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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-K/A

(Amendment No. 1)



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(Mark One)

|x |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- |  | ------------------------------------------------------------------------------------



For the fiscal year ended June 30, 2003



OR



| ̈ |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- |  | ----------------------------------------------------------------------------------------



For the transition period from:



Commission file number: 0-14050



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THE SANDS REGENT

(Exact name of registrant as specified in its charter)



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|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Nevada                                                         |  | 88-0201135                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)
|                                                               | 
|345 North Arlington Avenue Reno, Nevada                        |  | 89501                               
|(Address of principal executive offices)                       |  | (Zip Code)                          



Registrants
telephone number, including area code:  (775) 348-2200



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Securities registered pursuant to Section 12(b) of the
Act:  None



Securities registered pursuant to
Section 12(g) of the Act:

Common Stock, $.10 par value



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Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Sections 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 ̈



Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not 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-K or any amendment to this Form 10-K.   x



Indicate by check mark whether the Registrant is an
accelerated filer (as defined in Exchange Act Rule 12b-2).    Yes ̈No  x



The aggregate market value of the Registrants $.10 par value Common Stock held by non-affiliates of the Registrant on December 31, 2002 was $9,256,840. The aggregate market value is computed with reference to
the average bid asked price per share on such date.



Registrants Common Stock outstanding at September 24, 2003 was 5,044,055 shares.



Portions of Registrants definitive Proxy Statement for its November 3, 2003 Annual Meeting of Shareholders are incorporated into Part III of this
report as set forth herein.



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THE SANDS REGENT



INDEX TO FORM 10-K

FOR THE YEAR ENDED JUNE 30, 2003



|         |  |                                                                                       |  |     
|-------- |  | ------------------------------------------------------------------------------------- |  | ----
|         |  |                                                                                       |  | Page
|         |  | PART I                                                                                |  |     
|         |  |                                                                                      
|ITEM 1.  |  | Business                                                                              |  | 1   
|         |  |                                                                                      
|ITEM 2.  |  | Properties                                                                            |  | 8   
|         |  |                                                                                      
|ITEM 3.  |  | Legal Proceedings                                                                     |  | 8   
|         |  |                                                                                      
|ITEM 4.  |  | Submission of Matters to a Vote of Security Holders                                   |  | 8   
|         |  |                                                                                      
|         |  | PART II                                                                               |  |     
|         |  |                                                                                      
|ITEM 5.  |  | Market for the Registrants Common Stock and Related Shareholder Matters              |  | 9   
|         |  |                                                                                      
|ITEM 6.  |  | Selected Financial Data                                                               |  | 10  
|         |  |                                                                                      
|ITEM 7.  |  | Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 10  
|         |  |                                                                                      
|ITEM 7A. |  | Quantitative and Qualitative Disclosures                                              |  | 20  
|         |  |                                                                                      
|ITEM 8.  |  | Financial Statements and Supplementary Data                                           |  | 21  
|         |  |                                                                                      
|ITEM 9.  |  | Changes in and Disagreements With Accountants on Accounting and Financial Disclosure  |  | 39  
|         |  |                                                                                      
|ITEM 9A  |  | Control and Procedures                                                                |  | 39  
|         |  |                                                                                      
|         |  | PART III                                                                              |  |     
|         |  |                                                                                      
|ITEM 10. |  | Directors and Executive Officers of the Registrant                                    |  | 39  
|         |  |                                                                                      
|ITEM 11. |  | Executive Compensation                                                                |  | 39  
|         |  |                                                                                      
|ITEM 12. |  | Security Ownership of Certain Beneficial Owners and Management                        |  | 39  
|         |  |                                                                                      
|ITEM 13. |  | Certain Relationships and Related Transactions                                        |  | 39  
|         |  |                                                                                      
|         |  | PART IV                                                                               |  |     
|         |  |                                                                                      
|ITEM 14. |  | Exhibits, Financial Statement Schedules and Reports on Form 8-K                       |  | 40  



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EXPLANATORY NOTE



Explanatory Note: The purpose of filing this Annual Report on Form 10-K/A is to correct or clarify the following with respect
to Item 8. Financial Statements and Supplementary Data.



|1) |  | Consolidated Statements of Operations. Other Income/ Expense caption Gain on sale of subsidiaries has been retitled to Collections on a previously reserved note
receivable.
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|2) |  | Note 1(a) tabular information presented as year ended June 30, 2002 pro forma earnings per share (basic) should be earnings of $.07 instead of a loss of ($.04) as originally
presented.
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|3) |  | New disclosures have been added relating to Self-Insurance Accrued Liability, Litigation Accrued Liability, and Customer Reward Program Accrued Liability; presented as Note 1 (j),
(k), and (l), respectively. Conforming language has been added to all relevant disclosures.
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|4) |  | Disclosure related to Note 1(k) Impairment of Long-Lived Assets has been expanded and presented as Note 1(n).
|-- |  | -------------------------------------------------------------------------------------------------------------



|5) |  | Independent Auditors Report has been expanded to cover Item 14, Schedule II- Valuation and Qualifying Accounts.
|-- |  | ----------------------------------------------------------------------------------------------------------------



|6) |  | Tabular pro forma information relating to stock-based compensation moved from Note 7 to Note 1(u).
|-- |  | --------------------------------------------------------------------------------------------------



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##### Table of Contents

PART I



|ITEM 1. |  | BUSINESS
|------- |  | --------



General



The Sands
Regent and subsidiaries (the Company, we and our) operate casino/tourist-based facilities through its wholly-owned subsidiaries, Zante, Inc., which owns and operates the Sands Regency Casino Hotel (the
Sands) in downtown Reno, Nevada, and Last Chance, Inc., which operates the Gold Ranch Casino and RV Resort (the Gold Ranch) located in Verdi, Nevada.



The Sands has approximately 29,000 square feet of gaming space and a full selection of gaming alternatives including 587
slot machines, 19 table games, keno, bingo, and a sportsbook operated by Leroys Sportsbooks. Additionally, the Sands resort complex has 836 hotel rooms, including 29 suites, a health spa, and a large outdoor swimming pool. Dining options at
the Sands includes a Tony Romas, Famous for Ribs, restaurant; Cabana Café, a coffee house/deli-style restaurant; and Antonias, Very Italian Buffet. The property also has a Mels the Original, diner style restaurant, and an
Arbys convenience style restaurant, which are operated by third parties. The facility also includes an entertainment cabaret, three cocktail lounges, and approximately 12,000 square feet of convention and meeting space. Third parties lease
space from the Sands and operate a car rental business, a bicycle and ski rental shop, a beauty shop, and a video arcade. The Sands resort complex contains multiple parking areas, including a parking garage, with a total combined capacity for
approximately 1,000 vehicles.



Gold Ranch offers approximately
256 slot machines in an 8,000 square foot casino, two restaurants, two bars, a 105-space RV park, a California lottery station, an ARCO gas station, a convenience store, and a Jack-in-the-Box restaurant which is leased to a third party. Gold
Ranchs guests include both tourists and local residents with local residents generating approximately 60% of the propertys casino patronage. Gold Ranch attempts to attract local residents through mid-week promotions geared toward
enhancing local play mainly through lottery, casino, and restaurant programs. Tourist programs emphasize the RV park, casino and food cross-promotions.



Both of the Companys operations are conducted 24 hours a day, every day of the year. The primary source of revenue and income to the Company is its
gaming activities, although the hotel, RV park, bars, shops, restaurants, convenience store, gas station and other services are important in supplementing its gaming activities revenue. The Companys operating and marketing philosophy
emphasizes high volume business, offering large, attractive hotel rooms at reasonable prices to group, air wholesale and motor coach business primarily from Western Canada, the Pacific Northwest and Northern California. Although the Company offers,
on a very limited basis, complimentary hotel accommodations to select customers, no third party group arrangements known as junkets are conducted, and in general, the Company does not extended credit to its gaming clientele.



Marketing



SANDS REGENCY.    The marketing function at the Sands continues to evolve as competition intensifies
both locally and regionally for gaming customers. The flat Reno gaming market and more recently, the tremendous growth of Indian gaming in key feeder markets (Northern California and the Pacific Northwest, including British Columbia) has dictated
that the Sands develop a more comprehensive marketing strategy.



For many years the Sands marketing strategy was to rely on the utilization of travel wholesalers to attract group business to the Sands. Central to this strategy was a value-based philosophy that focused on offering attractive, well
furnished hotel accommodations and quality food and beverages at prices slightly lower than those of most major hotel casinos in the market.



While this philosophy remains a cornerstone of the marketing strategy at the Sands, we have significantly expanded our marketing efforts in recent years.
More resources are being allocated to marketing at the Sands and a comprehensive program has been developed.



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Media advertising (television, radio, newspaper, and the Internet), database marketing, casino
promotions, and special events are now key components in the evolution and execution of this strategy.



Advertising and promotional programs are being utilized to attract business segments that had previously been largely untapped at the Sands, such as Reno
area residents (locals) and individual travelers from Northern California, particularly the Sacramento metropolitan area. In addition, a greater emphasis is being placed on retaining guests on the property during their visit.



The local component of the Sands business has become a key element
contributing to our success and now represents more than 30% of the Sands gaming revenues. We intend to continue to cultivate and grow our local market share with aggressive local marketing, promotional, and advertising efforts. This segment became
even more important with the recent opening of Station Casinos Thunder Valley operation in the Sacramento metropolitan area. While it is uncertain how much this casino will impact overall business in the Reno market, we do not expect it to
have a significant impact on our local clientele.



Reno
citywide events such as the Annual Great Reno Balloon Races, and Sands created events like our Mardi Gras celebration, and direct mail offers are used aggressively to drive incremental business from individual travelers. Currently, there are over 20
of these special events scheduled at the Sands on an annual basis.



Wholesalers who market a product emphasizing value continue to be very important to the Sands marketing strategy. The Company maximizes hotel occupancy levels through the use of a flexible pricing strategy for its rooms. Hotel rooms
are offered at discount prices to travel wholesalers for block sales of rooms used in travel packages. This is particularly important to the Company because of the impact of hotel occupancy on gaming revenues. Historically, the Company has been
dependent upon group business from November through February because of the seasonal decline in other sources of business (especially drive traffic). Significant group, air wholesale and motor coach market segments continue to include Western
Canada, the Pacific Northwest, Texas, and Northern California. The Company has also been successful in obtaining wholesale business in the Midwest, Southwest, and Southern California and continues to explore opportunities to expand by adding
additional wholesalers.



The Sands is the lead casino/hotel in
the Reno area for several major travel wholesalers who serve major cities in the West, Midwest, and Southwest. Group, air wholesale, and motor coach business accounted for approximately 47% of the Sands occupancy in fiscal 2003.



The Internet has become our primary method of marketing the Sands to
individual customers. The Company has successfully utilized its website, www.sandsregency.com to promote the property and offer hotel room rate specials. Further, the Company has developed several Internet partners to market hotel rooms
during non-peak periods. The Sands expects continued growth of its business in the future as a result of the marketing strategy, as more people become used to using this resource to make travel arrangements.



GOLD RANCH.    Our primary goals at Gold Ranch for fiscal
2003 focused on accomplishing four objectives: 1) generate visits into the casino from the thousands of customers who visit the ARCO Gas Station or California Lottery Station on a daily basis, 2) grow our internal database significantly for future
marketing efforts, 3) increase our advertising presence on the property, and 4) increase occupancy at the RV park to 70% during the peak season.



The ARCO station at Gold Ranch is among the busiest in the country, while the California Lottery station at Gold Ranch is the third highest volume in the
state. Together they generate, on average, over 2,600 vehicle visits per day. This represents a significant and challenging opportunity for Gold Ranch to expand its clientele. Over the past year, we have developed several promotions, drawings, and
coupon offers to generate business into the casino.



In
addition, we have utilized the ARCO station patronage to more than triple the size of our local database (from 2,000 to more than 6,000 names and addresses). These names and addresses have been used effectively to drive visitation into the casino
via time sensitive direct mail offers, and invitations to special events.



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We have increased the advertising presence at Gold Ranch primarily through the use of signage. Backlit
signs have been installed throughout the property and are used to promote various products at Gold Ranch (Sierra Café, California Lottery, RV Resort, Leroys Race and Sportsbook, etc.). This signage has been further supported by messages
on banners in high traffic areas and pump-top advertising at the gas pumps.



In order to increase awareness and occupancy for the RV park, a new website was developed for Gold Ranch (www.goldranchrvcasino.com), direct mail postcards were sent to past customers of the RV Park, and
representatives from the Sands attended RV Trade Shows. In addition, the RV resort was promoted via advertisements in some of the higher profile RV lifestyle magazines, such as Good Sam Clubs Trailer Life. This support, as well as
word-of-mouth support from customers who had previously utilized the facility, allowed us to reach our objective, as occupancy levels have risen to nearly 80% for the current summer season.



A secondary objective at Gold Ranch (and the Sands) has been to explore cross
marketing opportunities between the two properties. While this has been an ongoing effort, we have seen strong indications that our efforts have been successful. We have successfully used names and addresses collected from Northern California
residents at the ARCO station to augment direct mail programs for the Sands hotel. We have also been able to increase attendance for special events and promotions at Gold Ranch by cross promoting them in the monthly calendar sent to loyal
Sands customers. We have consistently seen 30-40% of the attendance at these activities generated from these sources. In the future, we will continue to pursue this strategy for both properties.



Competition



Competition for customers in the Reno market is more intense than ever. Not only are the eighteen major casinos and
hotel/casinos competing for out-of-market customers, but the decrease in visitation over the last several years in the number of visits by these customers, has led to more competition for the local customer. More and more casinos are realizing the
importance of attracting locals to their casinos to offset the loss of out-of-market customers.



The Companys properties also compete, to a lesser degree, with gaming operations in other parts of the state of Nevada, particularly Lake Tahoe, Las
Vegas, and Laughlin. California currently sponsors a state lottery and allows other non-casino style gaming, including pari-mutuel wagering, card parlors, bingo and off-track betting. The Company does not believe that such non-casino style gaming
has a significant impact on the Companys operations.



The
expansion of Native American gaming in Northern California, the Pacific Northwest, and British Columbia will have a long-term impact on casino revenues in Reno and Northern Nevada. Over the last two years, existing Native American casinos in
Northern California have undergone significant expansions. In addition, Station Casinos Thunder Valley recently opened in June of 2003, just outside of Sacramento. More casinos are planned in Northern California in the future. Many of these
casinos have greater financial resources than the Company to promote their facilities.



Employees



At June 30, 2003, the Company
employed 707 people at the Sands, including 81 salaried employees and 626 hourly employees, and 108 people at Gold Ranch, including 13 salaried employees and 95 hourly employees. None of the Companys employees are represented by a union.
The Company has not experienced any work stoppages or other significant labor problems and management considers its labor relations to be good.



Regulation and LicensingNevada Gaming



The ownership and operation of casino gaming facilities in Nevada are subject to (i) The Nevada Gaming Control Act and the regulations promulgated
thereunder (collectively, Nevada Act); and (ii) various local regulation. The Companys gaming operations are subject to the licensing and regulatory control of the Nevada Gaming Commission (Nevada Commission), the
Nevada State Gaming Control Board (Nevada Board) and the City of Reno, for the Sands, and Washoe County, for Gold Ranch, (together, the Nevada Gaming Authorities).



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The laws, regulations and supervisory procedures of the Nevada Gaming Authorities are based upon
declarations of public policy which are concerned with, among other things:



| |  |  | the prevention of unsavory or unsuitable persons from having a direct or indirect involvement with gaming at any time or in any capacity;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the establishment and maintenance of responsible accounting practices and procedures;
| | - |  | -------------------------------------------------------------------------------------



| |  |  | the maintenance of effective controls over the financial practices of licensees, including the establishment of minimum procedures for internal fiscal affairs and the safeguarding
of assets and revenues, providing reliable record keeping and requiring the filing of periodic reports with the Nevada Gaming Authorities;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the prevention of cheating and fraudulent practices; and
| | - |  | --------------------------------------------------------



| |  |  | to provide a source of state and local revenues through taxation and licensing fees.
| | - |  | ------------------------------------------------------------------------------------



Change in such laws, regulations and procedures could have an adverse effect on the Companys gaming operations.



The Sands Regent subsidiaries Zante, Inc. and Last Chance,
Inc. are required to be licensed by the Nevada Gaming Authorities. The gaming licenses require a periodic payment of fees and taxes and are not transferable. The Company is registered by the Nevada Commission as a publicly traded corporation
(Registered Corporation) and as such, it is required periodically to submit detailed financial and operating reports to the Nevada Commission and furnish any other information which the Nevada Commission may require. No person may become
a major stockholder of, or receive any percentage of profits from the Company without first obtaining licenses and approvals from the Nevada Gaming Authorities. The Company has obtained from the Nevada Gaming Authorities the various registrations,
approvals, permits and licenses required in order to engage in gaming activities in Nevada.



The Nevada Gaming Authorities may investigate any individual who has a material relationship to, or material involvement with, the Company or its subsidiaries, in order to determine whether such individual is suitable
or should be licensed as a business associate of a gaming licensee. Officers, directors and certain key employees of the Company or its subsidiaries must file applications with the Nevada Gaming Authorities and may be required to be licensed or
found suitable by the Nevada Gaming Authorities. The Nevada Gaming Authorities may deny an application for licensing for any cause, which they deem reasonable. A finding of suitability is comparable to licensing, and both require submission of
detailed personal and financial information followed by a thorough investigation. The applicant for licensing or a finding of suitability must pay all the costs of the investigation. Changes in licensed positions must be reported to the Nevada
Gaming Authorities and in addition to their authority to deny an application for a finding of suitability or licensure, the Nevada Gaming Authorities have jurisdiction to disapprove a change in a corporate position.



If the Nevada Gaming Authorities were to find an officer, director or key
employee unsuitable for licensing or unsuitable to continue having a relationship with the Company or its subsidiaries, the Company would have to sever all relationships with such person. In addition, the Nevada Commission may require the Company
and its subsidiaries to terminate the employment of any person who refuses to file appropriate applications. Determinations of suitability or of questions pertaining to licensing are not subject to judicial review in Nevada.



The Company and its subsidiaries are required to submit detailed financial
and operating reports to the Nevada Commission. Substantially all material loans, leases, sales of securities and similar financing transactions must be reported to, or approved by, the Nevada Commission.



If it were determined that the Nevada Act was violated by the Company or its
subsidiaries, the gaming licenses it holds could be limited, conditioned, suspended or revoked, subject to compliance with certain statutory and regulatory procedures. In addition, the Company, its subsidiaries, and the persons involved could be
subject to substantial fines for each separate violation of the Nevada Act at the direction of the Nevada Commission. Further, a supervisor could be appointed by the Nevada Commission to operate the Companys gaming properties and, under



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certain circumstances, earnings generated during the supervisors appointment (except for the reasonable rental value of the Companys gaming
properties) could be forfeited to the State of Nevada. Limitation, conditioning or suspension of any gaming license or the appointment of a supervisor could (and revocation of any gaming license would) materially adversely affect the Companys
gaming operations.



Any beneficial holder of the Companys
voting securities, regardless of the number of shares owned, may be required to file an application, be investigated, and have his suitability as a beneficial holder of the Companys voting securities determined if the Nevada Commission has
reason to believe that such ownership would otherwise be inconsistent with the declared policies of the State of Nevada. The applicant must pay all costs of investigation incurred by the Nevada Gaming Authorities in conducting any such
investigation.



The Nevada Act requires any person who acquires
more than 5% of the Companys voting securities to report the acquisition to the Nevada Commission. The Nevada Act requires that beneficial owners of more than 10% of the Companys voting securities apply to the Nevada Commission for a
finding of suitability within thirty days after the Chairman of the Nevada Board mails the written notice requiring such filing. Under certain circumstances, an institutional investor, as defined in the Nevada Act, which acquires more
than 10%, but not more than 15%, of the Companys voting securities may apply to the Nevada Commission for a waiver of such finding of suitability if such institutional investor holds the voting securities for investment purposes only. An
institutional investor shall not be deemed to hold voting securities for investment purposes unless the voting securities were acquired and are held in the ordinary course of business as an institutional investor and not for the purpose of causing,
directly or indirectly, the election of a majority of the members of the board of the directors of the Company, any change in the Companys corporate charter, bylaws, management, policies or operations of the Company, or any of its gaming
affiliates, or any other action which the Nevada Commission finds to be inconsistent with holding the Companys voting securities for investment purposes only. Activities which are not deemed to be inconsistent with holding voting securities
for investment purposes only include:



| |  |  | voting on all matters voted on by shareholders;
| | - |  | -----------------------------------------------



| |  |  | making financial and other inquiries of management of the type normally made by securities analysts for informational purposes and not to cause a change in its management, policies
or operations; and
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | other activities as the Nevada Commission may determine to be consistent with investment intent.
| | - |  | ------------------------------------------------------------------------------------------------



If the beneficial holder of voting securities who must be found suitable is a corporation, partnership or trust, it must
submit detailed business and financial information including a list of beneficial owners. The applicant is required to pay all costs of investigation.



Any person who fails or refuses to apply for a finding of suitability or a license within thirty days after being ordered to do so by the Nevada
Commission or the Chairman of the Nevada Board, may be found unsuitable. The same restrictions apply to a record owner if the record owner, after request, fails to identify the beneficial owner. Any stockholder found unsuitable and who holds,
directly or indirectly, any beneficial ownership of the common stock of the Company beyond such period of time as may be prescribed by the Nevada Commission may be guilty of a criminal offense. The Company is subject to disciplinary action if, after
it receives notice that a person is unsuitable to be a stockholder or to have any other relationship with the Company or its subsidiaries if the Company



| |  |  | pays that person any dividend or interest upon voting securities of the Company,
| | - |  | --------------------------------------------------------------------------------



| |  |  | allows that person to exercise, directly or indirectly, any voting right conferred through securities held by that person,
| | - |  | --------------------------------------------------------------------------------------------------------------------------



| |  |  | pays remuneration in any form to that person for services rendered or otherwise, or
| | - |  | -----------------------------------------------------------------------------------



| |  |  | fails to pursue all lawful efforts to require such unsuitable person to relinquish his voting securities for cash at fair market value.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------



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The Nevada Commission may, in its discretion, require the holder of any debt security of the Company to
file applications, be investigated and be found suitable to own the debt security of the Company. If the Nevada Commission determines that a person is unsuitable to own such security, then pursuant to the Nevada Act, the Company can be sanctioned,
including the loss of its approvals, if without the prior approval of the Nevada Commission, it:



| |  |  | pays to the unsuitable person any dividend, interest, or any distribution whatsoever;
| | - |  | -------------------------------------------------------------------------------------



| |  |  | recognizes any voting right by such unsuitable person in connection with such securities;
| | - |  | -----------------------------------------------------------------------------------------



| |  |  | pays the unsuitable person remuneration in any form; or
| | - |  | -------------------------------------------------------



| |  |  | makes any payment to the unsuitable person by way of principal, redemption, conversion, exchange, liquidation or similar transaction.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------



The Company is required to maintain a current stock ledger in Nevada which
may be examined by the Nevada Gaming Authorities at any time. If any securities are held in trust by an agent or by a nominee, the record holder may be required to disclose the identity of the beneficial owner to the Nevada Gaming Authorities. A
failure to make such disclosure may be grounds for finding the record holder unsuitable. The Company is also required to render maximum assistance in determining the identity of the beneficial owner. The Nevada Commission has the power to require
the Companys stock certificates to bear a legend indicating that the securities are subject to the Nevada Act. The Companys stock certificates do bear such a legend.



The Company may not make a public offering of its securities without the prior approval of the Nevada Commission if the
securities or the proceeds therefrom are intended to be used to construct, acquire or finance gaming facilities in Nevada, or to retire or extend obligations incurred for such purposes. Such approval, if given, does not constitute a finding,
recommendation or approval by the Nevada Commission or the Nevada Board as to the accuracy or adequacy of the prospectus or the investment merits of the securities. Any representation to the contrary is unlawful.



Changes in control of the Company through merger, consolidation, stock or
asset acquisitions, management or consulting agreements, or any act or conduct by a person whereby he obtains control, may not occur without the prior approval of the Nevada Commission. Entities seeking to acquire control of the Company must satisfy
the Nevada Board and Nevada Commission in a variety of stringent standards prior to assuming control of the Company. The Nevada Commission may also require controlling stockholders, officers, directors and other persons having a material
relationship or involvement with the entity proposing to acquire control, to be investigated and licensed as part of the approval process relating to the transaction.



The Nevada legislature has declared that some corporate acquisitions opposed by management, repurchases of voting securities
and corporate defense tactics affecting Nevada gaming licensees, and registered gaming corporations that are affiliated with those operations, may be injurious to stable and productive corporate gaming. The Nevada Commission has established a
regulatory scheme to ameliorate the potentially adverse effects of these business practices upon Nevadas gaming industry and to further Nevadas policy to:



| |  |  | assure the financial stability of corporate gaming operators and their affiliates;
| | - |  | ----------------------------------------------------------------------------------



| |  |  | preserve the beneficial aspects of conducting business in the corporate form; and
| | - |  | ---------------------------------------------------------------------------------



| |  |  | promote a neutral environment for the orderly governance of corporate affairs.
| | - |  | ------------------------------------------------------------------------------



Approvals are, in certain circumstances, required from the Nevada Commission before the Company can make exceptional repurchases of voting securities
above the current market price thereof and before a corporate acquisition opposed by management can be consummated. The Nevada Act also requires prior approval of a plan of recapitalization proposed by the Companys Board of Directors in
response to a tender offer made directly to the Companys shareholders for the purposes of acquiring control of the Company.



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License fees and taxes, computed in various ways depending on the type of gaming or activity involved,
are payable to the State of Nevada and to the counties and cities in which the Nevada licensees respective operations are conducted. Depending upon the particular fee or tax involved, these fees and taxes are payable either monthly, quarterly
or annually and are based upon either a percentage of the gross revenues received or the number of games or gaming devices operated.



A casino entertainment tax is also paid by casino operations where entertainment is furnished in connection with the selling of food or refreshments.
Nevada licensees that hold a license as an operator of a slot route, or a manufacturers or distributors license, also pay certain fees and taxes to the State of Nevada.



Any person who is licensed, required to be licensed, required to be registered, or is under common control with such persons
(collectively, Licensees), and who has become involved in a gaming venture outside of Nevada is required to deposit with the Nevada Board, and thereafter maintain, a revolving fund in the amount of $10,000 to pay the expenses of
investigation of the Nevada Board of their participation in such foreign gaming. The revolving fund is subject to increase or decrease in the discretion of the Nevada Commission. Thereafter, Licensees are required to comply with certain reporting
requirements imposed by the Nevada Act. Licensees are also subject to disciplinary action by the Nevada Commission if it knowingly violates any laws of the foreign jurisdiction pertaining to the foreign gaming operation, fails to conduct the foreign
gaming operation in accordance with the standards of honesty and integrity required of Nevada gaming operations, engages in activities that are harmful to the State of Nevada or its ability to collect gaming taxes and fees, or employs a person in
the foreign operation who has been denied a license or finding of suitability in Nevada on the ground of personal unsuitability.



Regulation and LicensingCalifornia Lottery



The Company, through Last Chance, operates a California Lottery outlet at the Gold Ranch facility. As such, the Company is subject to certain regulatory
and licensing requirements of the California State Lottery Commission (CSLC).



Given the on-line nature of the California Lottery operating system, the licensing requirements, while prudent, are less rigorous than the Nevada Gaming Commission. CSLC may terminate the Companys lottery
contract upon thirty days written notice, or less if deemed appropriate, in CSLCs sole discretion. Reasons for termination include, but are not limited to, failure to follow CSLC policy, failure to meet financial obligations owed to
CSLC, failure to meet CSLCs established sales requirements, failure to maintain CSLCs equipment and property in a condition acceptable to CSLC, a change in CSLCs operation and/or administration of the lottery, and the lottery
retailer engages or engaged in or permits or permitted conduct on or off business premises, which may or does affect, undermine or unfavorably reflect upon the security, integrity, honesty and/or fairness of the operation and/or administration of
CSLS and/or any lottery game.



Regulation and
LicensingAlcoholic Beverages



The sale of alcoholic
beverages by the Company is subject to supervision, control and regulation by the City of Reno (Zante) and Washoe County (Last Chance), which issues licenses deemed to be nontransferable, revocable privileges, and which has full power to limit,
condition, suspend or revoke such licenses. The Company is presently licensed to sell alcoholic beverages at both of its properties. Any adverse regulatory act with respect to this license could have an adverse effect upon the operations of the
Company.



Other Information



We file with the Securities and Exchange Commission (SEC) our annual report
on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports, proxy statements and registration statements. The public may read and copy any materials we file with the SEC at the SECs Public
Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. The public may also obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains an



7



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##### Table of Contents

internet site at http://www.sec.gov that contains reports, proxy and information statements and other information regarding registrants, including us,
that file electronically. We also maintain a website located at http://www.sandsregency.com, and electronic copies of our periodic and current reports are available, free of charge, under the Investor Relations link on our website
as soon as practicable after such material is filed with, or furnished to, the SEC.



|ITEM 2. |  | PROPERTIES
|------- |  | ----------



The Company operates the casino and hotel towers at the Sands on a Company-owned approximately 6.3-acre site in downtown Reno. The casino/hotel site also
includes a large outdoor swimming pool, pool house and other buildings and facilities. Garage and surface parking are provided at the casino/hotel site and also on an approximately 2.7-acre site located adjacent to the casino/hotel site. The Sands
is subject to aggregate encumbrances of approximately $13.4 million as of June 30, 2003. Management considers the Sands facility to be in good condition and well maintained. A portion of the Sands parking facilities is currently not useful to the
Sands due to the ReTRAC project (Reno Train Trench excavation), which is currently underway. For a more complete description of the ReTRAC project and its potential effect on the Sands, refer to Other Factors Affecting Current and Future
Results in the Management Discussion and Analysis section of this report.



The Company also owns the business assets and leases the real property at Gold Ranch. The real property lease has a twenty-year term with four five-year extension options ending in 2042. The Company possesses
the option to purchase the Gold Ranch real property at an agreed upon base price with inflation adjustments based upon the Consumer Price Index. Gold Ranch is located on Interstate-80 in Verdi, Nevada, twelve miles west of Reno. Management considers
the Gold Ranch facility to be in good condition and well maintained.



In addition, the Company owns several smaller properties in Reno consisting of a combined area of approximately .7 acres and operates a slot route, which places 77 gaming devices in ten locations in the Reno area.



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



The Company has incurred legal and settlement costs aggregating $547,000 in connection with the settlement of a personal injury claim against The Sands
Regency. The Company reached a settlement through mediation in July 2003 in the case of Debra Grant vs. Zante, Inc. dba The Sands Regency Casino and Hotel, case no. CV 02-02074, in the Second Judicial District Court of the State of Nevada,
in and for the County of Washoe. The case was dismissed on August 18, 2003.



Although this claim, subject to a contracted deductible, was insured, the insurance carrier is insolvent and not expected to make any payment to the Company. A loss from this event was realized in the quarter ended
June 30, 2003. The Company is seeking recovery of its loss from the Companys insurance broker; the Company believes that it has meritorious claims for relief.



The Company is a party to various other legal actions, proceedings and pending claims arising in the normal course of its
business. Management does not expect the outcome of these claims or suits to have a material adverse effect on the Companys financial position or results of future operations. However, any proceeding or litigation has an element of
uncertainty, and the ultimate outcomes may differ from managements expectations.



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



The Company did not submit any matters to a vote of security holders in the fourth quarter of fiscal 2003.



8



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##### Table of Contents

PART II



|ITEM 5. |  | MARKET FOR THE REGISTRANTS COMMON STOCK AND RELATED SHAREHOLDER MATTERS
|------- |  | ------------------------------------------------------------------------



Trading under the symbol SNDS, the Common Stock of the Company is listed on the NASDAQ Small Cap Market. The
following table sets forth the quarterly high and low share price information for the periods indicated:



|                                |  |      |      |     |   |     
|------------------------------- |  | ---- | ---- | --- | - | ----
|                                |  | High |      | Low
|Fiscal year ended June 30, 2002 |  |      |      |     |   |     
|First Quarter                   |  | $    | 3.99 |     | $ | 2.00
|Second Quarter                  |  |      | 3.25 |     |   | 2.27
|Third Quarter                   |  |      | 3.40 |     |   | 2.41
|Fourth Quarter                  |  |      | 3.75 |     |   | 2.95
|                                |  |     
|Fiscal year ended June 30, 2003 |  |      |      |     |   |     
|First Quarter                   |  | $    | 3.06 |     | $ | 2.30
|Second Quarter                  |  |      | 3.78 |     |   | 1.93
|Third Quarter                   |  |      | 4.37 |     |   | 2.51
|Fourth Quarter                  |  |      | 3.39 |     |   | 2.35



As of September 24,
2003, the Company had 226 shareholders of record and in excess of 400 beneficial shareholders.



The declaration and payment of dividends in the future, if any, will be determined by our Board of Directors in light of the conditions then existing, including the Companys earnings, financial condition,
capital requirements and other factors. There are no restrictions on the Company prohibiting the payment of dividends and no dividends have been paid in the last two fiscal years. The Company intends to continue to the retain its earnings for use in
its business.



The following table presents information about
our Common Stock that may be issued upon the exercise of options, warrants and rights under existing equity compensation plans at June 30, 2003:



|                                                           |  |                                                                                             |  |                                                                             |      |                                                                                                                                             |        
|---------------------------------------------------------- |  | ------------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------- | ---- | ------------------------------------------------------------------------------------------------------------------------------------------- | -------
|Plan category                                              |  | Number of securities to be issued upon exercise of outstanding options, warrants and rights |  | Weighted-average exercise price of outstanding options, warrants and rights |      | Number of securities remaining available for future issuance under equity compensation plans
(excluding securities reflected in column (a))
|                                                           |  | (a)                                                                                         |  | (b)                                                                         |      | (c)                                                                                                                                        
|Equity compensation plans approved by security holders     |  | 590,250                                                                                     |  | $                                                                           | 1.65 |                                                                                                                                             | 143,614
|Equity compensation plans not approved by security holders |  |                                                                                            |  |                                                                             |     |                                                                                                                                             |       
|Total                                                      |  | 590,250                                                                                     |  | $                                                                           | 1.65 |                                                                                                                                             | 143,614



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##### Table of Contents

|ITEM 6. |  | SELECTED FINANCIAL DATA
|------- |  | -----------------------



|                                                                           |  |                                                               |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|-------------------------------------------------------------------------- |  | ------------------------------------------------------------- | --------- | - | ---- | - | --------- | ---- |  | - | --------- | - |  | ---- | --------- | - |  | - | --------- | -
|                                                                           |  | For the years ended June 30,                                  |          
|                                                                           |  | 2003                                                          |           |   | 2002 |   |           | 2001 |  |   | 2000      |   |  | 1999 |          
|                                                                           |  | (Dollars in thousands, except percentages and per share data) |          
|STATEMENT OF OPERATIONS DATA:                                              |  |                                                               |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|Operating revenues                                                         |  | $                                                             | 55,661    |   |      | $ | 34,067    |      |  | $ | 35,763    |   |  | $    | 36,248    |   |  | $ | 43,474    |  
|Income (loss) from operations                                              |  |                                                               | 4,292     |   |      |   | 1,268     |      |  |   | 2,946     |   |  |      | 2,881     |   |  |   | (42       | )
|Net income (loss)                                                          |  |                                                               | 1,868     |   |      |   | (189      | )    |  |   | 1,232     |   |  |      | 1,491     |   |  |   | (1,388    | )
|Net income (loss) per share:                                               |  |                                                               |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|Basic                                                                      |  | $                                                             | 0.38      |   |      | $ | (0.04     | )    |  | $ | 0.27      |   |  | $    | 0.33      |   |  | $ | (0.31     | )
|Diluted                                                                    |  | $                                                             | 0.36      |   |      | $ | (0.04     | )    |  | $ | 0.26      |   |  | $    | 0.32      |   |  | $ | (0.31     | )
|Weighted average number of shares used in computing income per shareBasic |  |                                                               | 4,930,713 |   |      |   | 4,658,826 |      |  |   | 4,500,614 |   |  |      | 4,496,754 |   |  |   | 4,497,703 |  
|Diluted                                                                   |  |                                                               | 5,196,478 |   |      |   | 4,658,826 |      |  |   | 4,751,774 |   |  |      | 4,568,014 |   |  |   | 4,497,703 |  
|                                                                           |  |                                                               |           |   |     
|OPERATING DATA:                                                            |  |                                                               |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|Casino square footage                                                      |  |                                                               | 37,000    |   |      |   | 37,000    |      |  |   | 29,000    |   |  |      | 29,000    |   |  |   | 27,000    |  
|Number of slot machines                                                    |  |                                                               | 843       |   |      |   | 860       |      |  |   | 651       |   |  |      | 665       |   |  |   | 686       |  
|Number of hotel rooms                                                      |  |                                                               | 836       |   |      |   | 836       |      |  |   | 836       |   |  |      | 836       |   |  |   | 836       |  
|Hotel occupancyrooms sold                                                 |  |                                                               | 256,000   |   |      |   | 245,000   |      |  |   | 262,000   |   |  |      | 257,000   |   |  |   | 254,000   |  
|Hotel occupancypercentage                                                 |  |                                                               | 83.9      | % |      |   | 80.2      | %    |  |   | 85.9      | % |  |      | 83.9      | % |  |   | 76.4      | %
|Number of RV spaces                                                        |  |                                                               | 105       |   |      |   | 105       |      |  |   |          |   |  |      |          |   |  |   |          |  
|RV occupancyspaces sold                                                   |  |                                                               | 16,016    |   |      |   | 1,379     |      |  |   |          |   |  |      |          |   |  |   |          |  
|RV occupancypercentage                                                    |  |                                                               | 41.8      | % |      |   | 43.8      | %    |  |   |          |   |  |      |          |   |  |   |          |  
|                                                                           |  |                                                               |           |   |     
|Net cash provided by (used in):                                            |  |                                                               |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|Operating activities                                                       |  | $                                                             | 7,095     |   |      | $ | 2,157     |      |  | $ | 4,560     |   |  | $    | 6,905     |   |  | $ | 2,295     |  
|Investing activities                                                       |  |                                                               | (2,363    | ) |      |   | (16,113   | )    |  |   | (3,358    | ) |  |      | (2,043    | ) |  |   | (5,331    | )
|Financing activities                                                       |  |                                                               | (6,395    | ) |      |   | 9,433     |      |  |   | (238      | ) |  |      | (1,216    | ) |  |   | (627      | )
|                                                                           |  |                                                               |           |   |     
|BALANCE SHEET DATA:                                                        |  |                                                               |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|Cash and cash equivalents                                                  |  | $                                                             | 3,965     |   |      | $ | 5,648     |      |  | $ | 10,160    |   |  | $    | 9,940     |   |  | $ | 5,550     |  
|Total assets                                                               |  |                                                               | 55,446    |   |      |   | 59,144    |      |  |   | 47,883    |   |  |      | 47,092    |   |  |   | 43,695    |  
|Long-term debt                                                             |  |                                                               | 13,426    |   |      |   | 19,026    |      |  |   | 10,000    |   |  |      | 10,205    |   |  |   | 491       |  
|Total stockholders equity                                                 |  |                                                               | 35,531    |   |      |   | 33,608    |      |  |   | 32,619    |   |  |      | 31,337    |   |  |   | 29,844    |  



|ITEM 7. |  | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|------- |  | -------------------------------------------------------------------------------------



Results of Operations and Basis of Presentation



The Sands Regent and its subsidiaries (the Company) operate the Sands Regency Casino Hotel (the
Sands) in Downtown Reno, Nevada and the Gold Ranch Casino and RV Resort (the Gold Ranch) on Interstate-80 in Verdi, Nevada. The Sands has 836 hotel rooms and 5 restaurants including Tony Romas Famous for Ribs,
Mels the Original Diner, and Arbys. It has a full selection of gaming alternatives, including 587 slot machines, 19 table games, keno, bingo, and a sportbook operated by Leroys Race and Sportsbooks, a third party. Additionally, the
Sands has a Just for Laughs comedy club, a cabaret lounge, health spa, and a large outdoor pool. The Company acquired Gold Ranch on June 1, 2002. Gold Ranchs gaming alternatives include 256 slot machines, a California lottery
station on property which straddles the Nevada/California state line, and a sportsbook. Additionally, Gold Ranch has a 105 space RV park, 2 restaurants, and an ARCO gas station and convenience store. Consolidated financial results for the year ended
June 30, 2002, include only one month of operations for Gold Ranch, however, consolidated results for the year ended June 30, 2003, include a full fiscal year of Gold Ranch operations.



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##### Table of Contents

Significant Accounting Policies and Estimates



The Company prepares its consolidated financial statements in conformity with accounting principles generally accepted in
the United States of America. Certain of the Companys policies, including the estimated lives assigned to long-lived assets, asset impairment, goodwill and other intangibles impairment, the adequacy of our allowance for uncollectible
receivables, self insurance reserves, litigation reserves, and customer rewards program liability 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. Policies and estimates identified below are considered to be the most significant.



Long-lived assets



Property and equipment are stated at cost less accumulated depreciation.
Judgments are made in determining if or when assets have been impaired and the estimated useful lives of assets. The accuracy of these estimates affects the depreciation expense recognized in our results of operations. The carrying values of our
long-lived assets are reviewed when events or changes in circumstance indicate that the carrying amount of an asset may not be coverable. Management assesses the possibility of an asset impairment by using estimates of future cash flows based on
current operating results, trends, prospects, demand, competition, and other economic factors.



Goodwill and other intangible assets



The provisions of SFAS No. 142 requires the Company to review goodwill and other intangibles annually for impairment. We completed our annual review and determined no impairment as of June 30, 2003. The annual
evaluation requires a detailed review of current operating results, as well as analytical projections and cash flow forecasts.



Allowance for doubtful accounts



We allow for an estimated amount of receivables that may not be collected. We estimate our allowance using a specific formula applied to aged receivables.
Historical experience is considered, as are customer relationships.



Self-insurance accrued liability



The Company
is self-insured for various levels of general liability, workers compensation, and employee medical insurance. Insurance claims liability includes estimated settlements for known claims, as well as accrued estimates of incurred but not
reported claims. In estimating these costs, the Company makes judgments based on historical claims experience, accident frequency, severity, and the experience of industry agents, administrators, and others, as appropriate.



Litigation accrued liability



The Company assesses its exposure to loss contingencies including legal
matters and provides for an exposure if it is judged to be probable and estimatable. If the actual loss from a contingency differs from managements estimate, operating results could be impacted.



Customer reward program liability



The Company has in place a rewards system based on customer gaming play.
Rewards are redeemable for complimentary hotel rooms, food, beverage, merchandise, and in many cases cash. A significant amount of rewards earned by customers expire without redemption. The Company estimates the percentage of rewards that will be
redeemed based on experience and special circumstances.



11



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##### Table of Contents

Comparison of fiscal 2003 to 2002



CONSOLIDATED RESULTS.    For the year ended June 30, 2003, the Companys net revenues (operating
revenues less promotional allowances) increased from $34.1 million to $55.7 million, or 65%, from the year ended June 30, 2002. Consolidated income from operations increased from $1.3 million in the previous year to $4.3 million in the current
year ended June 30, 2003. The Company generated a consolidated net income of $1.9 million, or 38 cents per share (36 cents diluted), for the year ended June 30, 2003, as compared to a consolidated net loss of ($189,000), or ($.04) per share, for the
year ended June 30, 2002. There were four primary reasons for the increase in revenues and consolidated net income of the Company during the current fiscal year: 1) the acquisition and consolidation of Gold Ranch operations into the Company as of
June 1, 2002; 2) the return of a major bowling event to Downtown Reno after its regularly scheduled one year hiatus; 3) the reopening of the Reno-Sparks convention center after a undergoing a significant expansion and remodel; and 4) the steady
return of wholesale airline tour operations post the September 11, 2001 terrorist attack.



SANDS REGENCY HOTEL AND CASINO.    For the year ended June 30, 2003, the Sands had net revenues of $33.5 million, compared to $32.4 million for the year ended June 30, 2002, an increase of 4.1%.
Gaming revenues of the Sands property accounted for the majority of the net revenue increase, increasing $988,000, from $20.5 million in fiscal 2002 to $21.5 million in fiscal 2003. Consistent with the gaming industry in general, most of the revenue
growth realized was in slot machine revenue, which increased 5.6%, from $15.1 million in the year ended June 30, 2002, to $16.0 million in the year ended June 30, 2003. The Sands sold approximately 11,000 more hotel rooms in the most current fiscal
year as compared to the previous year, an increase of 4.7%, which generated additional guest counts, a large factor in the gaming revenue increase. The average daily hotel rate increased from $31.73 in the year ended June 30, 2002, to $33.15 in the
year ended June 30, 2003, as the Sands, and Reno in general, benefited from increased demand associated with the four month long Womens International Bowling Congress, and a strong summer of 2002, as Reno tourism bounced back from the effects
of the September 11 terrorist attack.



Income from
operations increased from $1.3 million in the year ended June 30, 2002 to $2.8 million in the year ended June 30, 2003. Operating margins increased substantially in gaming departments; gaming revenues increased $988,000, or 4.8%, while gaming
operating expenses decreased $159,000, or 1.6%, year-to-year. Gaming operating margins at the Sands improved from 48.2% to 45.2%. Cost savings programs instituted in the current year resulted in a lower cost of complimentary rooms, food, beverage,
and merchandise given to casino customers. Additionally, capital investments made in new slot machine related technology has proven to be less labor intensive and has allowed for a reduction in labor hours in the slot department.



12



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##### Table of Contents

The following table highlights our various sources of revenues and expenses as compared to prior years
for the Sands (dollars in thousands)



|                           |  |                        |        |   |               |      |   |                        |   |        |               |  |       |                        |  |   |        |  
|-------------------------- |  | ---------------------- | ------ | - | ------------- | ---- | - | ---------------------- | - | ------ | ------------- |  | ----- | ---------------------- |  | - | ------ | -
|                           |  | Year endedJune 30,2003 |        |   | Percentchange |      |   | Year endedJune 30,2002 |   |        | Percentchange |  |       | Year endedJune 30,2001 | 
|Gaming revenues            |  | $                      | 21,471 |   |               | 4.8  | % |                        | $ | 20,483 |               |  | -7.8  | %                      |  | $ | 22,219 |  
|Gaming expenses            |  | $                      | 9,715  |   |               | -1.6 | % |                        | $ | 9,875  |               |  | -4.9  | %                      |  | $ | 10,389 |  
|Expense margin             |  |                        | 45.2   | % |               |      |   |                        |   | 48.2   | %             |  |       |                        |  |   | 46.8   | %
|                           |  |                        |        |   |              
|Lodging revenues           |  | $                      | 8,515  |   |               | 6.3  | % |                        | $ | 8,010  |               |  | -11.7 | %                      |  | $ | 9,074  |  
|Lodging expenses           |  | $                      | 3,984  |   |               | 1.0  | % |                        | $ | 3,946  |               |  | -10.7 | %                      |  | $ | 4,419  |  
|Expense margin             |  |                        | 46.8   | % |               |      |   |                        |   | 49.3   | %             |  |       |                        |  |   | 48.7   | %
|                           |  |                        |        |   |              
|Food and beverage revenues |  | $                      | 5,162  |   |               | -5.5 | % |                        | $ | 5,463  |               |  | 2.0   | %                      |  | $ | 5,356  |  
|Food and beverage expenses |  | $                      | 3,065  |   |               | -6.1 | % |                        | $ | 3,265  |               |  | -22.7 | %                      |  | $ | 4,226  |  
|Expense margin             |  |                        | 59.4   | % |               |      |   |                        |   | 59.8   | %             |  |       |                        |  |   | 78.9   | %
|                           |  |                        |        |   |              
|Other revenues             |  | $                      | 1,513  |   |               | 9.4  | % |                        | $ | 1,382  |               |  | -3.3  | %                      |  | $ | 1,429  |  
|Other expenses             |  | $                      | 556    |   |               | -3.9 | % |                        | $ | 578    |               |  | -0.8  | %                      |  | $ | 583    |  
|Expense margin             |  |                        | 36.7   | % |               |      |   |                        |   | 41.8   | %             |  |       |                        |  |   | 40.8   | %
|                           |  |                        |        |   |              
|Maintenance and utilities  |  | $                      | 3,508  |   |               | 1.6  | % |                        | $ | 3,453  |               |  | 4.5   | %                      |  | $ | 3,303  |  
|Percent of net revenues    |  |                        | 9.6    | % |               |      |   |                        |   | 9.8    | %             |  |       |                        |  |   | 8.7    | %
|                           |  |                        |        |   |              
|General and Administrative |  | $                      | 6,664  |   |               | 0.0  | % |                        | $ | 6,666  |               |  | -3.7  | %                      |  | $ | 6,924  |  
|Percent of net revenues    |  |                        | 18.2   | % |               |      |   |                        |   | 18.9   | %             |  |       |                        |  |   | 18.2   | %



GOLD RANCH CASINO AND
RV RESORT.    The Company acquired Gold Ranch in June 2002, as such, it is difficult to draw meaningful conclusions from prior year comparisons for revenues, expenses, and operating margins. Comparing one month to a full year is
particularly difficult because of seasonality factors. In general, good weather means more travelers on Interstate-80 and higher revenues for the Gold Ranch. However, Gold Ranch and Reno area promotions and special events, the timing of holiday
weekends, the size of the California lottery jackpot, and the price of gasoline can all significantly impact Gold Ranch customer counts. Total net revenues for Gold Ranch were $22.2 million for the year ended June 30, 2003, as compared with net
revenues of $1.7 million in the one month of operation in the year ended June 30, 2002. The highest revenue component at the Gold Ranch Property is the high volume ARCO gas station and convenience store. The gas station and convenience store
contributed $14.8 million to Gold Ranchs net revenue for the year ended June 30, 2003, as compared to $1.1 million for the one month ended June 30, 2002. A change in the price of gasoline can greatly influence total revenues but have a
minimal impact on profitability.



The next highest net revenue
component, slot machines, accounted for $5.4 million of the total net revenues in the year ended June 30, 2003, as compared to $446,000 in the one month ended June 30, 2002. Beginning with the quarter ended September 30, 2002, the Companys
first full quarter of operation, slot machine volume, as measured by cash and coin dropped in slot machines was $28.5, $26.0, $24.6, and $25.6 million, sequentially by quarter, which approximates anticipated seasonality at the Verdi, Nevada
property.



Operating costs for Gold Ranch for the year ended
June 30, 2003, were $20.4 million, compared to $1.5 million for the one month ended June 30, 2002. Income from operations for the 2003 fiscal year was $1.8 million, which compares to the income from operations of $202,000 for the one month
ended June 30, 2002.



13



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##### Table of Contents

The following table highlights our various sources of revenues and expenses as compared to the prior year
for Gold Ranch (dollars in thousands)



|                                    |  |                          |        |   |                          |   |       |  
|----------------------------------- |  | ------------------------ | ------ | - | ------------------------ | - | ----- | -
|                                    |  | Year ended June 30, 2003 |        |   | Year ended June 30, 2002 |  
|Gaming revenues                     |  | $                        | 5,713  |   |                          | $ | 461   |  
|Gaming expenses                     |  | $                        | 2,065  |   |                          | $ | 144   |  
|Expense margin                      |  |                          | 36.1   | % |                          |   | 31.1  | %
|                                    |  |                         
|Lodging revenues                    |  | $                        | 362    |   |                          | $ | 31    |  
|Lodging expenses                    |  | $                        | 163    |   |                          | $ | 17    |  
|Expense margin                      |  |                          | 45.0   | % |                          |   | 55.4  | %
|                                    |  |                         
|Food and beverage revenues          |  | $                        | 1,633  |   |                          | $ | 152   |  
|Food and beverage expenses          |  | $                        | 1,001  |   |                          | $ | 97    |  
|Expense margin                      |  |                          | 61.3   | % |                          |   | 63.6  | %
|                                    |  |                         
|Fuel and convenience store revenues |  | $                        | 14,817 |   |                          | $ | 1,070 |  
|Fuel and convenience store expenses |  | $                        | 14,045 |   |                          | $ | 1,004 |  
|Expense margin                      |  |                          | 94.8   | % |                          |   | 93.8  | %
|                                    |  |                         
|Maintenance and utilities           |  | $                        | 693    |   |                          | $ | 48    |  
|Percent of net revenues             |  |                          | 3.1    | % |                          |   | 2.8   | %
|                                    |  |                         
|General and Administrative          |  | $                        | 2,029  |   |                          | $ | 140   |  
|Percent of net revenues             |  |                          | 9.0    | % |                          |   | 8.1   | %



CORPORATE
COSTS.    Corporate costs, including public company reporting and related legal and accounting fees, were $324,000 in the year ended June 30, 2003. This was higher than the $227,000 of corporate costs in the year ended June 30,
2002, primarily due to incremental costs associated with the acquisition of Gold Ranch and to additional costs associated with new public company disclosure requirements.



INTEREST INCOME AND EXPENSE.    Effective June 1, 2002, the Companys principal long term debt
instrument was in the form of a revolving line of credit. Rather than draw interest income on its excess operating cash, the Company found it beneficial to reduce interest expense in fiscal 2003 by making voluntary principal payments to its line of
credit. As a result, interest income decreased from $178,000 in fiscal 2002 to $8,000 in fiscal 2003. However, interest expense decreased from $1.6 million in the year ended June 30, 2002, to $1.2 million in the year ended June 30, 2003, despite the
Company carrying a higher average debt load during fiscal 2003. The Company carried an average debt load of approximately $10.7 million in fiscal 2002. The balance of long term debt at the beginning of fiscal 2003 was $19.9 million, throughout the
fiscal year the Company made principal payments of $6.5 million, and by June 30, 2003, the Companys long-term debt balance was $13.4 million. The effective interest rate of the Companys long term debt prior the June 1, 2002 Gold Ranch
acquisition was 10.75%, and throughout fiscal 2003 it was approximately 7.2%.



INSURANCE SETTLEMENT/LAWSUIT.    In the year ended June 30, 2003, the Company incurred legal and settlement costs aggregating $547,000 in connection with the settlement of a personal injury claim.
The Company from time-to-time incurs legal costs and settlements charges in its normal course of business, however the Company maintains general liability insurance to protect itself from costs exceeding the contracted deductible. This claim was
insured, however, the insurance carrier, Legion Indemnity, is insolvent and not expected to make any payment to the Company. The Company is seeking recovery of its loss from the Companys insurance broker. Any recovery will be realized and
recorded when received. Other potential liabilities emulating from the same 2 year period the Company was insured by Legion Indemnity have been identified and the Company feels have been sufficiently reserved for. The statute of limitations has
expired for additional claims arising out of this period.



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##### Table of Contents

GAIN (LOSS) ON DISPOSITION OF ASSETS/ PROJECT ABANDONMENT.    The Company had losses
on early disposition of assets of $140,000 in the year ended June 30, 2003, compared with losses of $182,000 in the year ended June 30, 2002. Last year the Companys losses on early disposition of assets were due to the completion of the hotel
room remodel project. During the year ended June 30, 2003, losses primarily stemmed from the early disposition of slot machines and related hardware and software, and the write-down of a prospective new venture in Minden, Nevada, a project no longer
actively being pursued.



GAIN ON SALE OF
SUBSIDIARIES.    In December 1998, the Company closed an agreement selling all of its ownership interest in Patrician, GCI, and Artemis, which included a 100% ownership interest in the Copa Casino, for $8.5 million. The
consideration for the sale consisted of $500,000 in cash and an $8.0 million note in favor of the Company. The note is non-interest bearing and originally required the Copa to pay monthly to the Company the greater of 2% of its gross gaming
revenues, or $15,000, until the $8.0 million is satisfied. Effective July 2004, the amount the Copa must pay the Company increases to 4% of gross gaming revenues. Due to competitive, regulatory, environmental, financial, and other potential risks
facing the current ownership of the Copa, the Company recognized only $2.2 million of the $8.0 million face value of the note to reflect an estimated allowance for uncollectability at the time the sales transaction was finalized and recorded. In
January 2003, the original $2.2 million recorded by the Company was paid in full, and as of June 30, 2003, the Company has realized a gain on an additional $413,000 in payments received on the $5.8 million originally reserved note balance. The Copa
ownership has upgraded the property extensively and the Company feels it has perfected a lien on the newly revitalized property. Based on the new terms and recent payments, it will take between 3-4 years to collect fully on the note, however, as of
the date of this report, the Company continues to believe that the risks facing the current ownership of the Copa has not materially changed, and continues to record gains only as payments are received.



Comparison of fiscal 2002 to 2001



OVERVIEW    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.



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##### Table of Contents

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.



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.



16



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##### Table of Contents

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.



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.



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



The Companys working capital decreased
from $3.2 million at June 30, 2002 to $1.6 million at June 30, 2003. The Companys cash and cash equivalents decreased from $5.6 million at June 30, 2002 to $4.0 million at June 30, 2003, as the Company used cash reserves to reduce its line of
credit during the year by $6.4 million. As of June 30, 2003, the Company had an unused credit line under its reducing revolving credit facility of $6.7 million.



Net cash provided by operating activities for the years ended June 30, 2003, 2002, and 2001 was $7.1 million, $2.2 million, and $4.6 million,
respectively. A greater net income and timing of the payment of payroll and other payables were the major factors that contributed to the increased cash provided from operating activities during fiscal 2003. During all 3 fiscal years presented, net
cash provided by operating activities were sufficient to fund the day-to-day operating expenses of the Company.



Net cash used in investing activities for the years ended June 30, 2003, 2002, and 2001 was $2.4 million, $16.1 million, and $3.4 million, respectively.
Major expenditures in the year ended June 30, 2003 included the acquisition of $1.3 million in slot machines and related products. The major expenditure in the fiscal year ended June 30, 2002 was $13.5 million associated with the acquisition of Gold
Ranch.



Net provided by (used in) financing activities for the
years ended June 30, 2003, 2002, and 2001 was ($6.4) million, $9.4 million, and ($238,000), respectively. The Company steadily paid its long-term debt down in fiscal 2003, after taking on more debt in fiscal 2002, as part of the Gold Ranch
acquisition.



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##### Table of Contents

At June 30, 2003, the Company believes that its cash funds, cash generated from operations, and available
borrowing capacity will be sufficient to fund its operations, meet current debt obligations, and fulfill its capital expenditure obligations; however, the Companys operations are subject to financial, economic, competitive, regulatory, and
other factors, many of which are beyond its control. If the Company is unable to generate sufficient cash flow, it could be required to adopt one or more alternatives, such as reducing or delaying planned capital expenditures, selling assets,
restructuring debt, or obtaining additional equity capital.



Commitments and
Contingencies



The following table summarizes the
Companys contractual obligations as of June 30, 2003. Other than those identified as item (1) and (2) below, the Company has no off-balance sheet obligations.



|                     |  |       |            |                  |   |             |  |             |           |               |   |           |  |   |           
|-------------------- |  | ----- | ---------- | ---------------- | - | ----------- |  | ----------- | --------- | ------------- | - | --------- |  | - | ----------
|                     |  | Total |            | Less than 1 year |   | 1 - 3 years |  | 4 - 5 years |           | After 5 years
|Long term debt       |  | $     | 13,426,314 |                  | $ | 806,274     |  | $           | 1,612,845 |               | $ | 2,558,115 |  | $ | 8,449,080 
|Operating leases (1) |  |       | 5,127,084  |                  |   | 575,000     |  |             | 1,150,000 |               |   | 1,150,000 |  |   | 2,252,084 
|Other (2)            |  |       | 1,811,109  |                  |   | 203,115     |  |             | 406,230   |               |   | 406,230   |  |   | 795,534   
|                     |  |       |            |                  |   |             |  |             |           |               |   |           |  |   |           
|                     |  | $     | 20,364,507 |                  | $ | 1,584,389   |  | $           | 3,169,075 |               | $ | 4,114,345 |  | $ | 11,496,698
|                     |  |       |            |                  |   |             |  |             |           |               |   |           |  |   |           

---

|(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 20% increase that became effective on June 1, 2003, in accordance with the
management agreement. Additionally, future amounts payable are subject to adjustment based on changes in interest rates.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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.



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 implied 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 SEC.:



| |  |  | the effect of economic, credit and capital market conditions on the economy in general, and on gaming 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;
| | - |  | -------------------------------------------



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##### Table of Contents

| |  |  | changes in laws or regulations, third party relations and approvals, and decisions of courts, regulators and governmental bodies; including judicial actions, gaming legislative
action, referenda and taxation;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | abnormal gaming holds;
| | - |  | ----------------------



| |  |  | seasonal fluctuations in the Northern Nevada gaming business,
| | - |  | -------------------------------------------------------------



| |  |  | the effects of terrorist attacks or war may have on the gaming industry; and
| | - |  | ----------------------------------------------------------------------------



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



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.



Other factors affecting current and future results



NATIVE AMERICAN GAMING.    The expansion of Native American casinos in California, Oregon, and
Washington continues to have an impact on casino revenues in Nevada in general, and some analysts have predicted the impact will be significant on the Reno-Tahoe market. Thunder Valley Casino, a large new Native American casino operated by Station
Casinos, Inc., opened June 9, 2003, 110 miles west of Reno in Rocklin, California. The impact to the Company of this Native American casino and others is difficult to predict. A significant portion of the Companys customer base is made up of
Reno area residents. However, if other Reno area casinos lose business due to competition from Native American casinos, they may intensify their marketing efforts to Reno area residents as well.



DOWNTOWN RENO RAILROAD TRENCH.    Work has begun on a
project to build a trench through downtown Reno for the purpose of constructing a below grade rail transport corridor. Known as ReTRAC (Reno Transportation Railroad Access Corridor) the project is anticipated to take between 3-4 years to be
completed. Currently, Union Pacifics railroad tracks dissect downtown Reno, as well as the Sands Regencys parking facilities. ReTRAC has temporarily taken nearly 300 of the Sands parking spaces to build an interim railroad track known as
the shoo-fly. The Company has also been informed a small number of parking spaces and Sands pedestrian overpass structure will be permanently lost.



The law requires that the Sands be given alternate parking or compensation for spaces and structures permanently or
temporarily lost due to the project. In July 2003, the Sands received compensation amounting to approximately $583,000 for its contribution to the project. The Company feels it may not have been compensated fully, and has given up none of its rights
for recourse. Negotiations are continuing for a replacement bridge and additional parking, and as of the date of this report, the Company is carefully monitoring the situation, and analyzing and reviewing its alternatives.



The effect of trench construction on downtown Renos business levels,
and specifically the business levels of the Sands, is hard to quantify, as any potential downside due to customer inconvenience could be somewhat offset by opportunities, such as the effect this major construction project will have on the Reno area
economy. In light of these uncertainties, the Company feels no assurance can be given that this project will not have an adverse material impact on the business levels of its downtown Reno property.



Recent Issued Accounting Pronouncements



In November 2002, the FASB issued FASB Interpretation (FIN) 45,
Guarantors Accounting and Disclosure Requirements for Guarantees, including indirect Guarantees of Indebtedness of Others. FIN 45 expands the information disclosures required by guarantors obligations under certain types of guarantees. It also
requires initial recognition at fair value of a liability for such guarantees. We adopted the disclosure requirements of FIN 45 for the year ending December 31, 2002. We will apply the liability recognition requirements to all guarantees issued or
modified after December 31, 2002. The adoption of these requirements did not have a material impact on our results of operations or financial position.



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##### Table of Contents

In December 2002, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards (SFAS) No. 148, Accounting for Stock-Based CompensationTransition and Disclosure, an amendment of FASB Statement No. 123 to provide alternative methods of transition for a voluntary change
to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about
the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The Company adopted the annual and interim disclosure requirements of SFAS No. 148 and it did not have a material impact on the
consolidated financial statements.



In April 2003, the FASB
issued SFAS 149, Amendments of Statement 133 on Derivative Instruments and Hedging Activities. This Statement amends SFAS 133, Accounting for Derivative and Instruments and Hedging Activities, and clarifies financial
accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts and or hedging activities under SFAS 133. This statement is effective for contracts entered into or modified after June 30,
2003, except as stated below and for hedging relationships designated after June 30, 2003. The provisions of this statement that relate to Statement 133 Implementation Issues that have been effective for fiscal quarters that began prior to June 15,
2003, should continue to be applied in accordance with their respective effective dates. The adoption of this statement did not have a material impact on the Companys results of operations or financial position.



In May 2003, the FASB issued SFAS 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity. This Statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. Financial
instruments that are within the scope of the statement, which previously were often classified as equity, must now be classified as liabilities. This statement is effective for financial instruments entered into or modified after May 31, 2003, and
otherwise shall be effective at the beginning of the first interim period beginning after June 15, 2003. The adoption of this statement is not expected to have a material effect on the Companys results of operations or financial position.



ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK



The Companys long-term debt is variable relative to changes in interest rates. Specifically, the interest rate of the Companys primary debt, a
reducing, revolving credit facility through Nevada State Bank, is currently fixed at 7.17% per annum. However, effective June 1, 2007, the interest rate will be adjusted to a new five-year fixed rate of 2.40% plus the five-year U.S. Dollar Swap
Market rate. At the time of this rate adjustment, the maximum principal balance of this obligation will be $8.5 million. Accordingly, each 1% rate adjustment at that time will have a maximum impact to the Company of $85,000 per year.



Additionally, the interest rate of the Companys subordinated debt,
which has a principal balance of $4.8 million at June 30, 2003, varies directly with a change in the Prime index. A full percentage point change in the Prime index will have a maximum yearly financial impact of less than $49,000, declining as
principal is paid down. This subordinated debt is limited to a maximum increase or decrease in the interest rate of 1% per year, and a maximum fluctuation of 3% over the term of the note.



Finally, terms of the Companys RV park management agreement with PGE, referenced as (2) in the Commitments and
Contingencies section of this Report, state that the Company pay monthly an amount equal to PGEs debt service on the underlying RV park note, which varies directly with changes in the Prime index. On June 1, 2003, this management fee
increased to 120% of that monthly debt service for the remaining life of the agreement. The financial impact to the Company of a full one percent increase in the Prime index is less than $25,000 per year.



The Company does not use interest rate derivative instruments to manage
exposure to interest rate changes.



20



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##### Table of Contents

THE SANDS REGENT

INDEPENDENT AUDITORS REPORT





To the Board of Directors and Stockholders of

The Sands Regent:



We have audited the accompanying consolidated balance sheets of The Sands
Regent and subsidiaries (the Company) as of June 30, 2003 and 2002, and the related consolidated statements of operations, stockholders equity, and cash flows for each of the three years in the period ended June 30, 2003. Our
audits also included the financial statement schedule listed in the Index at Item 14. These financial statements and financial statement schedule are the responsibility of the Companys management. Our responsibility is to express an opinion on
the financial statements and financial statement schedule based on our audits.



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



In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of
The Sands Regent and subsidiaries as of June 30, 2003 and 2002, and the results of their operations and their cash flows for each of the three years in the period ended June 30, 2003, in conformity with accounting principles generally accepted in
the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly in all material respects the information set forth
therein.



LOGO



Reno, Nevada

August 22, 2003



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##### Table of Contents

|ITEM 8. |  | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
|------- |  | -------------------------------------------



THE SANDS REGENT



CONSOLIDATED BALANCE SHEETS



|                                                                                                  |  |          |             |   |      |   |             |  
|------------------------------------------------------------------------------------------------- |  | -------- | ----------- | - | ---- | - | ----------- | -
|                                                                                                  |  | June 30, |            
|                                                                                                  |  | 2003     |             |   | 2002 |  
|Cash and cash equivalents                                                                         |  | $        | 3,965,293   |   |      | $ | 5,627,964   |  
|Short-term investments                                                                            |  |          |            |   |      |   | 20,000      |  
|Accounts receivable, net of allowance of $61,000 and $29,000                                      |  |          | 675,217     |   |      |   | 517,404     |  
|Note receivable, sale of subsidiaries                                                             |  |          |            |   |      |   | 180,000     |  
|Inventories                                                                                       |  |          | 637,012     |   |      |   | 715,785     |  
|Federal income tax refund receivable                                                              |  |          | 611,224     |   |      |   | 369,034     |  
|Prepaid expenses and other assets                                                                 |  |          | 1,246,567   |   |      |   | 1,252,532   |  
|                                                                                                  |  |          |             |   |      |   |             |  
|Total current assets                                                                              |  |          | 7,135,313   |   |      |   | 8,682,719   |  
|                                                                                                  |  |          |             |   |      |   |             |  
|Property and equipment                                                                            |  |          |             |   |      |   |             |  
|Land                                                                                              |  |          | 8,505,937   |   |      |   | 8,505,937   |  
|Buildings and improvements                                                                        |  |          | 40,998,942  |   |      |   | 40,147,697  |  
|Equipment, furniture and fixtures                                                                 |  |          | 20,569,009  |   |      |   | 20,344,954  |  
|Construction in progress                                                                          |  |          | 157,110     |   |      |   | 346,247     |  
|                                                                                                  |  |          |             |   |      |   |             |  
|                                                                                                  |  |          | 70,230,998  |   |      |   | 69,344,835  |  
|Less accumulated depreciation and amortization                                                    |  |          | 34,699,973  |   |      |   | 31,811,243  |  
|                                                                                                  |  |          |             |   |      |   |             |  
|Property and equipment, net                                                                       |  |          | 35,531,025  |   |      |   | 37,533,592  |  
|                                                                                                  |  |          |             |   |      |   |             |  
|Note receivable, sale of subsidiaries, net                                                        |  |          |            |   |      |   | 143,975     |  
|Goodwill                                                                                          |  |          | 11,018,257  |   |      |   | 10,950,453  |  
|Other intangibles                                                                                 |  |          | 1,356,400   |   |      |   | 1,356,400   |  
|Other                                                                                             |  |          | 405,434     |   |      |   | 476,954     |  
|                                                                                                  |  |          |             |   |      |   |             |  
|Total other assets                                                                                |  |          | 12,780,091  |   |      |   | 12,927,782  |  
|                                                                                                  |  |          |             |   |      |   |             |  
|Total assets                                                                                      |  | $        | 55,446,429  |   |      | $ | 59,144,093  |  
|                                                                                                  |  |          |             |   |      |   |             |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                              | 
|Accounts payable                                                                                  |  | $        | 2,668,863   |   |      | $ | 3,154,003   |  
|Accrued salaries, wages and benefits                                                              |  |          | 1,612,741   |   |      |   | 996,642     |  
|Other accrued expenses                                                                            |  |          | 254,639     |   |      |   | 240,762     |  
|Deferred federal income tax liability                                                             |  |          | 206,470     |   |      |   | 222,132     |  
|Current maturities of long-term debt                                                              |  |          | 806,274     |   |      |   | 849,301     |  
|                                                                                                  |  |          |             |   |      |   |             |  
|Total current liabilities                                                                         |  |          | 5,548,987   |   |      |   | 5,462,840   |  
|Long-term debt                                                                                    |  |          | 12,620,040  |   |      |   | 19,026,325  |  
|Deferred federal income tax liability                                                             |  |          | 1,746,520   |   |      |   | 1,046,612   |  
|                                                                                                  |  |          |             |   |      |   |             |  
|Total liabilities                                                                                 |  |          | 19,915,547  |   |      |   | 25,535,777  |  
|                                                                                                  |  |          |             |   |      |   |             |  
|Common stock, $.10 par value, 20,000,000 shares authorized, 7,357,055 and 7,325,805 shares issued |  |          | 735,705     |   |      |   | 732,580     |  
|Additional paid-in capital                                                                        |  |          | 13,966,949  |   |      |   | 13,915,901  |  
|Retained earnings                                                                                 |  |          | 43,186,690  |   |      |   | 41,318,297  |  
|                                                                                                  |  |          |             |   |      |   |             |  
|                                                                                                  |  |          | 57,889,344  |   |      |   | 55,966,778  |  
|Treasury stock, at cost; 2,403,000 shares                                                         |  |          | (22,358,462 | ) |      |   | (22,358,462 | )
|                                                                                                  |  |          |             |   |      |   |             |  
|Total stockholders equity                                                                        |  |          | 35,530,882  |   |      |   | 33,608,316  |  
|                                                                                                  |  |          |             |   |      |   |             |  
|Total liabilities and stockholders equity                                                        |  | $        | 55,446,429  |   |      | $ | 59,144,093  |  
|                                                                                                  |  |          |             |   |      |   |             |  

See notes to consolidated financial statements.



22



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##### Table of Contents

THE SANDS REGENT



CONSOLIDATED STATEMENTS OF OPERATIONS



|                                                                           |  |                              |            |   |      |   |            |      |  |   |            |  
|-------------------------------------------------------------------------- |  | ---------------------------- | ---------- | - | ---- | - | ---------- | ---- |  | - | ---------- | -
|                                                                           |  | For the years ended June 30, |           
|                                                                           |  | 2003                         |            |   | 2002 |   |            | 2001 | 
|REVENUES                                                                   |  |                              |            |   |      |   |            |      |  |   |            |  
|Gaming                                                                     |  | $                            | 27,184,335 |   |      | $ | 21,173,695 |      |  | $ | 22,218,940 |  
|Lodging                                                                    |  |                              | 8,877,706  |   |      |   | 8,040,613  |      |  |   | 9,073,917  |  
|Food and beverage                                                          |  |                              | 6,794,931  |   |      |   | 5,615,082  |      |  |   | 5,356,210  |  
|Fuel and convenience store                                                 |  |                              | 14,817,068 |   |      |   | 1,070,216  |      |  |   |           |  
|Other                                                                      |  |                              | 1,639,794  |   |      |   | 1,390,847  |      |  |   | 1,429,436  |  
|                                                                           |  |                              |            |   |      |   |            |      |  |   |            |  
|                                                                           |  |                              | 59,313,834 |   |      |   | 37,290,453 |      |  |   | 38,078,503 |  
|Less promotional allowances                                                |  |                              | 3,653,113  |   |      |   | 3,223,035  |      |  |   | 2,315,267  |  
|                                                                           |  |                              |            |   |      |   |            |      |  |   |            |  
|Net revenues                                                               |  |                              | 55,660,721 |   |      |   | 34,067,418 |      |  |   | 35,763,236 |  
|                                                                           |  |                              |            |   |      |   |            |      |  |   |            |  
|OPERATING EXPENSES                                                         |  |                              |            |   |      |   |            |      |  |   |            |  
|Gaming                                                                     |  |                              | 11,780,343 |   |      |   | 10,247,630 |      |  |   | 10,388,503 |  
|Lodging                                                                    |  |                              | 4,146,725  |   |      |   | 3,963,137  |      |  |   | 4,419,393  |  
|Food and beverage                                                          |  |                              | 4,065,562  |   |      |   | 3,361,819  |      |  |   | 4,226,147  |  
|Fuel and convenience store                                                 |  |                              | 14,045,138 |   |      |   | 1,003,910  |      |  |   |           |  
|Other                                                                      |  |                              | 582,306    |   |      |   | 578,107    |      |  |   | 583,037    |  
|Maintenance and utilities                                                  |  |                              | 4,200,830  |   |      |   | 3,500,974  |      |  |   | 3,302,847  |  
|General and administrative                                                 |  |                              | 9,017,597  |   |      |   | 7,033,050  |      |  |   | 6,924,116  |  
|Depreciation and amortization                                              |  |                              | 3,529,802  |   |      |   | 3,110,538  |      |  |   | 2,972,763  |  
|                                                                           |  |                              |            |   |      |   |            |      |  |   |            |  
|                                                                           |  |                              | 51,368,303 |   |      |   | 32,799,165 |      |  |   | 32,816,806 |  
|                                                                           |  |                              |            |   |      |   |            |      |  |   |            |  
|INCOME FROM OPERATIONS                                                     |  |                              | 4,292,418  |   |      |   | 1,268,253  |      |  |   | 2,946,430  |  
|                                                                           |  |                              |            |   |      |   |            |      |  |   |            |  
|OTHER INCOME / EXPENSE                                                     |  |                              |            |   |      |   |            |      |  |   |            |  
|Interest and other income                                                  |  |                              | 8,205      |   |      |   | 178,470    |      |  |   | 426,827    |  
|Interest and other expense                                                 |  |                              | (1,215,971 | ) |      |   | (1,585,412 | )    |  |   | (1,154,975 | )
|Non-recurring insurance lawsuit settlement                                 |  |                              | (547,205   | ) |      |   |           |      |  |   |           |  
|Loss on disposal of property and equipment, and abandonment of new project |  |                              | (140,019   | ) |      |   | (182,127   | )    |  |   | (391,190   | )
|Collection on note receivable previously reserved                          |  |                              | 413,021    |   |      |   |           |      |  |   |           |  
|                                                                           |  |                              |            |   |      |   |            |      |  |   |            |  
|                                                                           |  |                              | (1,481,969 | ) |      |   | (1,589,069 | )    |  |   | (1,119,338 | )
|                                                                           |  |                              |            |   |      |   |            |      |  |   |            |  
|NET INCOME (LOSS) BEFORE INCOME TAXES                                      |  |                              | 2,810,449  |   |      |   | (320,816   | )    |  |   | 1,827,092  |  
|INCOME TAX (PROVISION) BENEFIT                                             |  |                              | (942,056   | ) |      |   | 132,188    |      |  |   | (594,783   | )
|                                                                           |  |                              |            |   |      |   |            |      |  |   |            |  
|NET INCOME (LOSS)                                                          |  | $                            | 1,868,393  |   |      | $ | (188,628   | )    |  | $ | 1,232,309  |  
|                                                                           |  |                              |            |   |      |   |            |      |  |   |            |  
|NET INCOME (LOSS) PER SHARE                                                |  |                              |            |   |      |   |            |      |  |   |            |  
|BASIC                                                                      |  | $                            | 0.38       |   |      | $ | (0.04      | )    |  | $ | 0.27       |  
|DILUTED                                                                    |  | $                            | 0.36       |   |      | $ | (0.04      | )    |  | $ | 0.26       |  
|                                                                           |  |                              |           
|WEIGHTED AVERAGE OF SHARES OUTSTANDING                                     |  |                              |            |   |      |   |            |      |  |   |            |  
|BASIC                                                                      |  |                              | 4,930,713  |   |      |   | 4,558,907  |      |  |   | 4,500,614  |  
|DILUTED                                                                    |  |                              | 5,196,478  |   |      |   | 4,558,907  |      |  |   | 4,751,774  |  



See notes to
consolidated financial statements.



23



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##### Table of Contents

THE SANDS REGENT



CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY



For the years ended June 30, 2003, 2002, 2001



|                                                             |  |              |  |                          |         |                  |   |            |                |        |            |       |  |           |  |   |             |   |  |   |            |  
|------------------------------------------------------------ |  | ------------ |  | ------------------------ | ------- | ---------------- | - | ---------- | -------------- | ------ | ---------- | ----- |  | --------- |  | - | ----------- | - |  | - | ---------- | -
|                                                             |  | Common Stock |  | AdditionalPaid-inCapital |         | RetainedEarnings |   |            | Treasury Stock |        |            | Total | 
|                                                             |  | Shares       |  | Amount                   |         |                  |   | Shares     |                | Amount |            |      
|Balances, June 30, 2000                                      |  | 6,900,722    |  | $                        | 690,072 |                  | $ | 12,730,547 |                | $      | 40,274,616 |       |  | 2,403,000 |  | $ | (22,358,462 | ) |  | $ | 31,336,773 |  
|                                                             |  |              |  |                          |         |                  |   |            |                |        |            |       |  |           |  |   |             |   |  |   |            |  
|Net income                                                   |  |              |  |                          |         |                  |   |            |                |        | 1,232,309  |       |  |           |  |   |             |   |  |   | 1,232,309  |  
|Issuance of company common stock and stock options exercised |  | 28,000       |  |                          | 2,800   |                  |   | 46,845     |                |        |            |       |  |           |  |   |             |   |  |   | 49,645     |  
|                                                             |  |              |  |                          |         |                  |   |            |                |        |            |       |  |           |  |   |             |   |  |   |            |  
|Balances, June 30, 2001                                      |  | 6,928,722    |  |                          | 692,872 |                  |   | 12,777,392 |                |        | 41,506,925 |       |  | 2,403,000 |  |   | (22,358,462 | ) |  |   | 32,618,727 |  
|                                                             |  |              |  |                          |         |                  |   |            |                |        |            |       |  |           |  |   |             |   |  |   |            |  
|Net loss                                                     |  |              |  |                          |         |                  |   |            |                |        | (188,628   | )     |  |           |  |   |             |   |  |   | (188,628   | )
|Issuance of company common stock and stock options exercised |  | 20,000       |  |                          | 2,000   |                  |   | 34,240     |                |        |            |       |  |           |  |   |             |   |  |   | 36,240     |  
|Issuance of company common stock in purchase transaction     |  | 377,083      |  |                          | 37,708  |                  |   | 1,104,269  |                |        |            |       |  |           |  |   |             |   |  |   | 1,141,977  |  
|                                                             |  |              |  |                          |         |                  |   |            |                |        |            |       |  |           |  |   |             |   |  |   |            |  
|Balances, June 30, 2002                                      |  | 7,325,805    |  |                          | 732,580 |                  |   | 13,915,901 |                |        | 41,318,297 |       |  | 2,403,000 |  |   | (22,358,462 | ) |  |   | 33,608,316 |  
|                                                             |  |              |  |                          |         |                  |   |            |                |        |            |       |  |           |  |   |             |   |  |   |            |  
|Net income                                                   |  |              |  |                          |         |                  |   |            |                |        | 1,868,393  |       |  |           |  |   |             |   |  |   | 1,868,393  |  
|Issuance of company common stock and stock options exercised |  | 31,250       |  |                          | 3,125   |                  |   | 51,048     |                |        |            |       |  |           |  |   |             |   |  |   | 54,173     |  
|                                                             |  |              |  |                          |         |                  |   |            |                |        |            |       |  |           |  |   |             |   |  |   |            |  
|Balances, June 30, 2003                                      |  | 7,357,055    |  | $                        | 735,705 |                  | $ | 13,966,949 |                | $      | 43,186,690 |       |  | 2,403,000 |  | $ | (22,358,462 | ) |  | $ | 35,530,882 |  
|                                                             |  |              |  |                          |         |                  |   |            |                |        |            |       |  |           |  |   |             |   |  |   |            |  





See notes to consolidated financial statements.



24



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THE SANDS REGENT



CONSOLIDATED STATEMENTS OF CASH FLOWS



|                                                                                             |  |                              |            |   |      |   |             |      |  |   |            |  
|-------------------------------------------------------------------------------------------- |  | ---------------------------- | ---------- | - | ---- | - | ----------- | ---- |  | - | ---------- | -
|                                                                                             |  | For the years ended June 30, |           
|                                                                                             |  | 2003                         |            |   | 2002 |   |             | 2001 | 
|Operating Activities                                                                         |  |                              |            |   |      |   |             |      |  |   |            |  
|Net income (loss)                                                                            |  | $                            | 1,868,393  |   |      | $ | (188,628    | )    |  | $ | 1,232,309  |  
|Adjustment to reconcile net income (loss) to net cash provided by operating activities:      |  |                              |            |   |      |   |             |      |  |   |            |  
|Depreciation and amortization                                                                |  |                              | 3,529,802  |   |      |   | 3,110,538   |      |  |   | 2,972,763  |  
|Loss on disposal of property and equipment                                                   |  |                              | 81,220     |   |      |   | 182,127     |      |  |   | 391,190    |  
|(Increase) decrease in accounts receivable                                                   |  |                              | (157,813   | ) |      |   | 100,709     |      |  |   | (43,094    | )
|(Increase) decrease in inventories                                                           |  |                              | 78,773     |   |      |   | 75,357      |      |  |   | (13,314    | )
|(Increase) decrease in prepaid expenses and other current assets                             |  |                              | 5,965      |   |      |   | (147,240    | )    |  |   | (26,772    | )
|Decrease in other assets                                                                     |  |                              | 3,716      |   |      |   | 299,925     |      |  |   | 31,957     |  
|Increase (decrease) in accounts payable                                                      |  |                              | 613,320    |   |      |   | (402,850    | )    |  |   | 52,794     |  
|Increase (decrease) in accrued salaries, wages, and benefits                                 |  |                              | 616,099    |   |      |   | (628,803    | )    |  |   | 43,354     |  
|Increase in other accrued expenses                                                           |  |                              | 13,877     |   |      |   | 48,286      |      |  |   | 1,702      |  
|Change in federal income taxes payable/receivable                                            |  |                              | (242,190   | ) |      |   | (361,558    | )    |  |   | (241,803   | )
|Change in deferred federal income taxes                                                      |  |                              | 684,246    |   |      |   | 69,370      |      |  |   | 159,086    |  
|                                                                                             |  |                              |            |   |      |   |             |      |  |   |            |  
|Net cash provided by operating activities (net of effect of the acquisition of subsidiaries) |  |                              | 7,095,408  |   |      |   | 2,157,233   |      |  |   | 4,560,172  |  
|                                                                                             |  |                              |            |   |      |   |             |      |  |   |            |  
|Investing Activities                                                                         |  |                              |            |   |      |   |             |      |  |   |            |  
|Purchase of short-term investments                                                           |  |                              |           |   |      |   | (10,000     | )    |  |   | (200,000   | )
|Sales and maturities of short-term investments                                               |  |                              | 20,000     |   |      |   |            |      |  |   | 943,201    |  
|Payments received on notes receivable                                                        |  |                              | 323,975    |   |      |   | 525,202     |      |  |   | 538,716    |  
|Net cash paid for wholly owned subsidiaries                                                  |  |                              |           |   |      |   | (13,510,115 | )    |  |   |           |  
|Acquisitions of property and equipment                                                       |  |                              | (1,652,955 | ) |      |   | (3,043,925  | )    |  |   | (4,256,493 | )
|Payment for prior year purchases of property and equipment                                   |  |                              | (1,098,461 | ) |      |   | (185,657    | )    |  |   | (411,405   | )
|Proceeds from sale of assets                                                                 |  |                              | 44,500     |   |      |   | 111,938     |      |  |   | 27,655     |  
|                                                                                             |  |                              |            |   |      |   |             |      |  |   |            |  
|Net cash used in investing activities                                                        |  |                              | (2,362,941 | ) |      |   | (16,112,557 | )    |  |   | (3,358,326 | )
|                                                                                             |  |                              |            |   |      |   |             |      |  |   |            |  
|Financing Activities                                                                         |  |                              |            |   |      |   |             |      |  |   |            |  
|Issuance of long-term debt                                                                   |  |                              |           |   |      |   | 22,662,071  |      |  |   |           |  
|Payment of costs relative to issuance of long-term debt                                      |  |                              |           |   |      |   | (283,507    | )    |  |   |           |  
|Payments on long-term debt                                                                   |  |                              | (6,449,311 | ) |      |   | (12,981,770 | )    |  |   | (287,724   | )
|Issuance of Company common stock                                                             |  |                              | 54,173     |   |      |   | 36,240      |      |  |   | 49,645     |  
|                                                                                             |  |                              |            |   |      |   |             |      |  |   |            |  
|Net cash provided by (used in) financing activities                                          |  |                              | (6,395,138 | ) |      |   | 9,433,034   |      |  |   | (238,079   | )
|                                                                                             |  |                              |            |   |      |   |             |      |  |   |            |  
|Increase (decrease) in cash and cash equivalents                                             |  |                              | (1,662,671 | ) |      |   | (4,522,290  | )    |  |   | 963,767    |  
|Cash and cash equivalents, beginning of year                                                 |  |                              | 5,627,964  |   |      |   | 10,150,254  |      |  |   | 9,186,487  |  
|                                                                                             |  |                              |            |   |      |   |             |      |  |   |            |  
|Cash and cash equivalents, end of year                                                       |  | $                            | 3,965,293  |   |      | $ | 5,627,964   |      |  | $ | 10,150,254 |  
|                                                                                             |  |                              |            |   |      |   |             |      |  |   |            |  
|Supplemental cash flow information:                                                          |  |                              |            |   |      |   |             |      |  |   |            |  
|Property and equipment acquired by long term debt                                            |  | $                            |           |   |      | $ | 14,687      |      |  | $ |           |  
|Property and equipment acquired by accounts payable                                          |  | $                            | 181,006    |   |      | $ | 1,098,461   |      |  | $ | 185,657    |  
|Issuance of common stock to acquire subsidiaries                                             |  | $                            |           |   |      | $ | 1,141,977   |      |  | $ |           |  
|Interest paid, net of amount capitalized                                                     |  | $                            | 1,215,970  |   |      | $ | 1,550,379   |      |  | $ | 1,139,975  |  
|Federal income taxes paid                                                                    |  | $                            | 750,000    |   |      | $ | 160,000     |      |  | $ | 677,500    |  



See notes to
consolidated financial statements.



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##### Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 1SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES



(a)    Principles of consolidation, basis of presentation, and
significant accounting policies



The accompanying
Consolidated Financial Statements include the accounts of The Sands Regent (the Company) and its wholly-owned subsidiaries: Zante, Inc. (Zante), a Nevada corporation, and Last Chance, Inc. (Last Chance), a Nevada
corporation. Zante owns and operates The Sands Regency Casino/Hotel (Sands Regency) in downtown Reno, Nevada. Last Chance owns and operates the Gold Ranch Casino and R.V. Resort in Verdi, Nevada, and California Prospectors, Ltd.
(California Prospectors), a Nevada limited liability company, which operates a California Lottery station. Together, Last Chance and California Prospectors are presented as (Gold Ranch). Gold Ranchs financial results
for the one month ended June 30, 2002 are consolidated into the fiscal year ended June 30, 2002, whereas a full fiscal year of results are consolidated into the year ended June 30, 2003. All significant intercompany balances and transactions have
been eliminated in consolidation.



Because year-to-year
comparisons are affected by the Gold Ranch acquisition, the following is pro-forma financial information that is presented as if the acquisition had been effective at the beginning of fiscal 2002. (dollars in thousands):



|                                        |  |                      |  |        |  
|--------------------------------------- |  | -------------------- |  | ------ | -
|                                        |  | Years ended June 30, | 
|                                        |  | 2003                 |  | 2002   |  
|Net revenues as reported                |  | 55,661               |  | 34,067 |  
|Proforma net revenues                   |  | 55,661               |  | 54,346 |  
|                                        |  |                     
|Net income (loss) as reported           |  | 1,868                |  | (189   | )
|Gold Ranch proforma net income          |  |                     |  | 558    |  
|Increase in unallocated corporate costs |  |                     |  | (68    | )
|Proforma net income                     |  | 1,868                |  | 301    |  
|                                        |  |                     
|Proforma earnings per share             |  |                      |  |        |  
|Basic                                   |  | 0.38                 |  | 0.07   |  
|Diluted                                 |  | 0.36                 |  | 0.06   |  



This proforma
consolidated financial information is unaudited. In the opinion of management, all adjustments and normally recurring accruals necessary to present fairly the financial condition of the Company as of June 30, 2003, and 2002, have been included.



(b)    Nature of operations



The Company owns and operates The Sands Regency Casino/Hotel in Reno,
Nevada; and on June 1, 2002, the Company acquired the Gold Ranch Casino and RV 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. The results for slot route operations are consolidated into The Sands Regency.



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.



26



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##### Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



(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. These amounts are then deducted as promotional allowances to arrive at net revenues. The estimated costs and expenses of providing these promotional allowances were charged to the gaming
department as follows:



|                  |  |                            |           |      |   |           |  |   |          
|----------------- |  | -------------------------- | --------- | ---- | - | --------- |  | - | ---------
|                  |  | Fiscal year ended June 30,
|                  |  | 2003                       |           | 2002 |   | 2001     
|Lodging           |  | $                          | 539,346   |      | $ | 443,542   |  | $ | 432,056  
|Food and beverage |  |                            | 1,582,096 |      |   | 1,464,469 |  |   | 1,422,028
|Other             |  |                            | 9,192     |      |   | 22,243    |  |   | 41,136   
|                  |  |                            |           |      |   |           |  |   |          
|                  |  | $                          | 2,130,634 |      | $ | 1,930,254 |  | $ | 1,895,220
|                  |  |                            |           |      |   |           |  |   |          



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, 2003, 2002, and 2001 was $0, $66,000, and $83,000, respectively.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



(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)    Self-insurance accrued liability



The Company is self-insured for various levels of general liability, workers compensation, and employee medical insurance. Insurance claims
liability includes estimated settlements for known claims, as well as accrued estimates of incurred but not reported claims. In estimating these costs, the Company makes judgments based on historical claims experience, accident frequency, severity,
and the experience of industry agents, administrators, and others, as appropriate. The actual self-insurance liability has not differed materially from accrued estimated amounts for the years presented.



(k)    Litigation accrued liability



The Company assesses its exposure to loss contingencies including legal
matters and provides for an exposure if it is judged to be probable and estimatable. If the actual loss from a contingency differs form managements estimate, operating result could be impacted. The actual litigation liability has not differed
materially from accrued estimated amounts for the years presented with one exception.



In the year ended June 30, 2003, the Company realized $547,000 in legal fees and settlement costs associated with a personal injury claim, which arose out of an April 2000 incident. The Company maintains general
liability insurance to protect itself from personal injury claims in excess of a contracted deductible. For the year ended June 30, 2002, the Company did not accrue a liability for this claim as in the Companys estimation any material
payout was remote. Further, this claim was insured subject to a $35,000 deductible. Subsequently, the Company was informed that the insurance carrier during the period, Legion Indemnity, had become insolvent and was not expected to make any payment
to the claimant or the Company. In July 2003, the Company settled with the claimant and is seeking recovery of its loss from the Companys insurance broker at the time. Any recovery will be realized and recorded when received. Other potential
liabilities emulating from the same 2 year period the Company was insured by Legion Indemnity have been identified and the Company feels have been sufficiently accrued for. The statute of limitations has expired for additional claims arising out of
this period.



(l)    Customer reward program accrued
liability



The Company has in place a rewards system based
on customer gaming play. Rewards are redeemable for complimentary hotel rooms, food, beverage, merchandise, and, in many cases, cash. A significant amount of rewards earned by customers expire without redemption. The Company estimates the percentage
of rewards earned which will be redeemed based on experience and special circumstances. The actual self-insurance liability has not differed materially from accrued estimated amounts.



(m)    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 are reviewed annually for impairment and if necessary, an impairment
loss will be recorded.



(n)    Impairment of long-lived
assets



Asset listings are maintained by the Company and
are grouped by revenue center or by department. Revenues and certain direct costs can be linked to individual assets, but the lowest level for which identifiable cash flows can be determined that are largely independent of the cash flows of other
assets and liabilities is at the property level. Therefore, whenever events or circumstances indicate that a propertys carrying amount may not be recoverable, its carrying value is compared to the anticipated current and projected cash flows
of the asset, or group of assets, to determine if impairment has occurred. 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, 2003.



(o)    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.



28



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##### Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



(q)    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. The Company has a March 31 tax year-end.



(r)    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, 2003.



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



(t)    Reclassifications



Reclassifications have been made to the 2002 and 2001 consolidated financial
statements to conform to the 2003 presentation.



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



In November 2002, the FASB issued FASB Interpretation (FIN) 45, Guarantors Accounting and Disclosure Requirements for
Guarantees, including indirect Guarantees of Indebtedness of Others. FIN 45 expands the information disclosures required by guarantors obligations under certain types of guarantees. It also requires initial recognition at fair value of a liability
for such guarantees. We adopted the disclosure requirements of FIN 45 for the year ending December 31, 2002. We will apply the liability recognition requirements to all guarantees issued or modified after December 31, 2002. The adoption of these
requirements did not have a material impact on our results of operations or financial position.



In December 2002, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No.
148, Accounting for Stock-Based Compensation - Transition and Disclosure, an amendment of FASB Statement No. 123 to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for
stock-based employee compensation. In addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee
compensation and the effect of the method used on reported results. The Company adopted the annual and interim disclosure requirements of SFAS No. 148 and it did not have a material impact on the consolidated financial statements.



|                                                                                                                               |  |                |           |   |      |   |          |      |  |   |           |  
|------------------------------------------------------------------------------------------------------------------------------ |  | -------------- | --------- | - | ---- | - | -------- | ---- |  | - | --------- | -
|                                                                                                                               |  | as of June 30, |          
|                                                                                                                               |  | 2003           |           |   | 2002 |   |          | 2001 | 
|Net income (loss) as reported                                                                                                  |  | $              | 1,868,393 |   |      | $ | (188,628 | )    |  | $ | 1,232,309 |  
|Total stock-based employee compensation expense under the fair-value based method for awards net of related income tax effects |  |                | (68,053   | ) |      |   | (43,269  | )    |  |   | (54,021   | )
|                                                                                                                               |  |                |           |   |      |   |          |      |  |   |           |  
|Proforma net income (loss)                                                                                                     |  | $              | 1,800,340 |   |      | $ | (231,897 | )    |  | $ | 1,178,288 |  
|                                                                                                                               |  |                |           |   |      |   |          |      |  |   |           |  



In April 2003, the
FASB issued SFAS 149, Amendments of Statement 133 on Derivative Instruments and Hedging Activities. This Statement amends SFAS 133, Accounting for Derivative and Instruments and Hedging Activities, and clarifies financial
accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts and or hedging activities under SFAS 133. This statement is effective for contracts entered into or modified after June 30,
2003, except as stated below and for hedging relationships designated after June 30, 2003. The provisions of this statement that relate to Statement 133 Implementation Issues that have been effective for fiscal quarters that began prior to June 15,
2003, should continue to be applied in accordance with their respective effective dates. The adoption of this statement did not have a material impact on our results of operations or financial position.



In May 2003, the FASB issued SFAS 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity. This Statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. Financial
instruments that are within the scope of the statement, which previously were often classified as equity, must now be classified as liabilities. This statement is effective for financial instruments entered into or modified after May 31, 2003, and
otherwise shall be effective at the beginning of the first interim period beginning after June 15, 2003. The adoption of this statement is not expected to have a material effect on our results of operations or financial position.



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##### Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



NOTE 2GOLD RANCH ACQUISITION AND CONTINGENT PURCHASE OPTION



On June 1, 2002, Last Chance 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 PGEs
member interest in California Prospectors was also acquired by Last Chance pursuant to a Members Interest Purchase and Sales Agreement with PGE, dated as of December 27, 2001.



The purchase price for the Acquired Assets and PGEs member interest in California Prospectors consisted of $2.6
million in cash, 377,083 shares of common stock of the Company, $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 RV 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.



Allocation of purchase price



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 
|Property, plant, and equipment, net |  |   | 2,573,030 
|Intangible assets                   |  |   | 1,356,400 
|Goodwill                            |  |   | 10,950,453
|Other                               |  |   | 253,193   
|                                    |  |   |           
|Total assets acquired               |  | $ | 16,621,715
|                                    |  |   |           
|Current liabilities                 |  | $ | 577,361   
|Long-term debt                      |  |   | 11,860,144
|                                    |  |   |           
|Total liabilities assumed           |  |   | 12,437,505
|                                    |  |   |           
|Net assets acquired                 |  | $ | 4,184,210 
|                                    |  |   |           



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 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, (iii) an Option to Purchase All Assets of Gold Ranch RV Resort business and Right of First Refusal (the RV Asset Option) with Gold Ranch RV Resort, LLC (Gold Ranch LLC) whereby Gold Ranch LLC granted an option to Last
Chance to purchase the assets of the Gold Ranch RV Resort, (iv) a Gold Ranch RV 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 RV Resort, and (v) an Option to Purchase the RV Park Property and Right of First Refusal (the RV Property Option) with PGE whereby PGE granted Last Chance an option to purchase the real property on which the
Gold Ranch RV park is located. The Casino Lease, the Casino Option, the Members Interest Agreement, the RV Asset Option, the Management Agreement, and the RV Property Option are referred to collectively as the Other Agreements.



There are no contingent payments associated with this
acquisition.



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##### Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



NOTE 3INTANGIBLE ASSETS



The following intangible assets were identified and allocated a portion of the purchase consideration in conjunction with
the June 1, 2002 acquisition of Gold Ranch Casino and RV Resort:



|                              |  |                |            |      |   |           
|----------------------------- |  | -------------- | ---------- | ---- | - | ----------
|                              |  | as of June 30,
|Class                         |  | 2003           |            | 2002
|Goodwill                      |  | $              | 11,018,257 |      | $ | 10,950,453
|Grandfathered gaming location |  |                | 861,400    |      |   | 861,400   
|Trademark                     |  |                | 485,000    |      |   | 485,000   
|Other                         |  |                | 10,000     |      |   | 10,000    
|                              |  |                |            |      |   |           
|                              |  | $              | 12,374,657 |      | $ | 12,306,853
|                              |  |                |            |      |   |           



A purchase price
adjustment was made in the quarter ended September 30, 2002, as per the terms of the purchase agreement, and resulted in an adjustment to goodwill. Accordingly, the carrying value as of June 30, 2003, is the original cost plus the $67,000 goodwill
adjustment. The Company has determined that each of intangible components have indefinite lives. In accordance the provisions of SFAS 142, intangible assets with indefinite lives are not subject to periodic amortization expense. They are, however,
subject to ongoing impairment evaluation, and would be written down during the period in which the impairment becomes evident.



NOTE 4NOTE RECEIVABLE, SALE OF SUBSIDIARIES



In December 1998, the Company closed an agreement selling all of its ownership interest in Patrician, GCI, and Artemis, which included a 100% ownership
interest in the Copa Casino, for $8.5 million. The consideration for the sale consisted of $500,000 in cash and an $8.0 million note in favor of the Company. The note is non-interest bearing and originally required the Copa to pay monthly to the
Company the greater of 2% of its gross gaming revenues, or $15,000, until the $8.0 million is satisfied. Effective July 2004, the amount the Copa must pay the Company increases to 4% of gross gaming revenues. Due to competitive, regulatory,
environmental, financial, and other potential risks facing the current ownership of the Copa, the Company recognized only $2.2 million of the $8.0 million face value of the note to reflect an estimated allowance for uncollectability at the time the
sales transaction was finalized and recorded. In January 2003, the original $2.2 million recorded by the Company was paid in full, and as of June 30, 2003, the Company has realized a gain on an additional $413,000 in payments received on the $5.8
million originally reserved note balance. The Copa ownership has upgraded the property extensively and the Company feels it has perfected a lien on the newly revitalized property. Based on the new terms and recent payments, it will take between 3-4
years to collect fully on the note, however, as of the date of this report, the Company continues to believe that the risks facing the current ownership of the Copa has not materially changed, and continues to record gains only as payments are
received.



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##### Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



NOTE 5LONG-TERM DEBT



|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |  |          |            |      |   |           
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------- | ---------- | ---- | - | ----------
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |  | June 30,
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |  | 2003     |            | 2002
|Amounts 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.                      |  | $        | 8,600,000  |      | $ | 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, 2003, the variable interest rate was 6.75% 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 PGE to a current officer of the Company and former shareholder of PGE. |  |          | 4,816,059  |      |   | 5,618,734 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |  |         
|OtherInsurance related contract and small equipment financing agreement                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  |          | 10,255     |      |   | 56,892    
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |  |          |            |      |   |           
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |  |          | 13,426,314 |      |   | 19,875,626
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |  |          |            |      |   |           
|Less current maturities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |  |          | 806,274    |      |   | 849,301   
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |  |          |            |      |   |           
|Long-term portion                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |  | $        | 12,620,040 |      | $ | 19,026,325
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |  |          |            |      |   |           



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 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, 2003.



Long-term debt at June 30, 2003 is payable as follows:



|                     |  |        |           
|-------------------- |  | ------ | ----------
|Year ending June 30, |  | Amount
|2003                 |  | $      | 806,274   
|2004                 |  |        | 806,274   
|2005                 |  |        | 806,572   
|2006                 |  |        | 805,438   
|2007                 |  |        | 1,752,676 
|thereafter           |  |        | 8,449,080 
|                     |  |        |           
|Total                |  | $      | 13,426,314
|                     |  |        |           



NOTE 6STOCKHOLDERS EQUITY



As of June 30, 2003 and 2002, the Company has authorized
5,000,000, $.10 par value preferred shares of which none were issued and outstanding.



NOTE 7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 granting of
non-qualified stock options to independent (non-employee) directors. With respect to grants of stock



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



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 granting 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.



The following table summarizes activity of the Companys stock option plans:



|                           |  |                   |   |  |                                 |     
|-------------------------- |  | ----------------- | - |  | ------------------------------- | ----
|                           |  | Number of Options |   |  | Weighted Average Exercise Price
|Options Outstanding        |  |                   |   |  |                                 |     
|                           |  |                  
|Outstanding, June 30, 2000 |  | 601,000           |   |  | $                               | 1.59
|Options granted            |  | 72,500            |   |  |                                 | 1.79
|Options exercised          |  | (28,000           | ) |  |                                 | 1.77
|Options cancelled          |  | (31,000           | ) |  |                                 | 1.66
|                           |  |                   |   |  |                                 |     
|Outstanding, June 30, 2001 |  | 614,500           |   |  |                                 | 1.60
|Options granted            |  | 82,500            |   |  |                                 | 2.86
|Options exercised          |  | (20,000           | ) |  |                                 | 1.81
|Options cancelled          |  | (1,000            | ) |  |                                 | 1.81
|                           |  |                   |   |  |                                 |     
|Outstanding, June 30, 2002 |  | 676,000           |   |  |                                 | 1.75
|Options granted            |  | 90,000            |   |  |                                 | 3.11
|Options exercised          |  | (31,250           | ) |  |                                 | 1.73
|Options cancelled          |  | (3,750            | ) |  |                                 | 1.73
|                           |  |                   |   |  |                                 |     
|Outstanding, June 30, 2003 |  | 731,000           |   |  | $                               | 1.92
|                           |  |                   |   |  |                                 |     
|                           |  |                  
|Options Exercisable        |  |                   |   |  |                                 |     
|At June 30, 2001           |  | 463,500           |   |  | $                               | 1.57
|At June 30, 2002           |  | 541,500           |   |  |                                 | 1.61
|At June 30, 2003           |  | 590,250           |   |  |                                 | 1.65



At June 30, 2003,
options to purchase 143,614 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, 2003:



|                         |  |                     |  |                                                     |  |                                 |      |                    |         |                                 |   |     
|------------------------ |  | ------------------- |  | --------------------------------------------------- |  | ------------------------------- | ---- | ------------------ | ------- | ------------------------------- | - | ----
|                         |  | Options Outstanding |  | Options Exercisable                                
|Range of Exercise prices |  | Number Outstanding  |  | Weighted Average Remaining Contractual Life (years) |  | Weighted Average Exercise Price |      | Number Exercisable |         | Weighted Average Exercise Price
|$  .88 to $1.69          |  | 219,000             |  | 5.9                                                 |  | $                               | 1.08 |                    | 219,000 |                                 | $ | 1.11
|$1.81 to $3.00           |  | 512,000             |  | 6.3                                                 |  |                                 | 1.96 |                    | 371,250 |                                 |   | 1.91
|                         |  |                     |  |                                                     |  |                                 |      |                    |         |                                 |   |     
|$  .88 to $3.00          |  | 731,000             |  | 6.2                                                 |  | $                               | 1.92 |                    | 590,250 |                                 | $ | 1.65
|                         |  |                     |  |                                                     |  |                                 |      |                    |         |                                 |   |     



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##### Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



The Company accounts for its stock option plan under the recognition and measurement principles of
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees and related interpretations in accounting for its plan. No stock-based compensation costs are reflected in net income, as all options granted under
those plans had an exercise price equal to the market value of the underlying common stock on the date of the grant. If the Company had elected to recognize compensation cost on the fair market value at the grant dates for awards under the stock
option plans, consistent with the method prescribed by Statement of Financial Accounting Standards (SFAS No. 123), Accounting for Stock-Based Compensation, as amended by SFAS No. 148Accounting for Stock-based
CompensationTransition and Disclosure, using the Black-Scholes option pricing model with managements assumptions disclosed, net income and income per share would have been changed to the pro forma amounts indicated below:



|                                        |  |                |          |   |      |   |          |      |  |   |          |  
|--------------------------------------- |  | -------------- | -------- | - | ---- | - | -------- | ---- |  | - | -------- | -
|                                        |  | as of June 30, |         
|                                        |  | 2003           |          |   | 2002 |   |          | 2001 | 
|Basic earnings (loss) per share:        |  |                |          |   |      |   |          |      |  |   |          |  
|As reported                             |  | $              | 0.38     |   |      |   | (0.04    | )    |  | $ | 0.27     |  
|Pro forma                               |  |                | 0.37     |   |      |   | (0.05    | )    |  |   | 0.26     |  
|                                        |  |                |         
|Diluted earnings (loss) per share:      |  |                |          |   |      |   |          |      |  |   |          |  
|As reported                             |  | $              | 0.36     |   |      |   | (0.04    | )    |  | $ | 0.26     |  
|Pro forma                               |  |                | 0.35     |   |      |   | (0.05    | )    |  |   | 0.25     |  
|                                        |  |                |         
|Weighted average assumptions:           |  |                |          |   |      |   |          |      |  |   |          |  
|Expected stock price volatility         |  |                | 100.0    | % |      |   | 100.0    | %    |  |   | 120.0    | %
|Risk-free interest rate                 |  |                | 2.8      | % |      |   | 2.9      | %    |  |   | 6.2      | %
|Expected option lives                   |  |                | 2.5years |   |      |   | 2.6years |      |  |   | 2.2years |  
|Estimated fair value of options granted |  | $              | 1.75     |   |      | $ | 1.66     |      |  | $ | 1.10     |  





NOTE 8FEDERAL INCOME TAXES



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



|         |  |      |          |   |      |   |         |      |  |   |          |  
|-------- |  | ---- | -------- | - | ---- | - | ------- | ---- |  | - | -------- | -
|         |  | 2003 |          |   | 2002 |   |         | 2001 | 
|Current  |  | $    | (257,810 | ) |      | $ | 201,558 |      |  | $ | (435,697 | )
|Deferred |  |      | (684,246 | ) |      |   | (69,370 | )    |  |   | (159,086 | )
|         |  |      |          |   |      |   |         |      |  |   |          |  
|         |  | $    | (942,056 | ) |      | $ | 132,188 |      |  | $ | (594,783 | )
|         |  |      |          |   |      |   |         |      |  |   |          |  



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



|                           |  |      |   |  |       |   |  |      |  
|-------------------------- |  | ---- | - |  | ----- | - |  | ---- | -
|                           |  | 2003 |   |  | 2002  |   |  | 2001 |  
|Federal statutory tax rate |  | 35.0 | % |  | -35.0 | % |  | 35.0 | %
|Surtax exemption           |  | -1.0 | % |  | 1.0   | % |  | -1.0 | %
|General business credits   |  | -0.5 | % |  | -7.8  | % |  | -1.3 | %
|Other                      |  | 0.0  | % |  | 0.6   | % |  | -0.1 | %
|                           |  |      |   |  |       |   |  |      |  
|                           |  | 33.5 | % |  | -41.2 | % |  | 32.6 | %
|                           |  |      |   |  |       |   |  |      |  



34



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##### Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



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



|                                          |  |      |            |   |      |   |            |  
|----------------------------------------- |  | ---- | ---------- | - | ---- | - | ---------- | -
|                                          |  | 2003 |            |   | 2002 |  
|Deferred tax assets:                      |  |      |            |   |      |   |            |  
|Alternative minimum tax credit            |  | $    |           |   |      | $ | 546,727    |  
|Accrued expenses                          |  |      | 87,994     |   |      |   | 89,912     |  
|Deferred gain                             |  |      | 269,667    |   |      |   | 410,094    |  
|Other                                     |  |      | 9,902      |   |      |   | 13,573     |  
|                                          |  |      |            |   |      |   |            |  
|                                          |  |      | 367,563    |   |      |   | 1,060,306  |  
|                                          |  |      |            |   |      |   |            |  
|Deferred tax liabilities:                 |  |      |            |   |      |   |            |  
|Intangibles                               |  |      | (303,866   | ) |      |   | (23,246    | )
|Property and equipment                    |  |      | (1,701,626 | ) |      |   | (1,980,186 | )
|Prepaid expenses                          |  |      | (315,061   | ) |      |   | (325,618   | )
|                                          |  |      |            |   |      |   |            |  
|                                          |  |      | (2,320,553 | ) |      |   | (2,329,050 | )
|                                          |  |      |            |   |      |   |            |  
|Net deferred federal income tax liability |  | $    | (1,952,990 | ) |      | $ | (1,268,744 | )
|                                          |  |      |            |   |      |   |            |  



In December 1998 the
Company sold all of its ownership interest in Patrician, GCI, and Artemis and recognized a tax gain of $1,206,159. For financial statement purposes the Company reported the transaction under the cost recovery method of accounting which defers
recognition of the gain until basis is recovered. Accordingly, the Company recorded a deferred tax asset of $410,094 for the transaction.



The unrecorded note receivable discussed in note 4 gives rise to additional, unrecognized deferred tax assets of $1,972,000 based on the uncertainty of
receiving future payments. As the Company receives future payments under the terms of sale, the Company will first utilize its recognized deferred tax assets, and then the Company will utilize its unrecognized deferred tax assets which will have the
effect of reducing the Companys effective income tax rate.



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 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 7) 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, 2003 and 2001 included the dilutive effect of Company stock options to purchase common stock. 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. For the year ended June 30, 2001, options to purchase 22,500 shares of the Companys common stock were not included because the exercise price exceeded the average
market price.



The following is a reconciliation of the number
of shares (denominator) used in the basic and diluted earnings per share computations (shares in thousands):



|                                    |  |           |  |                  |       |   |        |           |                  |   |       |        |  |                  |  |   |       |  
|----------------------------------- |  | --------- |  | ---------------- | ----- | - | ------ | --------- | ---------------- | - | ----- | ------ |  | ---------------- |  | - | ----- | -
|For the year ended June 30,         |  | 2003      |  |                  | 2002  |   |        | 2001      |                 
|                                    |  | Shares    |  | Per Share Amount |       |   | Shares |           | Per Share Amount |   |       | Shares |  | Per Share Amount | 
|Net income (loss) per share         |  | 4,930,713 |  | $                | 0.38  |   |        | 4,558,907 |                  | $ | (0.04 | )      |  | 4,500,614        |  | $ | 0.27  |  
|Effect of dilutive stock options    |  | 265,765   |  |                  | (0.02 | ) |        |          |                  |   |      |        |  | 251,160          |  |   | (0.01 | )
|                                    |  |           |  |                  |       |   |        |           |                  |   |       |        |  |                  |  |   |       |  
|Diluted net income (loss) per share |  | 5,196,478 |  | $                | 0.36  |   |        | 4,558,907 |                  | $ | (0.04 | )      |  | 4,751,774        |  | $ | 0.26  |  
|                                    |  |           |  |                  |       |   |        |           |                  |   |       |        |  |                  |  |   |       |  



35



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##### Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



NOTE 10COMMITMENTS AND CONTINGENCIES



|                        |  |                        |            |                  |   |             |  |             |           |               |   |           |  |   |           
|----------------------- |  | ---------------------- | ---------- | ---------------- | - | ----------- |  | ----------- | --------- | ------------- | - | --------- |  | - | ----------
|                        |  | Payments due by period
|Contractual Obligations |  | Total                  |            | Less than 1 year |   | 1 - 3 years |  | 4 - 5 years |           | After 5 years
|Long term debt          |  | $                      | 13,426,314 |                  | $ | 806,274     |  | $           | 1,612,845 |               | $ | 2,558,115 |  | $ | 8,449,080 
|Operating leases (1)    |  |                        | 5,127,084  |                  |   | 575,000     |  |             | 1,150,000 |               |   | 1,150,000 |  |   | 2,252,084 
|Other (2)               |  |                        | 1,811,109  |                  |   | 203,115     |  |             | 406,230   |               |   | 406,230   |  |   | 795,534   
|                        |  |                        |            |                  |   |             |  |             |           |               |   |           |  |   |           
|Total                   |  | $                      | 20,364,507 |                  | $ | 1,584,389   |  | $           | 3,169,075 |               | $ | 4,114,345 |  | $ | 11,496,698
|                        |  |                        |            |                  |   |             |  |             |           |               |   |           |  |   |           

---

|(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 20% increase that became effective on 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.



In the year ended June 30, 2003, the Company incurred legal and settlement costs aggregating $547,000 in connection with the settlement of a personal
injury claim. The Company from time-to-time incurs legal costs and settlements charges in its normal course of business, however the Company maintains general liability insurance to protect itself from costs exceeding the contracted deductible. This
claim was insured, however, the insurance carrier, Legion Indemnity, is insolvent and not expected to make any payment to the Company. The Company is seeking recovery of its loss from the Companys insurance broker. Any recovery will be
realized and recorded when received. Other potential liabilities emulating from the same 2 year period the Company was insured by Legion Indemnity have been identified and the Company feels have been sufficiently reserved for. The statute of
limitations has expired for additional claims arising out of this period.



36



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##### Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



NOTE 11BUSINESS SEGMENTS



The Company reports business segment information based on geographic location. The following is a breakdown of various data
by location as of the respective years ended. Gold Ranch information includes only one month of operation for the fiscal year ended June 30, 2002.



|                                                              |  |          |            |   |      |   |            |  
|------------------------------------------------------------- |  | -------- | ---------- | - | ---- | - | ---------- | -
|                                                              |  | June 30, |           
|                                                              |  | 2003     |            |   | 2002 |  
|Gross revenues less promotional allowances                    |  |          |            |   |      |   |            |  
|Sands Regency Casino/Hotel                                    |  | $        | 33,471,628 |   |      | $ | 32,386,273 |  
|Gold Ranch Casino and RV Resort                               |  |          | 22,189,093 |   |      |   | 1,681,145  |  
|                                                              |  |          |            |   |      |   |            |  
|Total consolidated gross revenues less promotional allowances |  | $        | 55,660,721 |   |      | $ | 34,067,418 |  
|                                                              |  |          |            |   |      |   |            |  
|Operating profit (loss)                                       |  |          |            |   |      |   |            |  
|Sands Regency Casino/Hotel                                    |  | $        | 2,842,999  |   |      | $ | 1,293,063  |  
|Gold Ranch Casino and RV Resort                               |  |          | 1,773,607  |   |      |   | 202,165    |  
|Corporate Costs                                               |  |          | (324,188   | ) |      |   | (226,975   | )
|                                                              |  |          |            |   |      |   |            |  
|Total consolidated operating profit (loss)                    |  | $        | 4,292,418  |   |      | $ | 1,268,253  |  
|                                                              |  |          |            |   |      |   |            |  
|Interest income                                               |  |          |            |   |      |   |            |  
|Sands Regency Casino/Hotel                                    |  | $        | 1,811      |   |      | $ | 156,814    |  
|Gold Ranch Casino and RV Resort                               |  |          |           |   |      |   |           |  
|                                                              |  |          |            |   |      |   |            |  
|Total consolidated interest income                            |  | $        | 1,811      |   |      | $ | 156,814    |  
|                                                              |  |          |            |   |      |   |            |  
|Interest expense                                              |  |          |            |   |      |   |            |  
|Sands Regency Casino/Hotel                                    |  | $        | 421,917    |   |      | $ | 1,513,306  |  
|Gold Ranch Casino and RV Resort                               |  |          | 794,054    |   |      |   | 72,106     |  
|                                                              |  |          |            |   |      |   |            |  
|Total consolidated interest expense                           |  | $        | 1,215,971  |   |      | $ | 1,585,412  |  
|                                                              |  |          |            |   |      |   |            |  
|Depreciation and amortization                                 |  |          |            |   |      |   |            |  
|Sands Regency Casino/Hotel                                    |  | $        | 3,136,377  |   |      | $ | 3,080,679  |  
|Gold Ranch Casino and RV Resort                               |  |          | 393,425    |   |      |   | 29,859     |  
|                                                              |  |          |            |   |      |   |            |  
|Total consolidated depreciation and amortization              |  | $        | 3,529,802  |   |      | $ | 3,110,538  |  
|                                                              |  |          |            |   |      |   |            |  
|Assets                                                        |  |          |            |   |      |   |            |  
|Sands Regency Casino/Hotel                                    |  | $        | 39,521,613 |   |      | $ | 42,424,465 |  
|Gold Ranch Casino and RV Resort                               |  |          | 15,924,816 |   |      |   | 16,719,628 |  
|                                                              |  |          |            |   |      |   |            |  
|Total consolidated assets                                     |  | $        | 55,446,429 |   |      | $ | 59,144,093 |  
|                                                              |  |          |            |   |      |   |            |  
|Additions to long-lived assets                                |  |          |            |   |      |   |            |  
|Sands Regency Casino/Hotel                                    |  | $        | 1,559,345  |   |      | $ | 4,063,919  |  
|Gold Ranch Casino and RV Resort                               |  |          | 274,616    |   |      |   | 93,154     |  
|                                                              |  |          |            |   |      |   |            |  
|Total consolidated additions to long-lived assets             |  | $        | 1,833,961  |   |      | $ | 4,157,073  |  
|                                                              |  |          |            |   |      |   |            |  



37



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##### Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



NOTE 12CONDENSED QUARTERLY RESULTS (UNAUDITED)



|                                                    |  |               |        |                |      |        |               |       |   |                |   |       |   |        |   |       |  
|--------------------------------------------------- |  | ------------- | ------ | -------------- | ---- | ------ | ------------- | ----- | - | -------------- | - | ----- | - | ------ | - | ----- | -
|(Dollars in thousands except per share information) |  | First Quarter |        | Second Quarter |      |        | Third Quarter |       |   | Fourth Quarter |  
|2003                                                |  |               |        |                |      |        |               |       |   |                |   |       |   |        |  
|Operating revenues                                  |  | $             | 15,809 |                | $    | 12,660 |               |       | $ | 12,988         |   |       | $ | 14,204 |  
|Income (loss) from operations                       |  |               | 2,433  |                |      | 55     |               |       |   | 194            |   |       |   | 1,610  |  
|Net income (loss)                                   |  |               | 1,334  |                |      | (234   | )             |       |   | 77             |   |       |   | 691    |  
|Net income (loss) per share:                        |  | Basic         |        | $              | 0.27 |        | $             | (0.05 | ) |                | $ | 0.02  |   |        | $ | 0.14  |  
|                                                    |  | Diluted       |        | $              | 0.26 |        | $             | (0.05 | ) |                | $ | 0.01  |   |        | $ | 0.14  |  
|                                                    |  |               |        |               
|2002                                                |  |               |        |                |      |        |               |       |   |                |   |       |   |        |  
|Operating revenues                                  |  | $             | 8,982  |                | $    | 7,535  |               |       | $ | 7,551          |   |       | $ | 9,999  |  
|Income (loss) from operations                       |  |               | 915    |                |      | (228   | )             |       |   | (154           | ) |       |   | 735    |  
|Net income (loss)                                   |  |               | 468    |                |      | (252   | )             |       |   | (379           | ) |       |   | (26    | )
|Net income (loss) per share:                        |  | Basic         |        | $              | 0.10 |        | $             | (0.06 | ) |                | $ | (0.08 | ) |        | $ | (0.01 | )
|                                                    |  | Diluted       |        | $              | 0.10 |        | $             | (0.06 | ) |                | $ | (0.08 | ) |        | $ | (0.01 | )



NOTE 13SUBSEQUENT EVENTS



Work has begun on a project to construct a below grade
rail transport corridor where the railroad tracks currently dissect downtown Reno, as well as the Sands parking facilities. Known as ReTRAC (Reno Transportation Railroad Access Corridor), the project has now temporarily taken nearly 300 of the
Companys parking spaces, which will be unavailable during much of the 3-4 year estimated construction period. A small number of parking spaces and Sands pedestrian overpass structure will be permanently lost. The law requires that the
Sands be given alternate parking or compensation for spaces and structures permanently or temporarily lost due to the project. In July 2003, the Sands received $429 thousand from the City of Reno as compensation for parking temporarily lost during
construction, which is being amortized into income for the anticipated length of the project (the 42 month period beginning May 2003 through October 2007). An additional $154 thousand was received for land that will be permanently lost. The Company
has not given up any of its rights for recourse, and negotiations are continuing for a replacement pedestrian bridge and parking. The Company is carefully monitoring and analyzing the situation and reviewing its alternatives.



38



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##### Table of Contents

|ITEM 9. |  | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
|------- |  | ------------------------------------------------------------------------------------



None.



ITEM 9A.    CONTROLS AND PROCEDURES



We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Securities Exchange Act of 1934 reports is recorded, processed, summarized and reported
within the time periods specified in the SECs rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate, to allow timely
decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, our management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance
of achieving the desired control objectives, and our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.



As required by SEC rule 13a15(b), we carried out an evaluation, under
the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period
covered by this report. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level.



There has been no change in our internal controls over financial reporting
during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.



PART III



ITEM 10.    DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT



There is hereby incorporated by reference the information appearing under the caption Directors and Executive Officers in the Companys
definitive Proxy Statement for the Annual Meeting of Shareholders to be held on November 3, 2003, to be filed with the Securities and Exchange Commission



ITEM 11.    EXECUTIVE COMPENSATION



There is hereby incorporated by reference the information appearing under the caption Compensation of Executive Officers and Section 16 (a) Beneficial Ownership Reporting Compliance in the Companys
definitive Proxy Statement for the Annual Meeting of Shareholders to be held on November 3, 2003, to be filed with the Securities and Exchange Commission.



ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT



There is hereby incorporated by reference the information appearing under the caption Security Ownership of Certain Beneficial Owners and
Management in the Companys definitive Proxy Statement for the Annual Meeting of Shareholders to be held on November 3, 2003, to be filed with the Securities and Exchange Commission



ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS



There is hereby incorporated by reference the information appearing under the caption Director Relationships in the Companys definitive
Proxy Statement for the Annual Meeting of Shareholders to be held on November 3, 2003, to be filed with the Securities and Exchange Commission



39



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##### Table of Contents

PART IV



ITEM 14.    EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K



|(a)(1) |  | Financial Statement Schedules
|------ |  | -----------------------------



SCHEDULE IIVALUATION AND QUALIFYING ACCOUNTS (in thousands)



Allowance for Doubtful Accounts Receivable



|                         |  |                              |    |                               |   |            |  |   |                        |   |  |   |   
|------------------------ |  | ---------------------------- | -- | ----------------------------- | - | ---------- |  | - | ---------------------- | - |  | - | --
|                         |  | Balance at beginning of year |    | Charged to costs and expenses |   | Deductions |  |   | Balance at end of year
|Year ended June 30, 2003 |  | $                            | 29 |                               | $ | 98         |  | $ | (66                    | ) |  | $ | 61
|Year ended June 30, 2002 |  |                              | 54 |                               |   | 82         |  |   | (107                   | ) |  |   | 29
|Year ended June 30, 2001 |  |                              | 21 |                               |   | 78         |  |   | (45                    | ) |  |   | 54





(a)(3)    Exhibits



|  |          |  |                                                                                                                                                                                                                                                                    
|- | -------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2 | (a)      |  | Asset Purchase Agreement dated as of December 27, 2001, by and between Prospector Gaming Enterprises, Inc., a Nevada corporation, and Last Chance, Inc., a Nevada corporation. (Exhibit 2.1 to
the Companys Current Report on Form 8-K, filed January 10, 2002). *
|  |         
|3 | (a)(i)   |  | Restated Articles of Incorporation of the Company (Exhibit 3(a) to the Companys Registration Statement (Registration No. 2-93453) on Form S-1).*                                                                                                                  
|  |         
|3 | (a)(ii)  |  | Certificate of Amendment to the Restated Articles of Incorporation of the Company, dated November 2, 1987 (Exhibit 4(a) to the Companys Form 10-Q for the quarter ended December 31,
1987).*                                                                      
|  |         
|3 | (a)(iii) |  | Certificate of Correction Pursuant to NRS 78.0295 of the Company, dated August 18, 2000 (Exhibit 3(a) to the Companys Form 10-Q for the quarter ended September 30,
2000).*                                                                                       
|  |         
|3 | (b)(i)   |  | Amended and Restated Bylaws of the Company, as amended, dated April 29, 1985, (Exhibit 3(b) to the Companys Form 10-K for the fiscal year ended June 30, 1985).*                                                                                                  
|  |         
|3 | (b)(ii)  |  | Resolution of Amendment to the Bylaws of the Company, dated November 2, 1987 (Exhibit 4(b) to the Companys Form 10-Q for the quarter ended December 31, 1987).*                                                                                                   
|  |         
|3 | (b)(iii) |  | Certificate of Amendment of the Amended and Restated Code of Bylaws, as amended, of The Sands Regent, a Nevada corporation, dated January 10, 1996 (Exhibit 3(b)(iii) to the Companys
Form 10-K for the fiscal year ended June 30, 1996).*                        
|  |         
|3 | (b)(iv)  |  | Amendment to Section 4.15 of Article IV of the Amended and Restated Code of Bylaws, as amended, of The Sands Regent, a Nevada corporation, dated February 11, 2002. (Exhibit 3(a) to the
Companys Form 10-Q for the quarter ended March 31, 2002). *              
|  |         
|3 | (b)(v)   |  | Amendment to Section 5.01 of Article V of the Amended and Restated Code of Bylaws, as amended, of The Sands Regent, a Nevada corporation, Regarding Officer Requirements, effective as of
August 20, 2002. *                                                       
|  |         
|3 | (b)(vi)  |  | Amendment to Section 5.09 of Article V of the Amended and Restated Code of Bylaws, as amended, of The Sands Regent, a Nevada corporation, regarding Duties of Treasurer, effective as of August
20, 2002.*                                                         
|  |         
|4 | (a)      |  | Amended Trust Agreement, dated February 22, 1987, among Antonia Cladianos II as trustor and beneficiary and Pete Cladianos, Jr. as trustee (Exhibit 4(a) to the Companys Form 10-K for
the fiscal year ended June 30, 1987).*                                     



40



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##### Table of Contents

|   |     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|-- | --- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |    
|4  | (b) |  | Amended Trust Agreement, dated February 19, 1987, among Pete Cladianos III as trustor and beneficiary and Pete Cladianos, Jr. as trustee (Exhibit 4(b) to the Companys Form 10-K for the
fiscal year ended June 30, 1987).*                                                                                                                                                                                                                                                                                                                                                                                     
|   |    
|10 | (a) |  | Second Amended and Restated Stock Option Plan for Executive and Key Employees of The Sands Regent, dated November 6, 2000 (Exhibit 10(a) to the Companys Form 10-Q for the quarter ended
December 31, 2000).*                                                                                                                                                                                                                                                                                                                                                                                                   
|   |    
|10 | (b) |  | Non-Qualified Stock Option Agreement, dated May 11, 1998, by and between Louis J. Phillips and The Sands Regent. (Exhibit 10(d) to the Companys Form 10-K for the fiscal year ended June
30, 1998).*                                                                                                                                                                                                                                                                                                                                                                                                            
|   |    
|10 | (c) |  | Form of Indemnity Agreement for Directors and Officers of the Company (Exhibit 10(f) to the Companys Form 10-K for the fiscal year ended June 30, 1988). *                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   |    
|10 | (d) |  | Reducing Revolving Line of Credit Loan Agreement, dated May 31, 2002, by and between Nevada State Bank and The Sands Regent, Zante, Inc. and Last Chance, Inc.; and the related Reducing
Revolving Line of Credit Promissory Note secured by Deed of Trust; Deed of Trust and Security Agreement and Fixture Filing with Assignment of Rents (Zante, Inc.); Deed of Trust and Security Agreement and Fixture Filing with Assignment of Rents
(California Prospectors, Ltd.,); Deed of Trust and Security Agreement and Fixture Filing with Assignment of Rents (Last Chance, Inc.); and Stock Pledge Agreement. *
|   |    
|10 | (e) |  | Secured Promissory Note, dated June 1, 2002, by and between Last Chance, Inc. and Prospector Gaming Enterprises, Inc. *                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   |    
|10 | (f) |  | Loan and Security Agreement, dated December 3, 1999, by and between Foothill Capital Corporation and Zante, Inc.; and the related Deed of Trust, Security Agreement and Fixture Filing with
Assignment of Rents; General Continuing Guarantee; Guarantor Security Agreement; and Stock Pledge Agreement (Exhibit 10(a) to the Companys Form 10-Q for the quarter ended December 31, 1999). *                                                                                                                                                                                                                    
|   |    
|10 | (g) |  | Agreement, dated November 6, 1998, by and between Terry W. Green, Joel R. Carter, Sr., Gulfside Casino Partnership and The Sands Regent (Exhibit 10(a) to the Companys Form 10-Q for the
quarter ended September 30, 1998). *                                                                                                                                                                                                                                                                                                                                                                                   
|   |    
|10 | (h) |  | First Amendment to Agreement, dated December 23, 1998, by and between Terry W. Green, Joel R. Carter, Sr., Gulfside Casino Partnership and The Sands Regent; and the related
Promissory Note and Royalty Agreement. (Exhibit 10(o) to the Companys Form 10-K for the fiscal year ended June 30, 1999). *                                                                                                                                                                                                                                                                                                        
|   |    
|10 | (i) |  | Employment Agreement, dated December 15, 1998, by and between Ferenc B. Szony (as President and Chief Executive Officer) and The Sands Regent (Exhibit 10(a) to the Companys Form 10-Q
for the quarter ended March 31, 1999).*                                                                                                                                                                                                                                                                                                                                                                                  
|   |    
|10 | (j) |  | Amendment to Employment Agreement, dated December 15, 1999, by and between Ferenc B. Szony (as President and Chief Executive Officer) and The Sands Regent (Exhibit 10(b) to the Companys
Form 10-Q for the quarter ended December 31, 1999). *                                                                                                                                                                                                                                                                                                                                                                 
|   |    
|10 | (k) |  | Executive Bonus Agreement, dated January 3, 2001, by and between Ferenc B. Szony (as President and Chief Executive Officer) and The Sands Regent (Exhibit 10(a) to the Companys Form 10-Q
for the quarter ended March 31, 2001). *                                                                                                                                                                                                                                                                                                                                                                              
|   |    
|10 | (l) |  | Gold Ranch Casino Lease, dated as of December 27, 2001, by and between Last Chance, Inc., Prospector Gaming Enterprises, Inc. and Target Investments, L.L.C., a Nevada limited liability
company (Exhibit 10.1 to the Companys Current Report on Form 8-K, filed January 10, 2002).*                                                                                                                                                                                                                                                                                                                            
|   |    
|10 | (m) |  | Amendment to Lease (Gold Ranch Casino Lease, dated December 27, 2001), dated May 31, 2002 by and between Last Chance, Inc., Prospector Gaming Enterprises, Inc. and Target Investments, L.L.C.
*                                                                                                                                                                                                                                                                                                                                                                                                                 



41



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##### Table of Contents

|   |     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                               
|-- | --- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |    
|10 | (n) |  | Option to Purchase the Gold Ranch Casino Property and Improvements, The Leach Field Property, the Frontage Parcel, the California Lottery Station and the California Lottery Property, and the
Right of First Refusal, dated as of December 27, 2001, by and among Prospector Gaming Enterprises, Inc., Target Investments, L.L.C. and Last Chance, Inc. (Exhibit 10.2 to the Companys Current Report on Form 8-K, filed January 10, 2002).
*
|   |    
|10 | (o) |  | Members Interest Purchase and Sale Agreement, dated as of December 27, 2001, by and among Peter and Turkey Stremmel, husband and wife, Steve and Henrietta Stremmel, husband and wife,
and Last Chance, Inc. (Exhibit 10.3 to the Companys Current Report on Form 8-K, filed January 10, 2002). *                                                                                                                                           
|   |    
|10 | (p) |  | Option to Purchase All Assets of Gold Ranch RV Resort Business and Right of First Refusal, dated as of December 27, 2001, by and between Gold Ranch RV Resort, LLC, a Nevada limited liability
company, and Last Chance, Inc. (Exhibit 10.4 to the Companys Current Report on Form 8-K, filed January 10, 2002). *                                                                                                                           
|   |    
|10 | (q) |  | Gold Ranch RV Resort Management Agreement, dated as of December 27, 2001 by and between Gold Ranch RV Resort, LLC, a Nevada limited liability company, and Last Chance, Inc. (Exhibit 10.5
to the Companys Current Report on Form 8-K, filed January 10, 2002). *                                                                                                                                                                            
|   |    
|10 | (r) |  | Option to Purchase the RV Park Property and Right of First Refusal, dated as of December 27, 2001, by and between Prospector Gaming Enterprises, Inc. and Last Chance, Inc. (Exhibit 10.6 to
the Companys Current Report on Form 8-K, filed January 10, 2002). *                                                                                                                                                                             
|   |    
|10 | (s) |  | Agreement, dated as of May 24, 2002, by and between Prospector Gaming Enterprises, Inc., California Prospectors, Ltd., a Nevada limited liability company, Target Investments, LLC,
Gold Ranch RV Resort, LLC, Stremmel Capital Group, Ltd., a Nevada limited liability company, Steve Stremmel and Peter Stremmel, Last Chance, Inc., and The Sands Regent. (Exhibit 10.7 to the Companys Current Report on Form 8-K, filed
June 14, 2002)* 
|   |    
|10 | (t) |  | Employment Agreement, dated as of June 1, 2002, by and between Robert J. Medeiros (as Chief Operating Officer) and The Sands Regent. *                                                                                                                                                                                                                                                                                                        
|   |    
|10 | (u) |  | Management Agreement, dated as of May 31, 2002, by and between Prospector Gaming Enterprises, Inc., and Last Chance Inc. *                                                                                                                                                                                                                                                                                                                    
|   |    
|21 |     |  | Subsidiaries. **                                                                                                                                                                                                                                                                                                                                                                                                                              
|   |    
|23 |     |  | Consent of Deloitte & Touche LLP. **                                                                                                                                                                                                                                                                                                                                                                                                          
|   |    
|31 |     |  | Rule 13a - 14(a)/15d  14(a) Certifications. **                                                                                                                                                                                                                                                                                                                                                                                               
|   |    
|32 | (+) |  | Section 1350 Certifications.**                                                                                                                                                                                                                                                                                                                                                                                                                

---

|* |  | Incorporated by reference
|- |  | -------------------------

|** |  | Filed herewith
|-- |  | --------------

|+ |  | In accordance with SEC Release No. 33-8212, the following exhibit is being furnished, and is not being filed as part of this report or as a separate disclosure document, and is not
being incorporated by reference into any Securities Act of 1933 registration statement.
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(b) |  | Reports on Form 8-K.
|--- |  | --------------------



None



|(c) |  | Index to exhibits.
|--- |  | ------------------



See list above in Item 14(a)(3)



|(d) |  | Financial statement schedules.
|--- |  | ------------------------------



Financial statement schedules required by Regulation S-X are excluded from this report by Rule 14a-3(b)(1). See Schedule II to the Financial Statements
appearing under Item 14(a)(2) hereof.



42



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##### Table of Contents

THE SANDS REGENT AND SUBSIDIARIES



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.



|                      |  |  |  |                  |  |                        |  |                                      
|--------------------- |  |  |  | ---------------- |  | ---------------------- |  | -------------------------------------
|                      |  |  |  | THE SANDS REGENT
|                      |  |  | 
|Date:  March 15, 2004 |  |  |  | By:              |  | /s/    FERENC B.
SZONY
|                      |  |  |  |                  |  |                        |  | Ferenc B. Szony                      
|                      |  |  |  |                  |  |                        |  | President and Chief Executive Officer
|                      |  |  |  |                  |  |                        |  | (Principal Executive Officer)        



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



|                                              |  |                                                  |  |               
|--------------------------------------------- |  | ------------------------------------------------ |  | --------------
|Signature                                     |  | Capacity                                         |  | Date          
|                                              |  |                                                 
|/s/    KATHERENE
LATHAMKatherene
Latham       |  | Chairman of the Board                            |  | March 15, 2004
|                                              |  |                                                 
|/s/    PETE CLADIANOS,
JR.Pete Cladianos,
Jr. |  | Vice Chairman of the Board                       |  | March 15, 2004
|                                              |  |                                                 
|/s/    FERENC B.
SZONYFerenc B.
Szony         |  | President and Chief Executive Officer            |  | March 15, 2004
|                                              |  |                                                 
|/s/    ROBERT J.
MEDEIROSRobert J.
Medeiros   |  | Chief Operating and Principal Accounting Officer |  | March 15, 2004
|                                              |  |                                                 
|/s/    PETE CLADIANOS
IIIPete Cladianos III   |  | Director & Secretary                             |  | March 15, 2004
|                                              |  |                                                 
|/s/    JON N.
BENGTSONJon N.
Bengtson         |  | Director                                         |  | March 15, 2004
|                                              |  |                                                 
|/s/    DAVID R.
GRUNDYDavid R.
Grundy         |  | Director                                         |  | March 15, 2004
|                                              |  |                                                 
|/s/    LOUIS J.
PHILLIPSLouis J.
Phillips     |  | Director                                         |  | March 15, 2004
|                                              |  |                                                 
|/s/    LARRY
TUNTLANDLarry
Tuntland           |  | Director                                         |  | March 15, 2004



43