressed Assets

The Company has invested in two non-performing promissory notes owed by
debtors in bankruptcy. The notes are secured by accounts receivables, second
mortgages and shares in two limited partnerships. The notes were purchased for
$480,000, which is a discount from their outstanding principal, interest and
payable expenses of approximately $650,000. To date, the Company has not
realized any income from this investment.

General

Selling, administrative and general expenses in total decreased
approximately $233,000. The major contributors to the decrease were legal fees
($151,000); accounting fees ($60,000); directors and officers liability
insurance expense ($47,000); directors consulting fees ($32,000); officers
travel expense ($18,000); directors expenses ($14,000); rent expense ($10,000);
and director fees ($8,000). These decreases were offset by a $107,000 increase
in fees relating to the tender offer.

Interest expense decreased as a result of payments made during the year on
the rice dryer. Interest income and gain on marketable securities decreased due
to the movement of short term assets from short term commercial paper to money
market accounts.

LIQUIDITY AND CAPITAL RESOURCES

During the year ended December 31, 2001, cash, cash equivalents and
marketable securities decreased by $1,547,000 from $4,663,000 at December 31,
2000 to $3,116,000 at December 31, 2001. The most significant sources of cash in
2001 were proceeds from the sale of real estate lots of $819,000 and the sale of
marketable securities of $100,000. The most significant uses of cash in 2001
consisted of purchase of treasury stock ($888,000), purchase of assets in
foreclosure ($480,000), and payment on long-term debt ($253,000).

The Company completed its initial tender offer for shares of common stock
on February 15, 2001 and for Series B preferred stock on March 16, 2001. As a
result of the tender offers, the Company paid $489,000 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. An additional tender offer for shares of
common stock was completed on November 30, 2002. As a result, the Company paid
$121,000 to the former holders of the common stock, which amount was paid from
the Company's cash and cash equivalents. In addition, as of January 25, 2002,
the Company had abandoned since January 1, 2001 to the various states pursuant
to the state abandoned property laws, common stock and Series B preferred stock
in the amount of $278,000, which was paid from the Company's cash and cash
equivalents.

As a result of the initial tender offer and the abandonment of Series B
preferred stock, the Company's accrued dividends on the Series B stock decreased
by $601,000.

The Company believes that its primary requirements for liquidity in the
coming fiscal year will be to fund the required payments due on the rice 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, the collection of notes
receivable, and the cash and cash equivalents available at December 31, 2001.
Based on known commitments, the Company believes that the sources of cash
described and the cash available at December 31, 2001, will be adequate to fund
known liquidity requirements in 2002.

In addition, the Company currently intends to acquire undeveloped and/or
distressed real estate for the purpose of developing or rehabilitating and then
selling or operating the property. The Company is focusing on property that
could be developed or converted into single family or multi-family residences,
but may also consider developing commercial 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.

ITEM 7. FINANCIAL STATEMENTS
----------------------------

The Consolidated Financial Statements of Dunes Hotels and Casinos Inc. are
located at pages F-1 to F-20 attached to the end of this annual report.

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
--------------------------------------------------------------------------------
FINANCIAL DISCLOSURE
--------------------

None

PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL PERSONS;
--------------------------------------------------------------------------------
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
-------------------------------------------------

As of February 1, 2002, all of the directors of the Company other than Mr.
Miller resigned. The director is elected at each annual meeting of shareholders
to hold office until the next annual meeting and until a successor has been
elected and qualified.

Identified herein are all directors and executive officers of the Company.
The information set forth as to the sole director and each Executive Officer has
been furnished by such person.

Steve K. Miller, 52, was elected a director and President of the Company in
April 2000. Mr. Miller has been employed by General Financial Services, Inc.
since 1988 and as President since 1995. He earlier served as president and has
continually served as Chairman of the Board of Directors since its founding.
General Financial Services is primarily engaged in the investment and
redevelopment of distressed real estate assets. He also owns several companies
operated in conjunction with General Financial engaged in real estate
investment, agriculture, hotel ownership and aviation. Prior to founding General
Financial Services, Mr. Miller owned and operated John Deere agricultural
equipment dealerships. Mr. Miller received his B.A. in Accounting and Finance
from Southwest Oklahoma State University.

D. Cary Peaden, 46, was elected a Director, Secretary and Treasurer of the
Company in April 2000. Mr. Peaden has been employed by General Financial
Services, Inc. since 1989 and as Vice President for the last five years. As of
February 1, 2002, Mr. Peaden resigned as a Director of the Company. Mr. Peaden
is currently employed as Vice President of Rich-Mix Products, Inc., which is
unaffiliated with General Financial Services. Mr. Peaden attended and studied
business administration at Wichita State University.

There is no family relationship between any directors or executive officers
of the Company. The sole director does not hold a directorship in any other
company with a class of securities registered pursuant to Section 12 of the
Exchange Act or subject to the requirements of Section 15(d) of such Act or any
company registered as an investment company under the Investment Company Act of
1940, as amended.

Compliance with Section 16(a) of the Exchange Act. Based solely upon a
review of the Commission's Forms 3, 4, and 5 received by the Company during the
last fiscal year and written

representations solicited by the Company, no Officer, Director, beneficial owner
of more than 10% of any class of the Company's equity securities or any other
person subject to Section 16 of the Exchange Act failed to file on a timely
basis as disclosed in the above forms, reports required by Section 16(a) of the
Exchange Act during the year ended December 31, 2001, except that the Form 4 for
General Financial Services, Inc., GFS Acquisition Company, Inc. and Mr. Steve
Miller filed April 6, 2001, in addition to reporting the 25,000 shares of common
stock acquired in March 2001 also reported the acquisition of 74,387 shares of
common stock that had been acquired in February 2001.

ITEM 10. EXECUTIVE COMPENSATION
--------------------------------

The following table sets forth the annual compensation paid to the
Company's President for each of the last three fiscal years. No executive
officer of the Company received compensation in excess of $100,000 for the 3
years ended December 31, 2001.

SUMMARY COMPENSATION TABLE

ANNUAL COMPENSATION
-------------------
(a) (b) (c) (d) (e) (i)
Other annual All other
Name and prin- compensation compensation
cipal position Year Salary($) Bonus($) ($) ($) (1)
------------------ ---- --------- -------- ------------ ------------

Steve K. Miller, 2001 (2) $100,000 -- -- $15,000
President 2000 71,381 -- -- 11,067

Edward Pasquale,
President 2000 (3) -- -- -- $22,267
1999 -- -- -- $62,568

(1) All other compensation for Mr. Miller consists of the following:

Year Ended December 31,
2001 2000
---- ----
Director fees $15,000 $10,667
Consulting fees - 400
------- -------
$15,000 $11,067
======= =======

All other compensation for Mr. Pasquale consists of the following:

Year Ended December 31,
2000 1999
---- ----
Directors fees $ 4,333 $15,000
Audit Committee fees 3,467 12,000
Consulting fees 14,467 35,568
------- -------
$22,267 $62,568
======= =======

(2) Mr. Miller was elected president of the Company on April 14, 2000.
(3) Mr. Pasquale was president of the Company from December 1997 to April 14,
2000.

Compensation of Directors
-------------------------

The Company pays each director an annual fee of $15,000 payable monthly. In
addition to their regular directors fees, board members and audit committee
members are paid $200 per half-day and $400 per full day for special projects
considered to be outside the scope of their duties as board and audit committee
members. In addition, they receive a travel fee of $300 for each meeting
attended.

During 2001, Messrs. Herfurth, Steckart and Viets (former members of the
board of directors) were members of the Company's Audit Committee. For services
rendered as Audit Committee members and consultants during the fiscal year 2001,
Mr. Herfurth was paid $21,800.

The Company does not have a plan, pursuant to which cash or non-cash
compensation is paid or distributed, or is proposed to be paid or distributed in
the future. The Company does not have any pension or other benefit plans.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
-----------------------------------------------------------------------

The table shown below contains certain information as of March 14, 2002
with respect to (1) any person (including any "group" as that term is used in
Section 13(d)(3) of the Exchange Act), who is known to the Company to be
beneficial owner (as that term is defined in rules and regulations of the
Commission under the federal securities laws) of more than 5% of the Company's
common stock (2) each director and each executive officer named in the summary
compensation table and (3) certain information with respect to the Company's
common stock beneficially owned (as that term is defined in rules and
regulations of the Commission under the federal security laws) by all directors,
and executive officers of the Company as a group.

Name and Address of Amount and Nature of Percent of Common
Beneficial Owner (1) Beneficial Ownership (1) Stock Outstanding
--------------------------------------------------------------------------------
GFS Financial Services, Inc.(2) 4,003,309 92.3%
8441 E. 32nd Street N
Wichita, KS 67226

Steve K. Miller 4,003,309 92.3%

D. Cary Peaden -- --

All Directors and Officers
as a Group (2 Persons) 4,003,309 92.3%
-----------------------
* less than 1%

(1) In furnishing this information, the Company is relying upon the
contents of statements filed with the Commission pursuant to Section
13(d) and Section 13(g) of the Exchange Act.

(2) Consists of 3,000,000 shares owned directly by General Financial
Services, Inc. and 1,003,309 shares owned indirectly through its
wholly owned subsidiary GFS Acquisition Company, Inc. Mr. Miller is
the sole stockholder, sole director and the president of General
Financial Services, Inc. and as a result may be deemed to be the
beneficial owner of the shares owned directly and indirectly by
General Financial Services, Inc.

The following table sets forth, as of March 14, 2002, the number and
percentage of shares of the Company's Series B preferred stock which are
beneficially owned, directly or indirectly, by (1) any person (including any
"group" as that term is used in Section 13(d)(3) of the Exchange Act), who is
known to the Company to be beneficial owner (as that term is defined in rules
and regulations of the Commission under the federal securities laws) of more
than 5% of the Company's Preferred Stock, (2) each director and each executive
officer named in the summary compensation table and (3) certain information with
respect to the Company's Preferred Stock beneficially owned (as that term is
defined in rules and regulations of the Commission under the federal security
laws) by all directors, and executive officers of the Company as a group.

Name and Address of Amount and Nature of Percent of Preferred
Beneficial Owner (1) Beneficial Ownership Stock Outstanding
--------------------------------------------------------------------------------
USI Corp. (2) 2,399 42.7%
1040 Lawrence Court
Wichita, KS 67206

Steve K. Miller (3) 2,093 37.2%

D. Cary Peaden -- --

All Directors and Officers
As a Group (2 Persons) 2,093 37.2%
----------------------------
(1) In furnishing this information, the Company is relying upon the
contents of statements filed with the Commission pursuant to Section
13(d) and Section 13(g) of the Exchange Act.

(2) USI Corp claims that it owns or has rights to approximately 3,000
shares of preferred stock. Pursuant to an order by the United States
District Court for Kansas, USI Corp. has agreed not to transfer these
shares. See Notes 10 and 15 to the Consolidated Financial Statements
of the Company included elsewhere in this report.

(3) Consists of 2,093 shares owned by General Financial Services, Inc. Mr.
Miller is the sole stockholder, sole director and the president of
General Financial Services, inc. and as a result may be deemed to be
the beneficial owner of the shares owned by General Financial
Services, Inc.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
--------------------------------------------------------

None.

PART IV

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
-----------------------------------------

(a) The following documents are filed as part of this report

Financial Statements PAGE

Dunes Hotels and Casinos Inc. and Subsidiaries
Consolidated Financial Statements:

Independent Auditors' Report of BKD, LLP F-1

Balance Sheet as December 31, 2001 F-2

Statements of Operations, two years ended December 31, 2001 F-4

Statements of Changes in Shareholders' Equity, two years
ended December 31, 2001 F-5

Statements of Cash Flows, two years ended December 31, 2001 F-6

Notes to Financial Statements, two years ended December 31, 2001 F-8

Exhibits

3.1 Restated Certificate of Incorporation of Dunes Hotels and Casinos Inc.
dated June 17, 1982, is incorporated herein by reference to Dunes
Hotels and Casinos Inc. Annual Report on Form 10-K (file no. 1-4385)
for the year ended December 31, 1994, Part IV, Item 14(a)(3), Exhibit
3.01.

3.2 Certificate of Amendment of Restated Certificate of Incorporation of
Dunes Hotels and Casinos Inc. dated December 19, 1984, is incorporated
herein by reference to Dunes Hotels and Casinos Inc. Annual Report on
Form 10-K (file no. 1-4385) for the year ended December 31, 1994, Part
IV, Item 14(a)(3), Exhibit 3.02.

3.3 Revised By-laws of Dunes Hotels and Casinos Inc. dated December 1984,
is incorporated herein by reference to Dunes Hotels and Casinos Inc.
Annual Report on Form 10-K (file no. 1-4385) for the year ended
December 31, 1994, Part IV, Item 14(a)(3), Exhibit 3.03.

3.4 Amendment to By-laws adopted June 18, 1997, is incorporated herein by
reference to Dunes Hotels and Casinos Inc. Annual Report on Form 10-
KSB (file no. 1-4385) for the year ended December 31, 2000, Part IV,
Item 13(a), Exhibit 3.4.

4.1 Specimen Certificate for the Common Stock of Dunes Hotels and Casinos
Inc. (incorporated by reference to Dunes Hotels and Casinos Inc.
Annual Report on Form 10-K (file no. 1-4385) for the year ended
December 31, 1994, Part IV, Item 14(a)(3), Exhibit 4.01).

4.2 Specimen Certificate for the Preferred Stock of Dunes Hotels and
Casinos Inc. (incorporated by reference to Dunes Hotels and Casinos
Inc. Annual Report on Form 10-K (file no. 1-4385) for the year ended
December 31, 1994, Part IV, Item 14(a)(3), Exhibit 4.02).

10.1 Reimbursement Agreement dated September 20, 1995, by and between
Rancho Murieta Community Services District and SHF Acquisition
Corporation regarding the amount of the reimbursement due SHF for
excess work done at The Fairways at Rancho Murieta that will benefit
other properties within the boundaries of Rancho Murieta (incorporated
by reference to Dunes Hotels and Casinos Inc. Annual Report on Form
10-K (file no. 1-4385) for the year ended December 31, 1995, Part IV,
Item 14(a)(3), Exhibit 10.24).

10.2 Master Equipment Lease dated April 3, 1997, between ICON Financial
Corp. and SHF Acquisition Corporation (incorporated by reference to
Dunes hotels and Casinos Inc.

Quarterly Report of Form 10-Q for the quarter ended June 30, 1997,
Part II, Item 6, Exhibit 10.02).

10.3 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 (incorporated herein
by reference to Dunes Hotels and Casinos Inc. Quarterly Report on Form
10-QSB (file no. 1-4385) for the period ended June 30, 2001, Part II,
Item 6(a), Exhibit 10.1).

10.4 Letter Agreement dated September 5, 2001 between SHF Acquisition, a
wholly-owned subsidiary of the Dunes Hotels & Casinos Inc. and Levine
Grain Co., Inc. (incorporated herein by reference to Dunes Hotels and
Casinos Inc. Quarterly Report on Form 10-QSB (file no. 1-4385) for the
period ended September 30, 2001, Part II, Item 6(a), Exhibit 10.1).

21.01 Subsidiaries of Registrant.

(b) Reports on Form 8-K

None

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

DUNES HOTELS AND CASINOS INC. DUNES HOTELS AND CASINOS INC.

By /s/ Steve K. Miller By /s/ Marvin P. Johnson
--------------------------------- -------------------------------------
Steve K. Miller Marvin P. Johnson
President Principal Financial and Accounting
(Principal Executive Officer) Officer

Dated March 22, 2002
--------------------

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.

Signature Title Date

/s/ Steve K. Miller Sole Director March 22, 2002
----------------------- ----------------
Steve K. Miller

INDEPENDENT ACCOUNTANTS' REPORT
-------------------------------

Board of Directors and Stockholders
Dunes Hotels and Casinos Inc. and Subsidiaries
Davis, California

We have audited the accompanying consolidated balance sheet of Dunes Hotels and
Casinos Inc. and Subsidiaries as of December 31, 2001, and the related
consolidated statements of operations, shareholders' equity, and cash flows for
each of the two years in the period ended December 31, 2001. 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, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Dunes Hotels and
Casinos Inc. and Subsidiaries as of December 31, 2001, and the results of its
operations and its cash flows for each of the two years in the period ended
December 31, 2001, in conformity with accounting principles generally accepted
in the United States of America.

/s/ BDK, LLP

Wichita, Kansas

February 14, 2002

F-1

DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET

DECEMBER 31, 2001
(Dollars in thousands)

ASSETS

Cash and cash equivalents $ 2,760

Marketable securities 356

Receivables
Trade 42
Real estate sales - current 140

Inventory of real estate held for sale 186

Prepaid expenses 65
--------

Total current assets 3,549

Property and equipment, less accumulated depreciation
and amortization of $984 3,016

Real estate sales - noncurrent 502

Other assets 4

Assets purchased in foreclosure 480

--------

$ 7,551
=========

(continued)

F-2

DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (CONTINUED)

DECEMBER 31, 2001
(Dollars in thousands)

LIABILITIES AND SHAREHOLDERS' EQUITY

Current maturities of long term debt and
capital lease obligations $ 282

Accounts payable 58

Accrued expenses 477

Deferred storage income 23
--------

Total current liabilities 840

Long-term debt and capital lease obligation 54

Accrued preferred stock dividends in arrears 829
--------

Total liabilities 1,723
--------

Shareholders'equity
Preferred stock - authorized 10,750,000 shares
($.50 par); issued 6,356 shares Series B $7.50
cumulative preferred stock, outstanding 5,454
shares, aggregate liquidation value of $1,511,
including dividends in arrears 3

Common stock - authorized 25,000,000 shares
($.50 par); issued 5,762,843 shares, outstanding
4,365,759 shares 2,882

Capital in excess of par 25,122

Deficit (21,032)
--------
6,975
Treasury stock at cost; Preferred - Series
B, 902 shares Common 1,397,084 shares (1,147)
--------

Total shareholders' equity 5,828
--------

Total liabilities and shareholders' equity $ 7,551
=========
See notes to consolidated financial statements

F-3

DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

YEARS ENDED DECEMBER 31, 2001 AND 2000
(Dollars in thousands, except per share)

2001 2000
---------- ---------
Revenues
Sales of real estate $ 1,004 $ 2,474
Rental income, agricultural properties 59 57
Drying and storage revenues 305 342
Miscellaneous income, net 4 56
---------- ---------
1,372 2,929
---------- ---------
Cost and expenses
Cost of real estate sold 983 2,550
Cost and expenses of rental income 4 4
Cost of drying and storage revenues 285 405
Selling, administrative and general
Corporate 794 1,027
Real estate operations 29 172
Depreciation 133 132
---------- ---------
2,228 4,290
---------- ---------

Loss before other credits (charges) and (856) (1,361)
income taxes

Other credits (charges)
Interest and dividend income 248 266
Interest expense (54) (80)
Gain / (loss) on marketable 31 44
securities, net
---------- ---------
225 230
---------- ---------
Loss before income taxes (631) (1,131)
Income taxes (1) (5)
---------- ---------

Net loss $ (632) $ (1,136)
========== =========

Weighted average number of shares 4,605,174 5,311,893
outstanding

Basic and diluted loss per $ (0.15) $ (0.21)
common share
========== =========

See notes to consolidated financial statements

F-4

DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

YEARS ENDED DECEMBER 31, 2001 AND 2000

(Dollars in thousands)

Preferred
stock Common stock Preferred Common
issued (1) Issued Capital treasury stock treasury stock Total
-------------- ----------------- in --------------- --------------- share-
Par Par excess holders'
Shares Value Shares Value of par Deficit Shares Cost Shares Cost equity
------- ----- --------- ------ --------- --------- -------- ------- --------- -------- ---------

Balance, December 31, 1999 10,512 $5 7,799,780 $3,900 $25,881 ($19,752) 902 ($70) 1,424,684 ($1,930) $8,034

Accrued dividends,
preferred stock (72) (72)
Acquisition of
treasury stock
through foreclosure 1,280,756 (38) (38)
Net loss (1,136) (1,136)
------- ----- --------- ------ --------- --------- -------- ------- ---------- -------- ---------

Balance, December 31, 2000 10,512 5 7,799,780 3,900 25,881 (20,960) 902 (70) 2,705,440 (1,968) 6,788

Accrued dividends,
preferred stock (41) (41)
Acquisition of
treasury stock 601 4,156 (125) 728,581 (763) (287)
Cancellation of
treasury stock (4,156) (2) (2,036,937) (1,018) (759) (4,156) 160 (2,036,937) 1,619
Net loss (632) (632)
------- ----- ---------- ------ --------- --------- -------- ------- ---------- -------- ---------

Balance, December 31, 2001 6,356 $3 5,762,843 $2,882 $25,122 ($21,032) 902 ($35) 1,397,084 ($1,112) $5,828
======= ===== ========== ====== ========= ========= ======== ======= ========== ======== =========

(1) Series B, $7.50 dividend,
voting and non-convertible
(liquidqation value,
$125 per share)

See notes to consolidated financial statements

F-5

DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

YEARS ENDED DECEMBER 31, 2001 AND 2000
(Dollars in thousands)

2001 2000
---- ----
--------- -----------
Cash flows from operating activities:
Net loss $ (632) $ (1,136)
Adjustments to reconcile net loss to net
cash provided by (used in) operating
activities:
Depreciation 133 132
Gain on marketable securities (34) (44)
(Increase) decrease in operating assets:
Receivables (121) (198)
Inventory, real estate held for sale 940 2,334
Prepaid expenses (9) 55
Other (1)
Increase (decrease) in operating liabilities:
Accounts payable (85) 91
Accrued expenses (1)
Deferred credits and other (136) 159
-------- --------
Net cash provided by operating activities 55 1,392
-------- --------

Cash flows from investing activities
Investment in marketable securities (100)
Proceeds from sale of marketable
securities 100
Purchase of assets in foreclosure (480)
Purchase of property and equipment (15) (148)
-------- --------
Net cash provided by (used in) investing
activities (395) (248)
-------- --------

(continued)

F-6

DUNES HOTELS AND CASINOS INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

YEARS ENDED DECEMBER 31, 2001 AND 2000
(Dollars in thousands)

2001 2000
---------- --------
Cash flows from financing activities:
Purchase of treasury stock $ (888) $ -
Payments on long-term debt (253) (226)
---------- --------
Net cash used in financing activities (1,141) (226)
---------- --------

Increase (decrease) in cash and cash equivalents (1,481) 918

Cash and cash equivalents, beginning of year 4,241 3,323
---------- --------
Cash and cash equivalents, end of year $ 2,760 $ 4,241
========== ========
Supplemental disclosures of cash flow
information:
Cash paid during the year for:
Income taxes $ 1 $ 5
========== ========
Interest $ 54 $ 80
========== ========

Supplemental schedules of non-cash
investing and Financing activities:
Dividends accrued but unpaid $ 41 $ 72
========== ========
Stock acquired from foreclosure $ - $ 38
========== ========
Reduction in preferred dividends payable
through acquisition of treasury stock $ (601) $ -
========== ========

See notes to consolidated financial statements

F-7

DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2001 AND 2000

1. Summary of significant accounting policies:

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 (SAC), after elimination of all material
intercompany balances and transactions.

Description of business:

The Company operates in three principal business segments: real estate
(development and sale of residential lots and rental of agricultural land),
grain drying and storage, and distressed assets.

Effective with the third quarter of 2001, the Company changed the
organization of its business segments. Prior to the third quarter of 2001, the
Company reported the rental revenue from the Sam Hamburg Farm under its Farming
segment. Beginning with the third quarter, the Company began including the
rental income from the Sam Hamburg Farm under its Real Estate segment. In
addition, the Company began reporting a new business segment, Distressed Assets,
which reflects its intention to pursue the acquisition and work-out of
distressed real estate related assets.

The Company's real estate segment previously sold completed residential
lots primarily to builders of custom homes and to the general public in and
around the greater Sacramento, California, area. The Company now looks for real
estate development opportunities nationwide. The agricultural property is leased
to tenants in the area where the agricultural property is located. Accordingly,
the Company's operations in this segment could be affected by material adverse
changes in economic conditions in the area.

The grain drying and storage segment dries harvested rice over a two-month
period (approximately September 15 to November 15) and stores, for a fee, the
dried rice until it is removed, normally within the following year. The Company
stores rice principally for one customer under a contract, which expires in
August 2002. This contract accounts for approximately 50% of the storage
capacity and 50% of the storage revenue. If the Company were to lose this
storage customer, fail to obtain drying contracts for the coming year, or crop
yields are low, it would have a material adverse affect on the Company's
agricultural segment. The Company is currently storing yellow corn in the other
50% of its storage capacity.

Results from prior periods have been reclassified to conform to the current
business segments. For more information on the Company's reportable business
segments, See Note 12 below.

Property and equipment and depreciation and amortization:

Property and equipment are stated at cost. Depreciation and amortization
are calculated using the straightline method over the estimated useful lives of
the assets.

F-8

DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2001 AND 2000

Loss per share:

Loss per common share has been computed using the weighted average number
of shares outstanding during the year, 4,605,174 and 5,311,893 for the years
ended December 31, 2001 and 2000, respectively. Dividends on nonconvertible
preferred stock - Series B have been deducted from income or added to the loss
applicable to common shares. (See Note 3).

Income Taxes:

Deferred tax liabilities and assets are recognized for the tax effects of
differences between the financial statement and tax basis of assets and
liabilities. A valuation allowance is established to reduce deferred tax assets
if it is more likely than not that a deferred tax asset will not be realized.

Cash equivalents:

The Company considers all highly liquid cash investments purchased with an
original maturity of three months or less to be cash equivalents. At December
31, 2001, cash equivalents consisted of money market accounts and commercial
paper.

Marketable securities:

The Company's investments in marketable securities are accounted for as
trading securities. Accordingly, gains or losses related to the Company's
investments in marketable securities, which have not been material, are included
in operations. These investments consist of preferred stock of $356,000 in 2001.

Environmental expenditures:

Expenditures that relate to current operations are expensed or capitalized
as appropriate. Expenditures that relate to an existing condition caused by past
operations and which do not contribute to future revenues are expensed.
Liabilities are recorded when remedial efforts are probable and the costs can be
reasonably estimated.

Inventory of real estate held for development and sale:

Real estate held for development and sale is stated at the lower of cost or
net realizable value. Costs include primarily acquisition costs and improvements
costs. Costs are allocated to individual properties using the method appropriate
in the circumstances. For purposes of the statement of cash flows, sales and
purchases of real estate held for development and sale are classified as
operating activities, because the real estate is, in substance, inventory.

F-9

DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2001 AND 2000

Use of estimates:

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

Reclassifications:

Certain reclassifications have been made to the 2000 financial statements
to conform to the 2001 presentation. The reclassifications had no effect on the
results of operations.

2. Fair value of financial instruments:

The following methods and assumptions were used by the Company in
estimating its fair value and disclosures for financial instruments:

Cash, cash equivalents and marketable securities:

The carrying amount approximates fair value of cash, cash equivalents and
marketable securities. For marketable securities, fair values are estimated
based on quoted market prices as of December 31, 2001.

Notes receivable:

These notes are collateralized by the real property sold. Management
believes the fair value of real estate notes receivable approximates their
carrying value based on their outstanding balances, their respective interest
rates and comparable sales in the area of the real property.

In the event these notes were not collected, and the Company were unable to
recover or sell the collateral property, the maximum losses sustained would be
equal to the aggregate value of the notes.

Long-term debt and capital lease obligation:

The fair value of the capital lease obligation is based on current rates at
which the Company could borrow funds.

The fair values of the Company's significant financial instruments at
December 31, 2001 approximate their carrying amounts.

3. Loss per common share:

Loss per common share has been computed by dividing the income, net (loss),
less the accrued dividends applicable to the cumulative Series B Preferred
Shares, for each of the two years ended December 31, 2001 and 2000, by the
weighted average number of shares outstanding (4,605,174) as of December 31,
2001, and (5,311,893) as of December 31, 2000. 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

F-10

DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2001 AND 2000

dividends in the amount of approximately $829,000 as of December 31, 2001. The
Company has no present intention to pay dividends on either its common or
preferred shares. The reduction in dividends payable during 2001 was the result
of the acquisition of preferred stock by the Company as treasury stock.

The following data shows 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:

(Dollars in thousands, except per share)

Year Ended December 31,
-----------------------
2001 2000
---- ----

Loss from operations $ ( 632) $ (1,136)
Less: preferred dividends ( 41) ( 72)
--------- ---------
Loss to common stockholders used
in basic and diluted loss per
common share $ ( 673) $ (1,208)
========= =========

Weighted average number of common
shares used in basic and diluted
loss per common share 4,605,174 5,311,893
========= =========

Basic and diluted loss per common share $ (0.15) $ (0.23)
========= =========

4. Inventory of real estate held for development and sale:
(Dollars in thousands)

2001
----
The Fairways (a) $ -
Sam Hamburg Farm (b) 146
Other 40
-----
$ 186
======

(a) The Company, through SHF, developed 50 acres of residential land located at
Rancho Murieta, California as a residential planned unit development known
as "The Fairways". Rancho Murieta is a 3,500-acre master planned unit
development located approximately 25 miles from Sacramento, California.
Rancho Murieta consists primarily of single-family homes, town houses,
commercial property and two 18-hole championship golf courses, including
country club facilities. The Fairways, located within the boundaries of one
of the golf courses located at Rancho Murieta, was subdivided into 110
single-family estate lots. As of December 31, 2001, all lots have been
sold.

F-11

DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2001 AND 2000

2015 and the Company is unable to predict what amount, if any, will be
received as reimbursement. The rights to reimbursement are personal to SHF
and do not run with The Fairway's property unless assigned by SHF.

(b) Sam Hamburg Farm consists of approximately 150 acres of agricultural
property. Of the 150 acres, 40 acres contain an airstrip and shop areas,
which are the focus of continuing attempts at chemical clean up. See Note
9(b) for a detailed discussion concerning the removal of the toxic waste.
The remaining 110 acres are leased to one tenant at an annual aggregate
rental of approximately $24,000 which expired in 2001. The lease has not
been renewed, however, the prior tenant will farm the property during the
year 2002 under the same payment terms as the original lease.

5. Property and equipment and accumulated depreciation and amortization:

(Dollars in thousands)

2001
----

Land and land improvements $ 159
Building and improvements 3,746
Machinery and equipment 95
-------
4,000
Less accumulated depreciation and amortization ( 984)
-------
$3,016
=======

6. Long-term notes receivable:
(Dollars in thousands)

Real estate 2001
----
Various real estate notes, collateralized
by deeds of trust with interest at 10% $ 642
=====

7. Long-term debt and capital lease obligations:

Long-term debt and capital lease obligations at December 31, 2001, consist
of the following:
(Dollars in thousands)

2001
----
Capital lease obligation (a) $ 328
Other (b) 8
----
$ 336
=====

F-12

DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2001 AND 2000

Maturities of long-term debt are as follows:

(Dollars in thousands)

Capital
Long term debt Lease Obligation Total
-------------- ---------------- -----

2002 $ 4 278 282
2003 4 50 54
----- --- ------
$ 8 $328 $336
==== ==== ====

(a) The Company has a financing lease agreement for its drying facility for
five years commencing March 1998 with a monthly rental of $25,121. The
Company can buy the drying facility for $1 at the end of the lease. The
lease is collateralized by the drying facility, a deed of trust on certain
parcels of property, including the parcel on which the storage facility is
located, and the guarantees of MRI and the Company. Before the guarantors
are liable for any deficiency, the leasing company must first proceed
against the drying facility and the additional collateral.

(b) Other long-term debt consists of an unsecured note payable in annual
installments of $5,000, including interest.

8. Preferred Stock:

The Company is authorized to issue 10,750,000 share of $0.50 par value
preferred shares. The Company gave authority to its Board of Directors to issue
such preferred shares in one or more series, and to fix the number of shares in
each series, and all designations, relative rights preferences and limitations
of the shares issued in each series. As of December 31, 2001, the Board of
Directors has not exercised the authority granted, and no such preferred shares
have been issued except for the 10,512 shares of Series B, $7.50 cumulative
preferred stock (the "Series B Preferred Stock") of which 5,058 and 902 shares
in 2001 and 2000, respectively, are held as treasury stock. 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 as of December 31, 2001, in
the amount of approximately $829,000. The reduction in dividends payable in 2001
was the result of the acquisition of shares of Series B Preferred Stock by the
Company as treasury stock.

9. Contingencies:

(a) At December 31, 2001, the Company has a net operating loss carry
forward (NOL) of approximately $44,226,000. 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 General Financial Services, Inc.

F-13

DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2001 AND 2000

(b) SHF was advised in 1991 of the 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
chemical and toxics-laden soil.

Because of ongoing testing, the State 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 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.

(d) The Company had been notified that the California FTB was examining
its 1995 tax return. The FTB was questioning the Company's reporting
of approximately $7,700,000 of income as being exempt from the 9.3%
California tax. On September 13, 2000, the FTB requested, and the
Company granted, a six month extension of the period in which the FTB
could make an assessment related to the 1995 tax return. On March 13,
2001, the extension expired without any additional action being taken
by the FTB.

10. Legal Proceedings.

FDIC Litigation/Change of Control

John B. Anderson ("Anderson"), the former Chairman of the Board of
Directors of the Company, and through ownership of Cedar Development Co.
("Cedar"), was the controlling shareholder and President of Baby Grand Corp.
("BGC") and J.B.A. Investments, Inc. ("Anderson Entities"), which collectively
owned approximately 4,280,756 shares or 67.2% of the Company's common stock. Of
those shares (i) 3,000,000 shares (the "FDIC Pledged Shares") were pledged as
collateral to secure certain obligations owing to the FDIC described below, and
(ii) 1,280,756 shares (the "BGC Pledged Shares") were pledged as collateral in
favor of a subsidiary of the Company.

The Federal Deposit Insurance Corporation ("FDIC") brought an action
captioned, 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. Anderson, Edith Anderson (Anderson's
wife), Cedar, J.A. Inc., J.B.A. Investments, Inc. ("JBA") (collectively, the
"Anderson Parties") are defendants in this litigation. This matter is more fully
described in the Company's Form 10-K for the year ended December 31, 1997, see
"Item 3. Legal Proceedings - Federal Deposit Insurance Corporation, et al. v.
John B Anderson, et al." The FDIC reduced its claims to a Consent Judgment dated
September 12, 1995 (the "Judgment").

F-14

DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2001 AND 2000

In June 1999, the FDIC sold a portion of its Judgment, together with the
underlying security owned by the Anderson Parties to General Financial Services,
Inc. ("GFS"). Included in the sale were the FDIC Pledged Shares. GFS attempted
to exercise its rights under the Judgment and transfer ownership of the FDIC
Pledged Shares to it, but the Company intervened on behalf of Anderson, and
seized the FDIC Pledged Shares. The Company in turn filed on July 6, 1999, a
Complaint in Interpleader in Superior Court of California (the "California
Action"). The jurisdiction of the action was removed and transferred on
September 20, 1999 to the United States District Court for the District of
Nevada as DUNES HOTELS AND CASINOS INC. v. J.B.A. INVESTMENTS, INC. et al. Case
No. CV-S-99-1470-PMP (RJJ) (the "Nevada Action"). GFS and its subsidiary GFS
Acquisition Company, Inc. filed a counter-claim alleging, among other things,
damages from the previous Company management for filing the California Action,
seizing the FDIC Pledged Shares, interfering with the lawful transfer of the
FDIC Pledged Shares and refusing to grant shareholder demands for an immediate
shareholder meeting to elect directors. A more detailed discussion is described
in the Company's Form 10-KSB for the fiscal year ended December 31, 1999.

On January 5, 2000, the U.S. District Court in Nevada ordered that the
Company hold a shareholders' meeting on or before April 14, 2000, and that GFS
was entitled to vote the FDIC Pledged Shares at that meeting. At that time, GFS
through its subsidiary GFS Acquisition Company, Inc., owned 883,922 shares of
the Company's common stock acquired in the open market during 1999 and the first
quarter of 2000, or approximately a total of 17.4%% of the then outstanding
stock.

Since 1998, the BGC Pledged Shares have been under the jurisdiction of the
U.S. Bankruptcy Court in Las Vegas, Nevada, where BGC filed a petition under
Chapter 7 of the Bankruptcy Code. On February 22, 2000, the Company's motion in
Bankruptcy Court for relief from the automatic stay was granted to allow it to
foreclose on the BGC Pledged Shares. On March 23, 2000, the Company foreclosed
on the BGC Pledged Shares and placed them in the treasury. Placing the BGC
Pledged Shares into treasury had the effect of increasing GFS's voting
percentage to 75.6% of the outstanding stock.

On Friday, April 14, 2000, an annual meeting (the "Meeting") of the
Shareholders of the Company was held at 10:00 a.m. in Sacramento, CA. The
purpose of the Meeting was the election of the Board of Directors of the
Company. Upon completion of the ballot counting, it was determined that the
nominees of GFS and its subsidiary GFS Acquisition, Inc. received a plurality of
the votes and were duly elected. See the Company's Current Report on Form 8-K
dated April 14, 2000 and filed with the Securities and Exchange Commission on
May 3, 2000.

Immediately following the annual Meeting, the Board of Directors met and,
in accordance with the provisions of the Company's bylaws, elected three
additional directors to fill the three vacancies on the Board of Directors. The
new Board of Directors elected Mr. Miller president of the Company. Mr. Cary
Peaden was elected secretary-treasurer of the Company. Mr. Marvin Johnson was
retained as the chief accounting officer of the Company.

The Nevada Action and the GFS counterclaim have been dismissed without
prejudice. In January 2001, GFS foreclosed on the FDIC Pledged Shares and
acquired direct ownership of the shares. The Dunes has no further involvement in
the litigation involving the Anderson Entities.

F-15

DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2001 AND 2000

Injunctive Action Regarding Tender Offer

On April 3, 2000, JBA, GFS and GFS Acquisition filed an action against 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., et al., Case No. 00127
WEB (D. Kan. 2000). The plaintiffs allege that the USI Group conducted a tender
offer for the Company's Series B Preferred Stock in violation of the Williams
Act. Upon information believed to be reliable, USI Group was able to purchase
approximately 3,000 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 holders of the Series B Preferred Stock 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
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. The USI Group has denied that it conducted an illegal tender offer for
the Company's Series B Preferred Stock.

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.

Derivative Shareholder Litigation

On October 5, 2001, GFS and GFS Acquisition (collectively, the
"Plaintiffs"), derivatively on behalf of the Company and individually, filed a
lawsuit in the Superior Court of the State of California for the County of
Sacramento (Case No. CIV. S-01-1878 DFL PAN) against certain of the Company's
former officers, directors and attorneys (collectively, the "Defendants"). The
action seeks to remedy alleged breaches of fiduciary duty, waste of corporate
assets, unjust enrichment, lack of candor, and fraud by the Company's former
senior executives, directors and their attorneys. The lawsuit alleges that
during a substantial portion of the Company's existence, the Defendants abused
their control and fiduciary positions improperly to obtain for themselves and
other officers, managers and employees millions of dollars in benefits, while
greatly damaging the Company and its shareholders. At this time, the ultimate
outcome of this litigation is unknown; however, the Company anticipates that the
Defendants will vigorously defend themselves. Even if the Plaintiffs are
successful in obtaining a judgment against the Defendants, it is unknown whether
any such judgment would be ultimately

F-16

DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2001 AND 2000

collectible. However, the Company is aware that the former directors and
officers of the Company have the benefit of a $3,000,000 directors and officers
liability insurance policy that may be available to help pay any such judgment.
Although the Company is a defendant in the litigation, it would be entitled to
recover any judgment awarded with respect to the derivative claims alleged by
the Plaintiffs.

11. Taxes:

The Company and its subsidiaries file a consolidated federal income tax
return. Deferred tax assets (liabilities) are comprised of the following at
December 31, 2001:

(Dollars in thousands)

2001
----

Marketable securities valuation allowance -
Real estate allowances -
Loss carryforwards 15,012
Other 2
--------
Gross deferred tax assets 15,014
Deferred tax asset valuation allowance (15,014)
--------
Net deferred tax assets $ -
=========

A reconciliation of the changes in deferred tax assets valuation allowance
is as follows:

(Dollars in thousands)

2001 2000
---- ----
Valuation allowance for unrealized loss
on marketable securities $ (11) $ (15)
Current year loss carryforwards 278 829
Valuation allowance on real estate (53) (427)

Expiration of NOL (3,362) (811)
-------- -------
Change in deferred tax asset valuation allowance (3,148) (424)
Deferred tax assets valuation allowance,
beginning of year 18,162 18,586
-------- -------
Deferred tax assets valuation allowance,
end of year $15,014 $18,162
======== ========

A reconciliation of the federal statutory tax rate to the effective tax rate for
2001 and 2000, is as follows:
Percentage of pre-tax income

2001 2000
---- ----
Federal statutory rate (34%) (34%)
Non-deductible items:
Valuation adjustments 34% 34%
---- ----
0% 0%
==== ====

F-17

DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2001 AND 2000

The Company has the following net operating loss carryovers available for income
tax reporting purposes:

Year of expiration (Dollars in thousands)
-------------------

2003 20,156
2004 1,889
2005 1,891
2006 3,542
2007 803
2008 2,408
2009 595
2010 3,298
2011 1,791
2012 2,767
2018 1,241
2019 589
2020 2,438
2021 818

As more fully described in Note 9(a) and 10, a change in ownership of the
Company may have or could have taken place as early as January 4, 2000. If such
a change in ownership had taken place, it would materially reduce the amount of
income that could be offset by net operating losses each year; and if there is
no continuity of business after an ownership change, the net operating losses
could be eliminated. Net operating losses, to the extent not used in any given
taxable year, may be carried forward and added to the limitation of subsequent
years.

12. Segment information:

As discussed in Note 1, the Company operates in three principal business
segments: real estate investments (development and sale of residential lots and
rental of agricultural land), grain drying and storage and distressed assets.

F-18

DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2001 AND 2000

The following is a summary of segment information for 2001 and 2000:

(Dollars in thousands)
2001 2000
---- ----
Net revenues from unaffiliated customers:
Real estate:
Sale of real estate $ 1,004 $ 2,474
Land rent 59 57
Grain drying and storage revenue 305 342
Distressed assets - -
---------- ---------
$ 1,368 $ 2,873
========= =========

Grain drying and storage depreciation $ 133 $ 132
========= =========

Income (loss) from operations:
Real estate $ 51 $ (139)
Grain drying and storage (113) (195)
Distressed assets - -
---------- ---------
(62) (334)
Corporate operating expense (794) (1,027)
Other income / (loss) 225 230
Income taxes (1) (5)
---------- ---------
Net loss, as reported in the
accompanying consolidated
statements of operations ($ 632) ($ 1,136)
========= =========

2001 2000
---- ----
Identifiable assets
Real estate $ 828 $ 1,652
Grain drying and storage 3,127 3,231
Distressed assets 480 -
General corporate assets 3,116 4,663
---------- ---------
Total assets, as reported in
the accompanying consolidated
balance sheet $ 7,551 $ 9,546
========= =========

Grain drying and storage fixed
asset additions $ 15 $ 148
========= =========

13. Significant estimates and concentrations:

Generally accepted accounting principles require disclosure of certain
significant estimates and current vulnerabilities due to certain concentrations.
Those matters include the following:

Major customers:

The Company derives substantially all of its storage income from five
customers. The storage contracts with these customers expire in 2002.

F-19

DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2001 AND 2000

14. Related party transactions:

During 2001, the Company paid General Financial Services, Inc. (GFS), a
majority owner of the Company, $137,000 for legal services it provided to the
Company. At December 31, 2001 the amount due GFS was $33,000.

15. Subsequent Events:

Since the Company's common stock and Series B preferred stock were each
held of record by less than 500 persons as of January 1, 2002 and the Company
had less than $10 million of assets as of the end of each of its last three
fiscal years, the Company terminated its registration of the common stock and
Series B preferred stock under Section 12(g) of the Securities Exchange Act of
1934 (the "Exchange Act") and suspended its obligation to file periodic reports
with the SEC with respect to the common stock and Series B preferred stock as of
January 1, 2002.

The parties to the injunctive action relating to the tender offer for the
Company's Series B Preferred Stock conducted by the USI Group have agreed in
principle to a settlement of the lawsuit that would result in the dismissal of
the lawsuit with no liability to the Company.

F-20