Exhibit 13


THE SANDS
REGENT


SELECTED FINANCIAL DATA







For the years ended June 30,





2002 (5)


2001


2000


1999 (1)


1998 (1)(Dollars in thousands, except per share data)STATEMENT OF OPERATIONS DATA:Operating revenues (2)

$
34,067


$
35,763


$
36,248


$
43,474


$
59,211Income (loss) from operations


1,268



2,946



2,881



(42
)


233Net income (loss)


(189
)


1,232



1,491



(1,388
)


(1,219
)Net income (loss) per share:Basic

$
(0.04
)

$
0.27


$
0.33


$
(0.31
)

$
(0.27
)Diluted

$
(0.04
)

$
0.26


$
0.32


$
(0.31
)

$
(0.27
)Cash Dividends per share


















OPERATING DATA:Casino square footage (3)


37,000



29,000



29,000



27,000



51,000Number of slot machines (3)


860



651



665



686



1,459Number of hotel rooms (4)


836



836



836



836



938Average hotel occupancy:Number of room nights


245,000



262,000



257,000



254,000



285,000Percentage


80.2
%


85.9
%


83.9
%


76.4
%


83.3
%Number of RV spaces (5)


105















Average RV occupancy:Number of rented nights


1,379















Percentage


43.8
%














Net cash provided by (used in):Operating activities

$
2,157


$
4,560


$
6,905


$
2,295


$
3,005Investing activities (5)


(16,113
)


(3,358
)


(2,043
)


(5,331
)


(714
)Financing activities


9,433



(238
)


(1,216
)


(627
)


(731
)BALANCE SHEET DATA:Cash, cash equivalents and short-term investments (3)

$
5,648


$
10,160


$
9,940


$
5,550


$
9,453Total assets (3) (5)


59,144



47,883



47,092



43,695



58,901Long-term debt (3) (5)


19,026



10,000



10,205



491



14,643Total stockholders equity (3) (5)


33,608



32,619



31,337



29,844



31,235OTHER DATA:EBITDAR (6)

$
4,560


$
6,346


$
6,120


$
3,717


$
4,706


---

|(1) |  | On December 23, 1998, the Company sold its wholly owned subsidiaries Patrician, Inc. (Patrician), Artemis, Inc. (Artemis) and Gulfside Casino,
Inc. (GCI), and their general partnership Gulfside Casino Partnership (GCP), to unrelated third parties. GCP owned and operated the Copa Casino in
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



6




---





| | Gulfport, Mississippi. The Selected Financial Data presented herein includes such subsidiaries through the date of sale.
| | ------------------------------------------------------------------------------------------------------------------------

|(2) |  | Revenues are net of complimentaries.
|--- |  | ------------------------------------

|(3) |  | Information presented as of the end of the period.
|--- |  | --------------------------------------------------

|(4) |  | In April 1999, the Company discontinued the use of 102 older motel rooms which were razed.
|--- |  | ------------------------------------------------------------------------------------------

|(5) |  | The Company acquired the Gold Ranch Casino and RV Resort (Last Chance, Inc.) on Interstate 80 in Verdi, Nevada, June 1, 2002.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------

|(6) |  | EBITDAR includes earnings before depreciation and amortization, interest expense, income taxes, rent and any gain (loss) on the disposal of property. EBITDAR
is not a calculation determined pursuant to generally accepted accounting principles and is not an alternative to operating income or net income and is not a measure of liquidity. Since not all companies calculate this measure in the same manner,
the Companys EBITDAR measure may not be comparable to similarly titled measures reported by other companies. The Company presents EBITDAR as a supplemental disclosure to facilitate a more complete analysis of the Companys financial
performance. The Company believes that this disclosure enhances the understanding of the financial performance of a company with substantial interest expense, depreciation and amortization.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



7




---



MANAGEMENTS DISCUSSION AND


ANALYSIS OF FINANCIAL CONDITION


AND RESULTS OF OPERATIONS




RESULTS OF OPERATIONS





Managements Discussion and Analysis of Financial Condition and Results of Operations will be directed at continuing operations. On June 1, 2002, the Company acquired the Gold Ranch Casino and R.V. Resort (Gold
Ranch) on Interstate 80 in Verdi, Nevada. Consolidated financial results for the year ended June 2002, include one month of operations for Gold Ranch. Comparisons for fiscal 2002 to 2001 are affected slightly by this acquisition, and for this
discussion are sometimes identified to assist in comparisons.





Comparison of fiscal 2002 to 2001





General





For the fiscal year ended June 30, 2002, operating revenues decreased from $35.8 million to $34.1 million. A decrease was anticipated as the Company and the Reno area weathered the one year, in the recurring three-year cycle, where a
major tournament was not held at the National Bowling Stadium in Downtown Reno. Additionally, income from operations decreased from $2.9 million to $1.3 million. Net income decreased from $1.2 million to a net loss of $189,000. Ultimately, diluted
earnings declined from $.26 per share to a loss of $.04 per share.





The prior fiscal year ended June 30, 2001, benefited
greatly from the mens American Bowling Congress (ABC) tournament. Both this tournament and the Women's International Bowling (WIBC) tournament will continue to be held in Reno at least through the year 2010. The tournaments bring tens of
thousands of bowlers and their guests into the Reno area from all over the U.S. and Canada during the traditionally slow season. Both tournaments start in mid-winter and last for nearly 5 months.





While the non-bowling fiscal year 2002 was expected and planned for, two major events which impacted the Reno tourism industry were not. The events of September 11
cancelled the very popular Reno National Air Race Championship and materially impacted other special events. Additionally, its effect on hotel occupancy was felt throughout the rest of fiscal 2002. Results could have been worse if the Company had
not changed its marketing strategy and repositioned itself so that an increasing number of our guests are drive-ups from Northern California and local Reno residents. These revenue sources were least affected by the September 11 tragedy.





Further, the Companys results, along with the Reno area in general, were negatively impacted by the soft economy in
Northern California. The energy crisis, coupled with the technology slump, severely impacted the Northern California economy, which is the Companys primary feeder market. The Company attempted to mitigate the impact of these events by
aggressively marketing to energy cost sensitive Californians.





Finally, the Reno market was without the use of
the Reno-Sparks convention center for most of the year. The convention center was undergoing a significant expansion to approximately 500,000 feet of meeting space. While the area is well maintained for long-term convention business expansion, the
short-term loss of the convention center presented another significant challenge for the Company and Reno market as a whole.





Revenues





Lodging revenues decreased to $8.0 million for the year ended June 30, 2002 from
$9.1 million in the prior fiscal year. Hotel occupancy decreased to 80.2% from 85.9% for reasons previously discussed. The Company utilized the reduced occupancy levels to remodel nearly 300 rooms and has now remodeled virtually all of its 836 rooms
during the last two fiscal years. The average daily rate (ADR), net of incidentals such as movie and telephone charges, decreased to $32.00 from $33.65 because competitors offered special hotel rates to attract reluctant travelers.




8




---








Gaming revenue decreased approximately $1 million to $21.2 million in the year
ended June 30, 2002. However, casino revenue per occupied hotel room increased $2 to $85, as the Company relied more heavily on local casino patrons. Slot machine revenue for fiscal 2002 decreased $1.1 million to $15.1 million, however, slot revenue
per occupied hotel room held steady at $62. Anticipating the reduced business volumes without bowlers in fiscal 2002, the Company implemented several capital improvements in its slot offering. Over 150 new slot machines were installed during
the year revitalizing the products offered and enhancing the selection. Additionally, the Company installed International Game Technology's latest slot ticketing system (EZ Pay Integrated Voucher System) and upgraded its' player tracking system
(Acres Gaming's Advantage). EZ Pay is a coin-free slot machine which significantly reduces slot machine downtime and operating expenses. The Acres upgrade gives the Company the latest in database marketing and player bonusing.





In other gaming areas, comparisons of fiscal 2002 to 2001 were mixed. Bingo traffic is a critical component in the Companys pursuit
of local gaming patrons. Bingo revenue increased 61.6% to $790,000 in fiscal 2002. Table games revenue, however, decreased 13.7% to $3.9 million. This was anticipated as the men bowlers in fiscal 2001 helped drive table games revenue to record
levels. Gold Ranch's slot machines and lottery station contributed $461,000 to gaming revenues in fiscal 2002 during its one month of operation after acquisition.





Food and beverage revenues increased $259,000 to $5.62 million in fiscal 2002. Beverage revenue increased $860,000, even though volume decreased, as the interdepartmental pricing of
complimentary beverages was increased to more closely align beverage complimentary pricing with the pricing of cash beverages. The effect of changing the interdepartmental pricing of complimentary beverages on net revenues is zero, as complimentary
goods and services provided to guests are netted from gross revenues to arrive at net revenues. Additionally, Gold Ranch posted food and beverage revenues of $152,000 in its one month of operations under Company ownership skewing higher fiscal 2002
to 2001 revenue comparisons. On the other hand, the Palm Court restaurant had $543,000 in revenue before closing in fiscal 2001. The Palm Court closed in conjunction with the opening of the Original Mels diner, a third-party
operated restaurant. Rental income from Mels diner is recorded in Other revenues. Revenues from various other food venues decreased a total of $210,000 in fiscal 2002, consistent with the lower hotel occupancy, and accounting for
the balance of the change.





The Company now operates a high volume gas station and convenience store as part of the Gold
Ranch acquisition. For the month of June 2002, the Arco gas station and convenience store at Gold Ranch had revenues of $1.1 million.





The increase in promotional allowances (complimentary lodging, food, and beverage) of $908,000 resulted almost entirely from the change in the pricing of complimentary beverages mentioned in this discussion.





Operating Expenses





Gaming costs and expenses decreased $141,000 in fiscal 2002 to $10.2 million. Considering only the Sands Regency property, gaming costs and expenses decreased $285,000 as management reduced payroll commensurate with lower operating
levels. Additionally, the Company further reduced costs by restructuring certain customer reward programs.





Lodging overhead
decreased $456,000 to $4.0 million for fiscal 2002 due primarily to the lower hotel occupancy. Costs per occupied room decreased as well, from $16.86 in fiscal 2001 to $16.20 in fiscal 2002. The decreased cost per occupied room was primarily due to
significant cost savings realized following the acquisition of several pieces of new or refurbished laundry equipment.




9




---



MANAGEMENTS DISCUSSION AND


ANALYSIS OF FINANCIAL CONDITION


AND RESULTS OF OPERATIONS (continued)







Maintenance and utility costs increased $200,000 to $3.5 million for fiscal
2002, from $3.3 million in the prior year. Increased utility costs accounted for all of the change, as both the price per kilowatt and price per thermal unit increased substantially. In fiscal 2002, the Company began installing energy saving
lighting fixtures to keep overall costs low and to reduce exposure to future rate increases.





General and administrative
expenses remained relatively stable with a $100,000 increase to $7.0 million in fiscal 2002 from $6.9 million in the prior year. Marketing expenses increased $221,000 due mainly to intensified competition for both northern California and local area
customers. The expense associated with bonuses paid decreased $380,000 as management bonuses were nearly eliminated in fiscal 2002. The management bonus program ties directly to the Companys results as measured against the budget. Fiscal 2001
exceeded management's expectations, but external events during fiscal 2002 did not allow the Company to meet its goals.





Other Income/Expense





Interest and other income decreased by $248,000 in fiscal 2002 to
$178,000, as the interest rate of return on the Companys cash balances fell to multi-year lows. In fiscal 2002, the Company chose not to put its cash balances at risk, thus it experienced modest, but positive returns. Interest expense
increased materially from $1.1 million to $1.6 million as the Company expensed $302,000 of unamortized deferred loan fees from the $10 million in long-term debt that was refinanced.





EBITDAR





EBITDAR decreased from
$6.3 million in fiscal 2002 to $4.6 million June 30, 2002. EBITDAR includes earnings before depreciation and amortization, interest expense, income taxes, rent and any gain (loss) on the disposal of property. EBITDAR is not a calculation
determined pursuant to generally accepted accounting principles and is not an alternative to operating income or net income and is not a measure of liquidity. Since not all companies calculate this measure in the same manner, the Companys
EBITDAR measure may not be comparable to similarly titled measures reported by other companies. The Company presents EBITDAR as a supplemental disclosure to facilitate a more complete analysis of the Companys financial performance. The Company
believes that this disclosure enhances the understanding of the financial performance of a company with substantial interest expense, depreciation and amortization. Historically, the Company reported EBITDA data. With the Gold Ranch
acquisition, which includes a substantial real property rent component, the Company believes EBITDAR provides a more accurate depiction of the Companys ability to service debt and satisfy capital needs. Moreover, if the option of the Company
to purchase the Gold Ranch real property is exercised, which can happen at the Companys sole discretion, the rental expense would be available for other uses by the Company.





Comparison of Fiscal 2001 to 2000





General





For the year ended June 30, 2001, income from operations increased to slightly more than $2.9 million as compared to income from
operations of slightly less than $2.9 million in the year ended June 30, 2000. For the same comparable periods, revenues decreased to $35.8 million from $36.2 million. Net income also declined from $1.5 million to $1.2 million and diluted earnings
per share declined from $.33 to $.26.







10




---





The increase in income from operations is primarily attributable to improved operating margins at the Sands Regency.
The decrease in revenues is due to the elimination of a 24-hour restaurant in mid-October 2000. This restaurant was replaced by the addition of an Original Mels diner, operated by a third party. The decrease in net income and in diluted
earnings per share is due to the loss taken on furniture, fixtures and equipment disposed of as a result of two-thirds of the hotel rooms being remodeled from mid-November 2000 to mid-April 2001.





Factoring out the elimination of revenue from the 24-hour restaurant closed in mid-October, revenue increased by $1.3 million, an increase of almost 4%. In addition, factoring
out the loss in fiscal 2001 and the gain in fiscal 2000, net of income taxes, net income would have increased to $1.5 million in fiscal 2001 from $1.4 million in fiscal 2000, an increase of approximately 6%. With these assumptions, diluted earnings
per share would have been approximately the same for both years at $.31.





The Companys results during the last four
months of fiscal 2001 were positively impacted by a major city-wide bowling event. Every two out of three years, the City of Reno hosts a major mens or womens bowling event which starts in February or March and ends in June
or July. Fiscal 2000 and 2001 are the two out of three years when such major bowling events have taken place in Reno. The mens bowling event in fiscal 2001 did not have as positive an impact on the Companys revenue as did the
womens event held in the prior year.





Revenues





The increase in lodging revenue to $9.1 million in the year ended June 30, 2001, from $8.7 million in the year ended June 30, 2000, is due to an increase in occupancy,
especially in the first half of the year. In the second half of the year, occupancy was hampered by the Companys room renovation project. For the current year, hotel occupancy improved from approximately 83.9% in fiscal 2000 to 85.9% in fiscal
2001. For the same comparable periods, the average room rate increased from approximately $34 to $35.





Gaming revenue
improved to approximately $22.2 million in fiscal 2001 compared to $21.6 million in fiscal 2000. This increase includes approximately $140,000 in revenue from the Bingo operation, which was commenced in February 2000, and $472,000 in table game
revenue as a result of increased table game play by the men's bowling event participants. Casino revenue per occupied room was approximately the same each year at $82. Slot revenue per occupied room has declined from approximately $63 in fiscal 2000
to $62 in fiscal 2001. This is due to increased play on video poker machines which payout more liberally as a result of an increased emphasis on local area residents. The Company has made a conscious effort to liberalize slot machine payouts in
order to encourage long-term customer loyalty.





The $1.4 million decrease in food and beverage revenue in the year ended
June 30, 2001, compared to the year ended June 30, 2000, is due to the elimination, in mid-October 2000, of a 24-hour restaurant operated by the Company. Upon the closing of such restaurant, an Original Mels diner was opened on the
premises which is operated by a third party and paying a percentage rent to the Company. Such decrease was partially offset by increased restaurant revenue from other Company operated outlets of approximately $135,000 and increased beverage revenue
of approximately $165,000. Such increases are partially due to increased occupancy.





The increase in other revenues of
$117,000 to $1.4 million in fiscal 2001, is primarily rental income from the Original Mels diner which opened in mid-October 2000.







11




---



MANAGEMENTS DISCUSSION AND


ANALYSIS OF FINANCIAL CONDITION


AND RESULTS OF OPERATIONS (continued)




The increase in complimentary lodging, food and beverage of $183,000 to $2.3 million in fiscal 2001, is due to
increased complimentary rewards based on patron gaming activity and to various promotional programs directed at attracting and retaining customers.





Operating expenses





Gaming costs and expenses increased from $9.7 million in the year
ended June 30, 2000 to $10.4 million in the year ended June 30, 2001. Such increase includes costs and expenses associated with the operation of Bingo of approximately $267,000 which was opened in February 2000. The increase also includes an
increase in the cost of complimentaries of $107,000, as a result of increased promotional efforts.





The increase in lodging
expenses of $198,000 to $4.4 million, in fiscal 2001, compared to fiscal 2000, consists of an increase in salaries, wages and benefits of approximately $106,000. This increase is due, in part, to the increase in hotel occupancy.





The $1.7 million decrease in food and beverage costs and expenses from $5.9 million in the year ended June 30, 2000 to $4.2 million in
the year ended June 30, 2001 is due to the elimination, in mid-October 2000, of a 24-hour restaurant operated by the Company as previously discussed. Such decline was partially offset by increased costs and expenses from other food outlets primarily
due to increased revenue from such outlets.





The $264,000 increase to $3.3 million in maintenance and utilities expenses in
fiscal 2001, compared to fiscal 2000, includes increases in salaries, wages and benefits of $93,000 and utilities of $159,000. The increase in salaries, wages and benefits is due, in part, to the increase in hotel occupancy. The increase in utility
costs is due to rate increases from third-party providers.





The decrease in general and administrative expenses of $71,000
to $6.9 million is due to a combination of expense decreases and increases. The largest decrease was $72,000 in property taxes, the largest increase was $62,000 in sponsorship costs as the Company sponsored major bowling association tournaments and
a minor league baseball team. The $74,000 increase in interest and income is due to additional earnings on increased invested excess cash and cash equivalents.





Other Income/Expense





The $391,000 loss on disposition of property and
equipment and lease termination costs in fiscal 2001 was primarily due to the write-off of the non-depreciated basis of hotel room furniture, fixtures and improvements as a result of the remodel of approximately two-thirds of the Companys 836
guest rooms.





EBITDA





EBITDA improved from $6.1 million in the year ended June 30, 2000 to $6.3 million in the year ended June 30, 2001. EBITDA includes earnings before depreciation and amortization, interest expense,
income taxes and any gain (loss) on the disposal of property. EBITDA is not a calculation determined pursuant to generally accepted accounting principles and is not an alternative to operating income or net income and is not a measure of liquidity.
Since not all companies calculate this measure in the same manner, the Companys EBITDA measure may not be comparable to similarly titled measures reported by other companies. The Company presents EBITDA as a supplemental disclosure to
facilitate a more complete analysis of the Company's financial performance. The Company believes that this disclosure enhances the understanding of the financial performance of a company with substantial interest expense, depreciation and
amortization. The Company changed to an EBITDAR basis for presentation in fiscal 2002, as explained in the fiscal 2002 to 2001 comparison.




12




---








Seasonality





As is true for other hotel/casinos in the Reno area, demand for the Companys facilities declines in the winter. Due to lower room rates and a lower level of gaming play per
occupied room, operating margins and, to a lesser extent, revenues are lower during our second and third fiscal quarters. To attempt to counter this seasonality, the Company has pursued local gaming business which is not subject to as great a
decline in winter months as the tourism business. Management anticipates that the trend of experiencing lower operating margins in the second and third quarters of each fiscal year will continue.





Capital resources and liquidity





Cash, cash equivalents and
short-term investments decreased from $10.2 million at June 30, 2001 to $5.6 million at June 30, 2002. This decline was due primarily to investing activities by the Company, specifically, the acquisition of Gold Ranch. Net cash provided from
operating activities for the years ended June 30, 2002, 2001, and 2000 was $2.2 million, $4.6 million, and $6.9 million, respectively. During these years, net cash provided by operating activities was sufficient to fund the day-to-day operating
expenses of the Company.





The Companys consolidated net borrowing position increased $9.7 million during 2002 to $19.9
million. A bank note in the amount of $10 million was repaid, and a new bank facility, a $17 million secured line of credit, was obtained. The Company made principal payments on the new bank line of $2.8 million in June 2002. Provisions of the new
bank facility allow the Company to pay down principal or withdraw funds at the Companys discretion, as long as the principal amount does not exceed an allowable maximum which decreases over the 10-year period of the loan. The Company will make
additional principal payments (or withdrawal funds) when it feels it is prudent to do so. The Company also incurred $5.6 million of long-term debt in favor of the former principals in the Gold Ranch acquisition.





Net cash used in investing activities was $16.1 million in the year ended June 30, 2002. The principal use of these funds included $13.5 million
associated with the acquisition of the Gold Ranch. In fiscal 2002, 2001, and 2000, the Company acquired property, plant, and equipment associated with the Sands Regency in the amounts of $3.0 million, $4.2 million, and $2.8 million, respectively.
Additional acquisitions or future expansion of current facilities will be considered based upon future market conditions and available financial resources. In late 2000, the Company announced it was pursuing a partnership opportunity for a casino
project in Minden, Nevada. An exact plan and construction time frame have yet to be determined.





The Companys working
capital decreased to approximately $3.2 million at June 30, 2002 from approximately $8.4 million at June 30, 2001. This primarily resulted from the Companys use of $2.8 million to reduce the balance on its new revolving credit facility, a $2.6
million cash payment in the Gold Ranch acquisition, and the increase of $680,000 current portion of long-term debt required by the new credit line. Positive operating cash flow helped offset the working capital decreases described herein. At June
30, 2002, the Company believes that its cash funds, cash generated from operations, and available borrowing capacity will be sufficient to meet its needs for the next fiscal year.




13




---



MANAGEMENTS DISCUSSION AND


ANALYSIS OF FINANCIAL CONDITION


AND RESULTS OF OPERATIONS (continued)







Commitments and Contingencies





The following table summarizes the Companys contractual obligations as of June 30, 2002.





Total

Less than 1 year

1-3 years

4-5 years

After 5 yearsLong term debt

$
19,875,626

$
849,301

$
3,912,822

$
5,008,090

$
10,105,413Operating leases (1)


5,702,084


575,000


1,150,000


1,150,000


2,827,084Other (2)


1,983,194


172,084


406,230


406,230


998,650Total

$
27,560,904

$
1,596,385

$
5,469,052

$
6,564,320

$
13,931,147


---

|(1) |  | Represents contractual lease obligations on real property in connection with the Gold Ranch acquisition agreement. Amounts reflect a minimum base payment schedule. The
lease is subject to escalation based on the property meeting certain revenue thresholds. Management does not believe these thresholds will be met without significant expansion of the gaming facilities.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) |  | Represents management fees due in connection with the R.V. Park at Gold Ranch. The table reflects a scheduled 20% increase effective June 1, 2003, in accordance with the
management agreement. Additionally, future amounts payable are subject to adjustment based on changes in interest rates.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




Cautionary note regarding forward looking statements





This Annual Report on Form 10-K includes
forward-looking statements intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. You can identify these statements by the fact that they do not relate strictly to
historical or current facts. These statements contains words such as may, will, project, might, expect, believe, anticipate, intend, could,
would, estimate, continue or pursue, or the negative or other variations thereof or comparable terminology. In particular, they include statements relating to, among other things, future actions,
strategies, future performance, and future financial results. We have based these forward-looking statements on our current expectations and projections about future events.





We caution the reader that forward-looking statements involve risks and uncertainties that cannot be predicted or quantified and, consequently, actual results may differ materially
from those expressed or implies by such forward-looking statements. Such risks and uncertainties include, but are not limited to, the following factors as well as other factors described from time to time in our reports filed with the Securities and
Exchange Commission:





| | * |  | the effect of economic, credit and capital market conditions on the economy in general, and on gaming companies in particular; and hotel companies in particular;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------




| | * |  | our ability to timely and cost effectively integrate into our operations the companies and assets that we acquire;
| | - |  | ------------------------------------------------------------------------------------------------------------------




| | * |  | access to available and feasible financing;
| | - |  | -------------------------------------------




| | * |  | changes in laws or regulations, third party relations and approvals, and decisions of courts, regulators and governmental bodies; governmental bodies;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------




| | * |  | judicial actions, including gaming legislative action, referenda and taxation;
| | - |  | ------------------------------------------------------------------------------




| | * |  | abnormal gaming holds; and
| | - |  | --------------------------




| | * |  | the effects of competition, including locations of competitors and operating and market competition.
| | - |  | ----------------------------------------------------------------------------------------------------



14




---








Any forward-looking statements are made pursuant to the Private Securities
Litigation Reform Act of 1995 and, as such, speak only as of the date made. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise. We undertake no obligation
to publicly update any forward-looking statement, whether as a result of new information, future events or otherwise.





Critical Accounting
Policies and Estimates





The Company prepares its consolidated financial statements in conformity with generally accepted
accounting principles in the United States. Certain of the Companys policies, including the estimated lives assigned to the Companys assets, the determination of bad debt, self insurance reserves, asset impairment, calculation of income
tax liabilities, and the purchase price allocation made in connection with the acquisition of Gold Ranch, requires that the Company apply significant judgment in defining the appropriate assumptions for calculating financial estimates. By their
nature, these judgments are subject to an inherent degree of uncertainty. The Companys judgments are based on historical experience, terms of existing contracts, observations of trends in the industry, information provided by customers and
information available from other outside sources, as appropriate. There can be no assurance that actual results will not differ from Company estimates. To provide an understanding of the methodologies applied, the Companys significant
accounting policies are discussed where appropriate in this discussion and analysis.





Other factors affecting current and future results





The constitutional amendment approved by the California voters allowing the expansion of Native American casinos in
California will have an impact on casino revenues in Nevada in general, and many analysts have predicted the impact will be more significant on the Reno-Tahoe market. The extent of this impact is difficult to predict, but the Company believes the
impact will be mitigated to an extent due to the Companys emphasis on Reno area residents as a significant base of its business. However, if other Reno area casinos suffer business losses due to increased pressure from California casinos, they
may intensify their marketing efforts to Reno area residents as well.




15




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THE SANDS REGENT


CONSOLIDATED BALANCE SHEETS







June 30, 2002 and 2001


2002

2001ASSETSCurrent assetsCash and cash equivalents

$
5,627,964

$
10,150,254Short-term investments


20,000


10,000Accounts receivable, net of allowance of $29,000 and $54,000


517,404


550,269Note receivable, sale of subsidiaries


180,000


180,000Inventories


715,785


643,876Federal income tax refund receivable


369,034


7,476Prepaid expenses and other assets


1,252,532


1,051,890Total current assets


8,682,719


12,593,765Property and equipmentLand


8,505,937


8,486,668Buildings and improvements


40,147,697


38,785,470Equipment, furniture and fixtures


20,344,954


18,802,000Construction in progress


346,247


260,75369,344,835


66,334,891Less accumulated depreciation and amortization


31,811,243


32,136,905Property and equipment, net


37,533,592


34,197,986Other assetsNote receivable, sale of subsidiaries, net


143,975


669,177Goodwill


10,950,453


Other intangibles


1,356,400


Other


476,954


422,175Total other assets


12,927,782


1,091,352Total assets

$
59,144,093

$
47,883,103





---

See
notes to consolidated financial statements.




16




---








2002


2001LIABILITIES AND STOCKHOLDERS' EQUITYCurrent liabilitiesAccounts payable

$
3,154,003


$
2,256,766Accrued salaries, wages and benefits


996,642



1,435,212Other accrued expenses


240,762



192,387Deferred federal income tax liability


222,132



144,224Current maturities of long-term debt


849,301



180,637Total current liabilities


5,462,840



4,209,226Long-term debt


19,026,325



10,000,000Deferred federal income tax liability


1,046,612



1,055,150Total liabilities


25,535,777



15,264,376Common stock, $.10 par value, 20,000,000 shares authorized, 7,325,805 and 6,928,722 shares issued


732,580



692,872Additional paid-in capital


13,915,901



12,777,392Retained earnings


41,318,297



41,506,92555,966,778



54,977,189Treasury stock, at cost; 2,403,000 shares


(22,358,462
)


(22,358,462
)Total stockholders' equity


33,608,316



32,618,727Total liabilities and stockholders' equity

$
59,144,093


$
47,883,103




17




---



THE SANDS REGENT


CONSOLIDATED STATEMENTS OF OPERATIONS







For the years ended June 30,





2002


2001


2000RevenuesGaming

$
21,173,695


$
22,218,940


$
21,612,684Lodging


8,040,613



9,073,917



8,651,692Food and beverage


5,615,082



5,356,210



6,803,139Fuel and convenience store


1,070,216







Other


1,390,847



1,429,436



1,312,23837,290,453



38,078,503



38,379,753Less promotional allowances


3,223,035



2,315,267



2,132,201Net revenues


34,067,418



35,763,236



36,247,552Operating ExpensesGaming


10,247,630



10,388,503



9,719,694Lodging


3,963,137



4,419,393



4,221,314Food and beverage


3,361,819



4,226,147



5,943,627Fuel and convenience store


1,003,910







Other


578,107



583,037



562,327Maintenance and utilities


3,500,974



3,302,847



3,038,730General and administrative


7,033,050



6,924,116



6,994,927Depreciation and amortization


3,110,538



2,972,763



2,885,95032,799,165



32,816,806



33,366,569Income from operations


1,268,253



2,946,430



2,880,983Other income / expenseInterest and other income


178,470



426,827



352,600Interest and other expense


(1,585,412
)


(1,154,975
)


(1,195,542
)Gain (loss) on disposal of property


(182,127
)


(391,190
)


124,429(1,589,069
)


(1,119,338
)


(718,513
)Net income (loss) before income taxes


(320,816
)


1,827,092



2,162,470Income tax (provision) benefit


132,188



(594,783
)


(671,346
)Net income (loss)

$
(188,628
)

$
1,232,309


$
1,491,124Net income (loss) per shareBasic

$
(0.04
)

$
0.27


$
0.33Diluted

$
(0.04
)

$
0.26


$
0.32Weighted average of shares outstandingBasic


4,558,907



4,500,614



4,496,747Diluted


4,558,907



4,751,774



4,658,007





Because of a net loss for the year ended June 30, 2002, stock equivalents would have an antidilutive
effect. Accordingly, diluted earnings per share for the period is computed using weighted average number of shares outstanding before dilution.




18




---



THE SANDS REGENT


CONSOLIDATED STATEMENTS OF


STOCKHOLDERS EQUITY







For the years ended June 30, 2002, 2001, 2000





Common Stock






Treasury StockShares

Amount

Additional Paid-in Capital

Retained Earnings


Shares

Amount


TotalBalances, July 1, 1999

6,898,722

$
689,872

$
12,728,867

$
38,783,492


2,403,000

$
(22,358,462
)

$
29,843,769Net income










1,491,124









1,491,124Issuance of company common stock and stock options exercised

2,000


200


1,680












1,880Balances, June 30, 2000

6,900,722


690,072


12,730,547


40,274,616


2,403,000


(22,358,462
)


31,336,773Net income










1,232,309









1,232,309Issuance of company common stock and stock options exercised

28,000


2,800


46,845












49,645Balances, June 30, 2001

6,928,722


692,872


12,777,392


41,506,925


2,403,000


(22,358,462
)


32,618,727Net loss










(188,628
)








(188,628
)Issuance of company common stock and stock options exercised

20,000


2,000


34,240












36,240Issuance of company common stock in purchase transaction

377,083


37,708


1,104,269












1,141,977Balances, June 30, 2002

7,325,805

$
732,580

$
13,915,901

$
41,318,297


2,403,000

$
(22,358,462
)

$
33,608,316


---

See notes to consolidated financial statements.




19




---



THE SANDS REGENT


CONSOLIDATED STATEMENTS OF CASH FLOWS







For the years ended June 30,





2002


2001


2000Operating ActivitiesNet income (loss)

$
(188,628
)

$
1,232,309


$
1,491,124Adjustment to reconcile net income (loss) to net cash provided by operating activities:Depreciation and amortization


3,110,538



2,972,763



2,885,950(Gain) loss on disposal of property and equipment


182,127



391,190



(124,429
)(Increase) decrease in accounts receivable


100,709



(43,094
)


(64,539
)(Increase) decrease in inventories


75,357



(13,314
)


(147,476
)(Increase) decrease in prepaid expenses and other current assets


(147,240
)


(26,772
)


172,800Decrease in other assets


299,925



31,957



123,870Increase (decrease) in accounts payable


(402,850
)


52,794



1,204,054Increase (decrease) in accrued salaries, wages, and benefits


(628,803
)


43,354



538,182Increase (decrease) in other accrued expenses


48,286



1,702



(79,767
)Change in federal income taxes payable/receivable


(361,558
)


(241,803
)


534,328Change in deferred federal income taxes


69,370



159,086



371,098Net cash provided by operating activities (net of effect of the acquisition of subsidiaries)


2,157,233



4,560,172



6,905,195Investing ActivitiesPurchase of short-term investments


(10,000
)


(200,000
)


(1,993,201
)Sales and maturities of short-term investments






943,201



1,250,000Payments received on notes receivable


525,202



538,716



533,580Receipt of funds previously held in escrow










653,330Net cash paid for wholly owned subsidiaries


(13,510,115
)






Acquisitions of property and equipment


(3,043,925
)


(4,256,493
)


(2,814,181
)Payment of accounts payable for prior year purchases of property and equipment


(185,657
)


(411,405
)


Proceeds from sale of assets


111,938



27,655



327,783Net cash used in investing activities

$
(16,112,557
)

$
(3,358,326
)

$
(2,042,689
)


---

See notes to consolidated financial statements.




20




---








2002


2001


2000Financing ActivitiesIssuance of long-term debt

$
22,662,071


$



$
10,000,000Payment of costs relative to issuance of long-term debt


(283,507
)






(442,904
)Payments on long-term debt


(12,981,770
)


(287,724
)


(10,775,115
)Issuance of Company common stock


36,240



49,645



1,880Net cash provided by (used in) financing activities


9,433,034



(238,079
)


(1,216,139
)Increase (decrease) in cash and cash equivalents


(4,522,290
)


963,767



3,646,367Cash and cash equivalents, beginning of year


10,150,254



9,186,487



5,540,120Cash and cash equivalents, end of year

$
5,627,964


$
10,150,254


$
9,186,487Supplemental cash flow information:Property and equipment acquired by long term debt

$
14,687


$



$
Property and equipment acquired by accounts payable

$
1,098,461


$
185,657


$
411,405Issuance of common stock to acquire subsidiaries

$
1,141,977


$



$
Interest paid, net of amount capitalized

$
1,550,379


$
1,139,975


$
1,331,532Federal income taxes paid

$
160,000


$
677,500


$
Fair value of assets and liabilities acquired:Current assets other than cash

$
268,511Property and equipment


2,583,136Other long-term assets


71,195Intangibles


12,306,853Accounts Payable


(577,603
)Common shares issued


(1,141,977
)Cash paid net of cash acquired

$
13,510,115




21




---



THE SANDS REGENT


NOTES TO CONSOLIDATED


FINANCIAL STATEMENTS







For the years ended June 30, 2002, 2001, 2000





NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES





|(a) |  | Principles of consolidation and basis of presentation
|--- |  | -----------------------------------------------------




The consolidated financial statements include the accounts of The Sands Regent and its wholly owned subsidiary Zante, Inc. dba The Sands Regency (Zante). Early in 2002, the Company formed Last
Chance, Inc. dba Gold Ranch Casino and R.V. Resort (Last Chance), and on June 1, 2002, Last Chance acquired many of the assets of Prospector Gaming Enterprises, Inc. and 100% of the stock of California Prospectors, LLP; commonly known as
Gold Ranch Casino and R.V. Resort and Gold Ranch Lottery, respectively. Last Chances and California Prospectors financial results for the month of June 2002 are consolidated into the fiscal year ended, June 30, 2002. All significant
intercompany balances and transactions have been eliminated in consolidation.





|(b) |  | Nature of operations
|--- |  | --------------------




The
Company owns and operates The Sands Regency Casino/Hotel in Reno, Nevada; and, on June 1, 2002 acquired the Gold Ranch Casino and R.V. Resort on Interstate 80, 12 miles west of Reno, in Verdi, Nevada.





As part of the Gold Ranch acquisition, the Company added additional gaming, and gaming support facilities, including food and beverage venues, a
California Lottery station, a recently opened 105 space R.V. Park, and a high volume gas station and convenience store. The Gold Ranch property is presented as a separate industry segment under Note 11  Business Segments. The Company
also owns and operates a small slot route service with various locations in the general Reno area.





Gaming operations are
subject to extensive regulation by the authorities in Nevada. Additionally, the State of California regulates the lottery operations at the Gold Ranch property. Management believes that the Companys procedures for supervising gaming operations
and recording casino and other revenues comply in all material respects with the applicable regulations.





|(c) |  | Operating revenues
|--- |  | ------------------




Casino
operations represents the net win from gaming activities, which is the difference between gaming wins and losses. The majority of our casino revenue is counted in the form of cash, chips, and tokens and therefore is not subject to any significant or
complex estimation procedures. Revenues include the estimated retail value of rooms, food and beverage, other goods and services provided to customers on a complimentary basis. Such amounts are then deducted as promotional allowances. The estimated
costs and expenses of providing these promotional allowances are charged to the gaming department in the following amounts:





Fiscal year ended June 30,2002

2001

2000Lodging

$
443,542

$
432,056

$
368,969Food and beverage


1,464,469


1,422,028


1,383,996Other


22,243


41,136


35,108$
1,930,254

$
1,895,220

$
1,788,073




22




---








Other operating revenue is comprised of casino/hotel ancillary services.
Related expenses are included in other operating expenses. The revenues and operating expenses for the gas station and convenience store at Gold Ranch have a separate category  Fuel and convenience store  in both
revenues and operating expenses. Fuel revenue related to the convenience store is characterized by low gross profit margins relative to other profit centers, but high dollar volumes.





|(d) |  | Cash and cash equivalents
|--- |  | -------------------------




Cash equivalents include all short-term investments with an original maturity of three months or less. Such investments, carried at cost which approximates market, are readily marketable with no significant investment in any
individual issuer.





|(e) |  | Short-term investments
|--- |  | ----------------------




The Company accounts for its short-term investments in accordance with the provisions of Statement of Financial Accounting Standards (SFAS) No. 115  Accounting for Certain Investments in Debt and
Equity Securities.





|(f) |  | Inventories
|--- |  | -----------




Inventories
consist primarily of food, beverage, gasoline and operating supplies and are stated at the lower of cost (determined on an average cost basis) or market.





|(g) |  | Property and equipment
|--- |  | ----------------------




Property and equipment are stated at cost. Depreciation and amortization is computed primarily by the straight-line method over the estimated useful lives of the assets. These lives range between 5 to 35 years for buildings and
improvements and 3 to 20 years for equipment, furniture, and fixtures. Assets sold or otherwise disposed of are removed from the property accounts and the resulting gains or losses are included in income.





|(h) |  | Capital interest
|--- |  | ----------------




Interest
costs associated with major construction projects are capitalized. When no debt is incurred specifically for a project, interest is capitalized on the amounts expended for the project using our weighted average cost of borrowing. Capitalization of
interest ceases when the project or discernible portions of the project are substantially complete. Capitalized interest during the years ended June 30, 2002, 2001, and 2000 was $66,000, $83,000, and $25,000, respectively.





|(i) |  | Debt issuance costs
|--- |  | -------------------




Debt
issuance costs incurred in the connection with the issuance of long-term debt are capitalized and amortized to interest expense over the term of the debt instrument. Debt issuance costs are accrued in other assets on the balance sheet.





|(j) |  | Goodwill and other intangible assets
|--- |  | ------------------------------------




Intangible assets, which consists of trademarks, trade names, customer database, grandfathered gaming location, and goodwill, represent the excess of the total acquisition costs over the fair market value of net tangible assets
acquired in a business combination. Goodwill and other intangibles will be reviewed annually for impairment and if necessary, an impairment loss will be recorded.




23




---



THE SANDS REGENT


NOTES TO CONSOLIDATED


FINANCIAL STATEMENTS (continued)







|(k) |  | Impairment of long-lived assets
|--- |  | -------------------------------

The Company reviews the carrying
values of its long-lived assets for possible impairment whenever events or changes in circumstances indicate the carrying amount of assets may not be recoverable. The Company does not believe that any events or circumstances have occurred that would
require the realization or recognition of an impairment in the three fiscal years ended June 30, 2002.





|(l) |  | Income taxes
|--- |  | ------------




Income taxes
are accounted for in accordance with the provisions of Statement of Financial Accounting Standards (SFAS) No. 109- Accounting for Income Taxes. In accordance with SFAS No. 109, the asset and liability method of accounting for
income taxes is utilized whereby deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under SFAS No. 109, the effect on deferred
tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.





|(m) |  | Fair value of financial instruments
|--- |  | -----------------------------------




The Company calculates the fair value of financial instruments and includes this additional information in the Companys Notes to Consolidated Financial Statements when the fair value is different than the book value of those
financial instruments. When fair value is equal to book value, no additional disclosure is made. Fair value is determined using quoted market prices whenever available. When quoted market prices are not available, the Company uses alternative
valuation techniques such as calculating the present value of estimated future cash flows utilizing discount rates commensurate with the risks involved. It is estimated that the carrying amounts of the Companys financial instruments
approximate fair value at June 30, 2002.





|(n) |  | Concentrations of credit risk
|--- |  | -----------------------------




Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents and short-term investments. The Company maintains cash in bank accounts with balances, at
times, in excess of federally insured limits. The Company believes it is not exposed to any significant credit risk on cash, cash equivalents, and short term investments.





|(o) |  | Recent Pronouncements of the Financial Accounting Standards Board (FASB) and other authoritative accounting pronouncements
|--- |  | ----------------------------------------------------------------------------------------------------------------------------




On January 1, 2001, the Company implemented Emerging Issues Task Force (EITF) No. 00-22 Accounting for
Points and Certain Other Time-Based or Volume-Based Sales Incentive Offers, and Offers for Free Products or Services to be Delivered in the Future. EITF No. 00-22 requires that players club reward program points be reflected
as a promotional item and deducted from revenue. Prior to this pronouncement, the Company had expensed the players club reward program activity as a gaming expense. Reclassification has been made on the consolidated statements of operations
for the fiscal year ended June 30, 2000 to conform to the presentation for the fiscal years ended June 30, 2001 and 2002.




24




---








In June 2001, the FASB issued Statement of Financial Accounting Standards
(SFASs), SFAS No. 141 Business Combinations and SFAS No. 142 Goodwill and Other Intangible Assets. Together these statements will change the accounting for business combinations and goodwill. SFAS No. 141
requires the purchase method of accounting for all business combinations initiated after June 30, 2001 and eliminates the pooling-of-interest method. SFAS No. 142 changes the accounting for goodwill and indefinite lived intangible assets from an
amortization method to an impairment only approach. Thus, amortization of goodwill, including goodwill recorded in past business combinations, will cease upon the adoption of SFAS No. 142. Amortization will still be required for identifiable
intangible assets with finite lives. The Company has adopted the provisions of SFAS No. 141 and SFAS No. 142 in fiscal 2002 and it did not have a material impact on the consolidated financial statements.





Also in June 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement Obligations, which is effective for financial
statements issued for fiscal years beginning after June 15, 2002. This statement establishes accounting standards for the recognition and measurement of a liability for an asset retirement obligation and the associated asset retirement costs. The
Company does not anticipate that the adoption of SFAS No. 143 will have a material impact on the consolidated financial statements.





In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, which is effective for financial statements for fiscal years beginning after December 15, 2001, and the interim
periods within those fiscal years. This statement addresses financial accounting and reporting for impairment of long-lived assets and for long-lived assets to be disposed of, and supersedes SFAS No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of. The Company does not anticipate that the adoption of SFAS No. 144 will have a material impact on the consolidated financial statements.





In April 2002, the FASB issued SFAS No 145, Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections. Among other things, this statement rescinds SFAS No. 4, Reporting Gains and Losses from Extinguishment of Debt which required all gains and losses from extinguishment of debt to be aggregated and, if material,
classified as an extraordinary item, net of related income tax effect. As a result, the criteria in APB Opinion No. 30, Reporting the Results of Operations  Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions, will not be used to classify those gains and losses. Management adopted the provisions of this statement and it did not have a material impact on the consolidated
financial statements.





In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or
Disposal Activities. SFAS No. 146 addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force Issue No. 94-3, Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Insured in a Restructuring). SFAS No. 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is
incurred. A fundamental conclusion reached by the FASB in this statement is that an entity's commitment to a plan, by itself, does not create a present obligation to others that meets the definition of a liability. Management adopted the provisions
of this statement and it did not have a material impact on the consolidated financial statements.





|(p) |  | Use of estimates
|--- |  | ----------------




The
preparation of financial statements in conformity with accounting principles generally accepted in the United States 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




25




---



THE SANDS REGENT


NOTES TO CONSOLIDATED


FINANCIAL STATEMENTS (continued)




financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.





|(q) |  | Reclassifications
|--- |  | -----------------




Certain
reclassifications have been made to the 2001 and 2000 consolidated financial statements to conform to the 2002 presentation.





NOTE 2 
ACQUISITIONS





On June 1, 2002, Last Chance, Inc. (Last Chance), a Nevada corporation and wholly owned
subsidiary of The Sands Regent, (the Company), completed the acquisition of certain assets (the Acquired Assets) of Prospector Gaming Enterprises, Inc., a Nevada corporation (PGE), pursuant to an Asset Purchase
Agreement, dated as of December 27, 2001 (the Purchase Agreement). Further, the members interest in California Prospectors, Ltd., a Nevada limited liability company (California Prospectors), was also acquired by Last
Chance pursuant to the Members Interest Purchase and Sales Agreement, dated as of December 27, 2001.





The
Companys consolidated statement of operations for the year ended June 30, 2002, includes the results operations of the acquired entities for the period from June 1, though June 30, 2002.





The purchase price for the Acquired Assets consisted of $2.6 million in cash, 377,083 shares of common stock of The Sands Regent, $5.6 million of assumed debt, which was
refinanced, and a promissory note in the amount of $5.6 million made by Last Chance in favor of PGE. The final purchase price was calculated based on EBITDA (earnings before interest, taxes, depreciation and amortization) for the Gold Ranch Casino
and R.V. Resort for the twelve months preceding the closing date of the acquisition. The cash paid in connection with the transaction came from invested cash of the Company in the amount of $2.6 million, and borrowings by the Company under a 10-year
revolving loan with the Reno Corporate Lending Division of Nevada State Bank.





Condensed balance sheet





The following condensed balance sheet, as of June 1, 2002 (the date of acquisition) discloses the allocation of the purchase price paid to each
major asset acquired and major liability assumed:





Current assets

$
1,488,639

Current liabilities

$
577,361Property, plant, and equipment, net


2,573,030

Long-term debt


11,860,144Intangible assets


1,356,400

Total liabilities assumed


12,437,505Goodwill


10,950,453Other


253,193Total assets acquired

$
16,621,715

Net assets acquired

$
4,184,210





Contingent consideration and purchase options





Also on December 27, 2001, in connection with the Purchase Agreement, Last Chance entered into (i) a Gold Ranch Casino Lease (the Casino
Lease) with PGE and Target Investments, LLC, a Nevada limited liability company (Target) whereby PGE and Target leased the real property on which the Gold




26




---





Ranch Casino is located, and certain other real estate to Last Chance, (ii) an Option to Purchase the Gold Ranch Casino Property (the Casino Option) with PGE and Target whereby PGE
and Target granted an option to Last Chance to purchase the real property on which the Gold Ranch Casino is located, the Gold Ranch premises, California lottery station and the real estate on which it is located, and certain other real property
interests in the California lottery station business to Last Chance, (iv) an Option to Purchase All Assets of Gold Ranch R.V. Resort business and Right of First Refusal (the R.V. Asset Option) with Gold Ranch R.V. Resort, LLC (Gold
Ranch LLC) whereby Gold Ranch LLC granted an option to Last Chance to purchase the assets of the Gold Ranch R.V. Resort,(v) a Gold Ranch R.V. Resort Management Agreement (the Management Agreement) with Gold Ranch LLC whereby Gold
Ranch LLC engaged Last Chance to manage and operate the day-to-day business of the Gold Ranch R.V. Resort, (vi) an Option to Purchase the R.V. Park Property and Right of First Refusal (the R.V. Property Option) with PGE whereby PGE
granted Last Chance an option to purchase the real property on which the Gold Ranch R.V. Park is located. The Casino Lease, the Casino Option, the Members Interest Agreement, the R.V. Asset Option, the Management Agreement, and the R.V.
Property Option are referred to collectively as the Other Agreements.





There are no contingent payments
associated with this acquisition.





Pro forma financial information





The following unaudited supplemental pro forma information is presented for the years ended June 30, 2002 and 2001. For income statement presentation the acquisition was assumed to
have occurred at the beginning of the first income statement period presented. For balance sheet purposes, the acquisition was assumed to have occurred on June 30, 2002.





For the year ended June 30,2002

2001Gross revenues

$
52,732

$
57,545Net income


940


1,629





In managements opinion, these unaudited proforma amounts are not
necessarily indicative of what the actual consolidated results of operations might have been if the acquisition had been effective at the beginning of fiscal 2001.





NOTE 3  NOTE RECEIVABLE, SALE OF SUBSIDIARIES





In December 1998, the Company
closed an agreement selling all of its ownership interest in Patrician, GCI and Artemis, which included a 100% ownership interest in the Copa Casino, for $8.5 million. Upon consummation of the sales transaction, the Companys net investment in
Patrician, GCI and Artemis was $2.2 million which was reclassified as a note receivable, net. The difference to the original $8.0 million face value of the note, after the initial $500,000 payment, represents an unrecognized gain of approximately
$5.8 million. Such gain will be recognized by the Company as it receives subsequent payments after recovering the $2.2 million net investment. At June 30, 2002, the balance of the note receivable, net (the net investment) is $323,975. It is
estimated that the net amount will be recovered in approximately mid-fiscal 2003. Thereafter, it is estimated that approximately $540,000 will be recognized into income annually until the $8.0 million is paid in full. $180,000 of the note
receivable, sale of subsidiaries is reflected as a current asset. The original note, with an original face amount of $8.0 million is payable, without interest, in monthly installments of $15,000 or two percent of gaming revenue, whichever is
greater, until paid in full.




27




---



THE SANDS REGENT


NOTES TO CONSOLIDATED


FINANCIAL STATEMENTS (continued)







NOTE 4  INTANGIBLE ASSETS





The following intangible assets were identified and allocated a portion of the purchase consideration in conjunction with the Gold Ranch acquisition:





Class

June 30, 2002 CostGoodwill

$
10,950,453Grandfathered gaming location


861,400Trademark


485,000Other


10,000$
12,306,853





The Company recorded no amortization on the above intangibles, and
accordingly, their cost represents their carrying value as of June 30, 2002. The entire amount of goodwill is expected to be deductible for tax purposes.





The Company has not finalized the allocation of goodwill between the reportable units of Gold Ranch as defined under SFAS 131, Disclosure about Segments of an Enterprise and Related Information. As
of June 30, 2002, no amounts of goodwill or identified intangibles have been amortized, and no impairment loss has been deemed necessary.




28




---








NOTE 5  LONG-TERM DEBT





June 30,2002

2001Amounts outstanding under a Nevada State Bank, 10 year, $17,000,000 reducing revolving credit facility, collateralized by
substantially all property and equipment of Zante, Inc. and furniture, fixtures, and equipment of Last Chance, Inc. The note has a fixed interest rate at 7.17% for five years through 6/1/07. The rate shall be adjusted on 6/1/07 to a new five year
fixed rate at 2.40% plus the five year U.S. Dollar Swap Market rate. The loan matures on June 5, 2012 with interest and unpaid principal amounts due and payable

$
14,200,000

$
Amounts outstanding under a subordinated note payable to Prospector Gaming Enterprises, Inc. in the amount of $5,618,734;
collateralized by a secondary lien on furniture, fixtures, and equipment. At June 30, 2002, the variable interest rate was 7.25% based on the Prime index, plus 2.5%. This note has a seven year straight-line amortization and matures on June 1, 2007
when the balance of all unpaid principal is due and payable. A portion ($157,000) of this note was assigned by Prospector Gaming Enterprises, Inc. to Rob Medeiros. He is an officer of the Company and former shareholder of Prospector


5,618,734


Bank term loan; interest at 10.75% per annum; monthly payments of interest only with the principal balance due in full in December
2004; subject to required principal payments to the extent that the balance exceeds certain multiples of EBITDA (3.5 through October 2001, 3.0 from November 2001 to October 2002, 2.75 from November 2002 to October 2003 and 2.5 from November 2003 to
October 2004); secured by a deed of trust and security interest in all real, personal and other property of the Company, an assignment of the Note Receivable due from Gulfside Casino Partnership and a pledge of the Company's 100% stock ownership
interest in its wholly owned subsidiary, Zante, Inc.





10,000,000Capital lease obligation; imputed interest at 8.6%; payable in monthly principal and interest payments in the amount of $26,794
over 60 months at which time a one dollar purchase option is exercisable; assets under the capital lease, with an original cost of $1,418,000 and accumulated depreciation of approximately $1,131,000 at June 30, 2001, are included in property and
equipment and are being depreciated over their estimated useful lives





180,637Other  Insurance related contract and small equipment financing agreement


56,89219,875,626


10,180,637Less current maturities


849,301


180,637Long-term portion

$
19,026,325

$
10,000,000





The bank term loan, a revolving line of credit entered into in May 2002,
requires the Company to be in compliance with certain financial and other covenants, restricts future encumbrances, and limits situations where a change in control in the Company may occur. The financial covenants include the




29




---



THE SANDS REGENT


NOTES TO CONSOLIDATED


FINANCIAL STATEMENTS (continued)




requirement that a minimum EBITDA (earnings before interest expense, taxes, depreciation and amortization) and a minimum tangible net worth be maintained. The Company believes that it is in
compliance with the covenants, requirements and restrictions at June 30, 2002.





Long-term debt at June 30, 2002 is payable
as follows:





Year endingJune 30,

Amount2003

$
849,3012004


1,406,2622005


2,506,5602006


2,505,4262007


2,502,664thereafter


10,105,413Total

$
19,875,626





NOTE 6  STOCK OPTION AND STOCK INCENTIVE PLANS





The Companys second amended and restated stock option plan provides for the granting of incentive stock options, as well as non-qualified
stock options, to executives and key employees. The plan also provides for the grant of non-qualified stock options to independent (non-employee) directors. With respect to grants of stock options to independent directors, the stock option plan
provides for the automatic grant of options to purchase 7,500 shares to an independent director on each annual meeting date that such director continues to serve. Further, the Board of Directors may grant an option to purchase up to 25,000 shares
upon the appointment of a new independent director. The plan presently permits for the grant of options covering a maximum of 1,100,000 shares of the Company's common stock. The Company has reserved shares to cover these requirements. The plan will
continue until the year 2010, unless terminated earlier. Under the plan, the per share exercise price of an option cannot be less than 100% of the fair market value of the shares at date of grant or 110% of the fair market value in the case of
incentive stock options granted to stockholders owning more than 10% of the outstanding common shares. The options generally vest 25% to 50% each year after grant for employees and vest in full in one year for grants to independent directors.




30




---








The following table summarizes activity of the company's stock option plans:





Number of Options


Weighted Average Exercise PriceOptions OutstandingOutstanding, July 1, 1999

547,500


$
1.57Options granted

82,500



1.74Options exercised

(2,000
)


0.94Options cancelled .

(27,000
)


1.71Outstanding, June 30, 2000

601,000



1.59Options granted

72,500



1.79Options exercised

(28,000
)


1.77Options cancelled .

(31,000
)


1.66Outstanding, June 30, 2001

614,500



1.60Options granted

82,500



2.86Options exercised

(20,000
)


1.81Options cancelled .

(1,000
)


1.81Outstanding, June 30, 2002

676,000


$
1.75Options ExercisableAt June 30, 2000

370,500


$
1.65At June 30, 2001

463,500


$
1.57At June 30, 2002

541,500


$
1.61





At June 30, 2002, options to purchase 229,864 shares were available for grant
under the stock option plan.





The following table sets forth certain information with respect to stock option grants
outstanding at June 30, 2002:





Options Outstanding

Options ExercisableRange ofExerciseprices

Number Outstanding

Weighted Average Remaining Contractual Life (years)

Weighted Average Exercise Price

Number Exercisable

Weighted Average Exercise Price$ .88 to $1.69

239,000

6.9

$
1.13

201,000

$
1.11$1.81 to $3.00

437,000

6.6


2.09

340,500


1.91$ .88 to $3.00

676,000

6.7

$
1.75

541,500

$
1.61







31




---



THE SANDS REGENT


NOTES TO CONSOLIDATED


FINANCIAL STATEMENTS (continued)




The Company follows the provisions of SFAS No. 123  Accounting for Awards of Stock-Based
Compensation which establishes financial accounting and reporting standards for stock-based employee compensation plans and for transactions where equity securities are issued for goods and services. It defines a fair value based method of
accounting for an employee stock based method of accounting for an employee stock option, or similar equity instrument, and encourages such method of accounting for all employee stock compensation plans. As provided by SFAS No. 123, the Company has
elected to continue to follow the provisions of APB Opinion No. 25  Accounting for Stock Issued to Employees which measures compensation costs for employee stock compensation plans using the intrinsic value based method
of accounting. Accordingly, no compensation cost has been recognized.





The following table indicates the Companys net
income and net income per share assuming that compensation costs for the Companys stock option plan grants were determined using the fair value based method prescribed by SFAS 123. The table also discloses the weighted average assumptions used
in estimating the fair value of each option grant on the date of the grant, using the Black-Scholes option pricing model, and the estimated weighted average fair value of the options granted. The model assumes no expected future dividend payments on
the Companys common stock for the options granted:





June 30,2002


2001


2000Net income (loss):As reported

$
(188,628
)

$
1,232,309


$
1,491,124Pro forma


(231,897
)


1,178,288



1,409,309Basic earnings (loss) per share:As reported


(0.04
)


$0.27



$0.33Pro forma


(0.05
)


0.26



0.31Diluted earnings (loss) per share:As reported


(0.04
)


$0.26



$0.32Pro forma


(0.05
)


0.25



0.31Weighted average assumptions:Expected stock price volatility


100.0
%


120.0
%


100.0
%Risk-free interest rate


2.9
%


6.2
%


6.1
%Expected option lives


2.6 years



2.2 years



2.6 yearsEstimated fair value of options granted


$1.66



$1.10



$1.03





NOTE 7  FEDERAL INCOME TAXES





The Companys income tax (provision) benefit consists of the following:





2002


2001


2000Current

$
201,558


$
(435,697
)

$
(300,249
)Deferred


(69,370
)


(159,086
)


(371,097
)$
132,188


$
(594,783
)

$
(671,346
)




32




---








The Companys effective tax rate differs from the federal statutory rate
as follows:





2002


2001


2000Federal statutory tax rate

(35.0
)%

35.0
%

35.0
%Surtax exemption

1.0
%

(1.0
)%

(1.0
)%General business credits

(7.8
)%

(1.3
)%

(1.4
)%Other

0.6
%

(0.1
)%

(1.6
)%(41.2
)%

32.6
%

31.0
%





The components of the Companys net deferred federal income tax
liability are as follows at June 30:





2002


2001Deferred tax assets:Alternative minimum tax credit

$
546,727


$
706,302Accrued expenses


89,912



80,276Deferred gain


410,094



410,094Other


13,573



41,2201,060,306



1,237,892Deferred tax liabilities:Intangibles


(23,246
)


Property and equipment


(1,980,186
)


(2,171,546
)Prepaid expenses


(325,618
)


(265,720
)(2,329,050
)


(2,437,266
)Net deferred federal income tax liability

$
(1,268,744
)

$
(1,199,374
)





The Company has a March 31 tax year-end.





NOTE 8  STOCKHOLDERS EQUITY





The par value of the Companys common stock has been restated to $.10 per share in the first quarter of fiscal 2001 which resulted in common stock being increased by $345,000 and additional paid-in capital being decreased by the
same amount. All periods presented have been restated.





As of June 30, 2002 and 2001, the Company has authorized 5,000,000,
$.10 par value preferred shares of which none were issued and outstanding.





NOTE 9  EARNINGS PER SHARE





Earnings Per Share are calculated in accordance with SFAS No. 128Earnings Per Share. SFAS 128 provides for the
reporting of basic, or undiluted earnings per share, and diluted earnings per share. Basic earnings per share is computed by dividing net income by the weighted average number of




33




---



THE SANDS REGENT


NOTES TO CONSOLIDATED


FINANCIAL STATEMENTS (continued)




shares outstanding during the period. Diluted earnings per share reflects the addition of potentially dilutive securities which, for the Company, consist solely of stock options. Dilution is
determined based upon the assumption that options issued pursuant to the Company's stock option plans (see Note 6) are exercised and repurchased at the average price for the periods presented. The weighted average number of shares outstanding for
the calculation of diluted earnings per share, for the years ended June 30, 2001 and 2000 included the dilutive effect of Company stock options to purchase common stock. For the years ended June 30, 2001 and 2000, options to purchase 22,500 and
426,000 shares, respectively, of the Company's common stock were not included because the exercise price exceeded the average market price. For the year ended June 30, 2002, options to purchase 676,000 shares were not included because the Company
incurred a net loss for the period.





NOTE 10  COMMITMENTS AND CONTINGENCIES





Payments due by periodContractual Obligations

Total

Less than 1 year

1  3 years

4  5 years

After 5 yearsLong term debt

$
19,875,626

$
849,301

$
3,912,822

$
5,008,090

$
10,105,413Operating leases (1)


5,702,084


575,000


1,150,000


1,150,000


2,827,084Other (2)


1,983,194


172,084


406,230


406,230


998,650Total

$
27,560,904

$
1,596,385

$
5,469,052

$
6,564,320

$
13,931,147


---

|(1) |  | Represents contractual lease obligations on real property in connection with the Gold Ranch acquisition agreement. Amounts reflect a minimum base payment schedule. The
lease is subject to escalation based on the property meeting certain revenue thresholds. Management does not believe these thresholds will be met without significant expansion of the gaming facilities.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




|(2) |  | Represents management fees due in connection with the R.V. Park at Gold Ranch. The table reflects a scheduled 20% increase effective June 1, 2003, in accordance with the
management agreement. Additionally, future amounts payable are subject to adjustment based on changes in interest rates.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




Contingencies





The Company is party to various legal actions, proceedings and pending claims arising
in the normal conduct of business. Management believes that the final outcomes of these matters will not have a material adverse effect upon the Companys financial position and results of operations.




34




---








NOTE 11  BUSINESS SEGMENTS





The Company reports business segment information based on geographic location. The following is a breakdown various data by location as of the
respective years ended. Gold Ranch information represents one month of operation.





June 30, 2002

June 30, 2001Gross revenues less promotional allowancesSands Regency Casino/Hotel

$
32,386,273

$
35,763,236Gold Ranch Casino and R.V. Resort


1,681,145


Total consolidated gross revenues less promotional allowances

$
34,067,418

$
35,763,236Operating profit (loss)Sands Regency Casino/Hotel

$
1,077,287

$
2,946,430Gold Ranch Casino and R.V. Resort


190,966


Total consolidated operating profit (loss)

$
1,268,253

$
2,946,430Interest incomeSands Regency Casino/Hotel

$
156,814

$
394,775Gold Ranch Casino and R.V. Resort





Total consolidated interest income

$
156,814

$
394,775Interest expenseSands Regency Casino/Hotel

$
1,513,306

$
1,154,975Gold Ranch Casino and R.V. Resort


72,106


Total consolidated interest expense

$
1,585,412

$
1,154,975Depreciation and amortizationSands Regency Casino/Hotel

$
3,080,679

$
2,972,763Gold Ranch Casino and R.V. Resort


29,859


Total consolidated depreciation and amortization

$
3,110,538

$
2,972,763AssetsSands Regency Casino/Hotel

$
42,354,251

$
47,883,103Gold Ranch Casino and R.V. Resort


16,789,842


Total consolidated assets

$
59,144,093

$
47,883,103Additions to long-lived assetsSands Regency Casino/Hotel

$
4,063,919

$
4,442,149Gold Ranch Casino and R.V. Resort


93,154


Total consolidated additions to long-lived assets

$
4,157,073

$
4,442,149




35




---



THE SANDS REGENT


NOTES TO CONSOLIDATED


FINANCIAL STATEMENTS (continued)







NOTE 12  CONDENSED QUARTERLY RESULTS (UNAUDITED)





First Quarter

Second Quarter


Third Quarter


Fourth Quarter2002Operating revenues

$
8,982,000

$
7,535,000


$
7,551,000


$
9,999,000Income (loss) from operations


915,000


(228,000
)


(154,000
)


735,000Net income (loss)


468,000


(252,000
)


(379,000
)


(26,000
)Net income (loss) per share:Basic


$0.10


$(0.06
)


$(0.08
)


$(0.01
)Diluted


$0.10


$(0.06
)


$(0.08
)


$(0.01
)2001Operating revenues

$
10,136,000

$
8,074,000


$
7,775,000


$
9,778,000Income (loss) from operations


1,392,000


(75,000
)


5,000



1,625,000Net income (loss)


757,000


(145,000
)


(90,000
)


710,000Net income (loss) per share:Basic


$0.17


$(0.03
)


$(0.02
)


$0.16Diluted


$0.16


$(0.03
)


$(0.02
)


$0.15




36




---



INDEPENDENT AUDITORS REPORT







To the Board of Directors and


Shareholders of The Sands Regent:





We
have audited the accompanying consolidated balance sheets of The Sands Regent and subsidiaries (the Company) as of June 30, 2002 and 2001, and the related consolidated statements of operations, stockholders equity, and cash flows
for each of the three years in the period ended June 30, 2002. These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our audits.





We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.





In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company as of June 30, 2002 and 2001, and the results of their operations and their cash flows for each of the three years in the period ended June 30, 2002 in conformity with accounting principles
generally accepted in the United States of America.





LOGO





Reno, Nevada


August 26, 2002




37




---








CORPORATE OFFICERS

David R. Wood ( 1 )Katherene Latham

Executive Vice President, Treasurer,Chairman of the Board

and Chief Financial OfficerPete Cladianos, Jr.

Pete Cladianos III ( 2 )Vice Chairman of the Board

SecretaryJon N. BengtsonDavid R. Wood ( 1 )

David R. Grundy ( 3 )Executive Vice President, Treasurer,

Louis J. Phillipsand Chief Financial Officer

Larry TuntlandPete Cladianos III

PUBLIC ACCOUNTANTSSecretary

Deloitte & Touche LLPReno, NevadaBOARD OF DIRECTORSKatherene Latham ( 2 )

SECURITIES COUNSELChairman of the Board

Latham & WatkinsCosta Mesa, CaliforniaPete Cladianos, Jr. ( 2 )Vice Chairman of the Board

TRANSFER AGENT & REGISTRARFerenc B. Szony

U.S. Stock Transfer CorporationPresident and Chief Executive Officer

Glendale, California


---




|(1) |  | Mr. Wood resigned as Executive Vice President, Chief Financial Officer, Treasurer, and Board member in August 2002.
|--- |  | -------------------------------------------------------------------------------------------------------------------




|(2) |  | Standing for election to the Board of Directors at the November 4, 2002 Annual Meeting.
|--- |  | ---------------------------------------------------------------------------------------




|(3) |  | Appointed to Board of Directors as part of the terms of the Gold Ranch acquisition. Mr. Grundy will stand for election in November 2003.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------




FORM 10-K REPORT





A copy of
the Companys Annual Report to the Securities and Exchange Commission on Form 10-K is available to shareholders without charge by writing to The Sands Regent, Attention: Corporate Offices, 345 North Arlington Avenue, Reno, Nevada 89501.




38