<PAGE>   1

                                                                      Exhibit 13
THE SANDS REGENT
SELECTED FINANCIAL DATA
 ................................................................................

FOR THE YEARS ENDED JUNE 30,

<Table>
<Caption>
                                                  2001      2000     1999(1)   1998(1)   1997(1)
                                                 -------   -------   -------   -------   -------
                                                  (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                              <C>       <C>       <C>       <C>       <C>
STATEMENT OF OPERATIONS DATA:
  Operating revenues(2)........................  $35,763   $36,248   $43,474   $59,211   $57,527
  Income (loss) from operations................    2,946     2,881       (42)      233       245
  Net income (loss)............................    1,232     1,491    (1,388)   (1,219)     (762)
  Net income (loss) per share:
       Basic...................................  $   .27   $   .33   $  (.31)  $  (.27)  $  (.17)
       Diluted.................................  $   .26   $   .33   $  (.31)  $  (.27)  $  (.17)
  Cash dividends per share.....................    --        --        --        --        --

OPERATING DATA:
  Casino square footage(3).....................   29,000    29,000    27,000    51,000    51,000
  Number of slot machines(3)...................      651       665       686     1,459     1,409
  Number of hotel rooms(3)(4)..................      836       836       836       938       938
  Average hotel occupancy:
       Number of room nights...................  262,000   257,000   254,000   285,000   289,000
       Percentage(4)...........................     85.9%     83.9%     76.4%     83.3%     84.3%
  Net cash provided by (used in):
       Operating activities....................  $ 4,560   $ 6,905   $ 2,295   $ 3,005   $ 3,303
       Investing activities....................   (3,358)   (2,043)   (5,331)     (714)   (2,647)
       Financing activities....................     (238)   (1,216)     (627)     (731)   (4,370)

BALANCE SHEET DATA:
  Cash, cash equivalents and short-term
     investments(3)............................  $10,160   $ 9,940   $ 5,550   $ 9,453   $ 7,894
  Total assets(3)..............................   47,883    47,092    43,695    58,901    61,053
  Long-term debt(3)............................   10,000    10,205       491    14,643     4,658
  Total stockholders' equity(3)................   32,619    31,337    29,844    31,235    32,454
OTHER DATA:
  EBITDA(5)....................................    6,346     6,120     3,717     4,706     4,486
</Table>

---------------
(1) On December 23, 1998, the Company sold its wholly owned subsidiaries
    Patrician, Inc. ("Patrician"), Artemis, Inc. ("Artemis") and Gulfside
    Casino, Inc. ("GCI"), and their general partnership Gulfside Casino
    Partnership ("GCP"), to unrelated third parties. GCP owned and operated the
    Copa Casino in Gulfport, Mississippi. The Selected Financial Data~ presented
    herein includes such subsidiaries through the date of sale.

                                        6
<PAGE>   2

 ................................................................................

(2) Revenues are net of complimentaries.

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

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

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

                                        7
<PAGE>   3

MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
 ................................................................................

RESULTS OF OPERATIONS

     The Company sold Patrician, GCI and Artemis, including the Copa Casino, to
unrelated third parties on December 23, 1998. The Company's consolidated
statements of operations and cash flows include the operating results of such
companies through this date. Management's Discussion and Analysis of Financial
Condition and Results of Operations will be directed at continuing operations
with only general and otherwise pertinent information provided regarding
operating results for the companies sold.

COMPARISON OF 2001 TO 2000

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

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

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

     The Company's results, during the last four months of fiscal 2001, were
positively impacted by a major city-wide bowling event. Every two out of three
years, the City of Reno hosts a major mens' or womens' bowling event which
starts in February or March and ends in June or July. Fiscal 2000 and 2001 are
the two out of three years when such major bowling events have taken place in
Reno. The men's bowling event in fiscal 2001 did not have as positive an impact
on the Company's revenue as did the women's event held in the prior year. Fiscal
2002 will be the one year out of three in which such a major bowling event will
not be held in Reno.

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

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

     The $1.4 million decrease in food and beverage revenue in the year ended
June 30, 2001, compared to the year ended June 30, 2000, is due to the
elimination, in mid-October 2000, of a 24-hour restaurant

                                        8
<PAGE>   4

 ................................................................................

operated by the Company. Upon the closing of such restaurant, an "Original Mels"
diner was opened on the premises which is operated by a third party and paying a
percentage rent to the Company. Such decrease was partially offset by increased
restaurant revenue from other Company operated outlets of approximately $135,000
and increased beverage revenue of approximately $165,000. Such increases are
partially due to increased occupancy.

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

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

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

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

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

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

     The slight decrease in general and administrative expenses of $71,000 is
due to a combination of various cost and expense decreases and increases. The
$74,000 increase in interest and other income is due to additional earnings on
increased invested excess cash and cash equivalents.

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

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

     As is true for other hotel/casinos in the Reno area, demand for the
Company's facilities declines in the winter. Due to lower room rates and a lower
level of gaming play per occupied room, operating margins and, to a lesser
extent, revenues are lower during the second and third fiscal quarters. The

                                        9
<PAGE>   5
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
 ................................................................................

Sands Regency has not historically been affected as severely as many other
hotel/casinos in the Reno area because the Company attracts high levels of group
business during that period. This group business and the Company's flexible
pricing strategy have historically enabled the Company to bolster its hotel
occupancy during seasonally slower periods. Further, the Company has also
realized an increase in local gaming business which is not subject to as great a
decline in winter months as the tourism business. Management anticipates that
the trend of experiencing lower operating margins in the second and third
quarters of each fiscal year will continue.

COMPARISON OF 2000 TO 1999

     For the year ended June 30, 2000, income from operations increased to $2.9
million as compared to a loss from operations of $42,000 for the year ended June
30, 1999. For the same comparable periods, revenues decreased to $36.2 million
from $43.5 million. The increase in income from operations is primarily
attributable to improved operating results at the Sands Regency. The decrease in
revenues is due to the elimination of revenues from the Copa Casino of $11.5
million. Such decrease was partially offset by a $4.3 million increase in
revenues from the Sands Regency, an increase of 13%.

     The Company had net income for the year ended June 30, 2000 of $1.5
million, or income per share (basic and diluted) of $.33, as compared to a net
loss of $1.4 million, or loss per share of $.31, in the year ended June 30,
1999. This $2.9 million improvement in net income includes the elimination of
the prior year net loss from the Copa Casino of $294,000 and improved net income
from the Sands Regency from a net loss of $1.1 million in fiscal 1999 to net
income of $1.5 million in fiscal 2000.

     The improvements in revenue, income from operations and net income at the
Sands Regency are a result of improved gaming revenues and the continued
positive effect of improved methods of operations and increased efficiencies
implemented in fiscal 1999. During the last four months of fiscal 2000, the
Company was positively impacted by a major city-wide bowling event. Every two
out of three years, the City of Reno hosts a major men's or women's bowling
event which starts in February or March and ends in June or July. Fiscal 2000
and 2001 are the two out of three years when such major bowling event has or
will take place in Reno. 1999 was the one year out of three in which such a
major bowling event was not held in Reno.

     The increase in lodging revenue to $8.7 million in the year ended June 30,
2000, from $8.6 million in the year ended June 30, 1999, is due to an increase
in occupancy. Hotel occupancy improved from approximately 254,000 room nights
(76.4%) in fiscal 1999 to 257,000 room nights (83.9%) in fiscal 2000. For the
same comparable periods, the average room rate was approximately the same at
$34. In early April 1999, the Company discontinued the use of 102 older motel
rooms which were razed.

     The $7.2 million decrease in gaming revenue, for the year ended June 30,
2000 versus the year ended June 30, 1999, consists of the elimination of gaming
revenues from the Copa Casino of $10.9 million and increased gaming revenues
from the Sands Regency of $3.7 million. At the Sands Regency, gaming revenues
improved from $17.9 million to $21.6 million, a 21% increase. Such increase is
attributable to an increase in casino gaming revenue per occupied room. Casino
revenue per occupied room increased from approximately $68 to $82 which
reflects, in part, increased gaming from non-hotel guests, primarily local
residents. In order to attract non-hotel guests, the Company has added new
games, including Bingo in February 2000, and has liberalized rules and payouts.
The Company has also implemented various promotions to reward guest gaming
activity.

     The decrease in food and beverage revenue of $507,000, in fiscal 2000
versus fiscal 1999, consists of a decrease from the Copa Casino of $917,000
which was partially offset by an increase at the Sands Regency of $410,000. Such
increase at the Sands Regency is due to increased food revenue per occupied room
which increased from approximately $21 in the year ended June 30, 1999 to
approximately $22 in the year ended June 30, 2000. Such improvement is due, in
part, to the updating of food venues and menu prices and an increase in food and
beverages provided to non-hotel guests.

                                        10
<PAGE>   6

 ................................................................................

     The slight decrease in other revenue of $29,000, from the year ended June
30, 1999 to the year ended June 30, 2000, includes the elimination of other
revenue from the Copa Casino of $107,000 and an increase attributable to the
Sands Regency of approximately $78,000. The increase at the Sands Regency
consists primarily of improved gift shop retail sales.

     The decrease in complimentary lodging, food and beverage, deducted from
revenue, of $397,000 is principally attributable to the elimination of the Copa
Casino.

     The decrease in gaming costs and expenses of $5.0 million in fiscal 2000
compared to fiscal 1999 consists of a decrease from the Copa Casino of
approximately $5.5 million and an increase from the Sands Regency of $504,000.
The increase at the Sands Regency includes increases in bingo costs and expenses
and slot route costs and expenses of $221,000 and $127,000, respectively. The
Company commenced bingo operations in February 2000 and the increase in slot
route costs and expenses is due to increased rental costs paid to slot route
location owners. The remaining increase includes a decrease in salaries, wages
and benefits of approximately $162,000 and increases in various other gaming
cost and expenses primarily due to the associated increase in gaming revenue.

     The increase in lodging costs and expenses of $124,000 in the year ended
June 30, 2000 compared to the year ended June 30, 1999 consists of a decrease in
salaries, wages and benefits of approximately $70,000 as offset by an increase
in various other costs and expenses of $194,000. Such increase is due, in part,
to the increase in hotel occupancy.

     The decrease in food and beverage costs and expense of $362,000, from
fiscal 1999 to fiscal 2000, consists of the elimination of costs and expenses
from the Copa Casino of approximately $634,000 as offset by increased costs and
expenses from the Sands Regency of $272,000. The increase in food and beverage
costs and expenses is due to the increase in related revenue, various price
increases and increases in various other operating costs.

     The decrease in maintenance and utilities costs and expenses of $1.6
million consists of the elimination of costs and expenses associated with the
Copa Casino of $1.4 million and a decline from the Sands Regency of
approximately $179,000. The decrease at the Sands Regency is primarily salaries,
wages and benefits and utility costs and is, in part, a result of the continuing
effect of improved efficiencies at the Sands Regency.

     The decrease in general and administrative costs and expenses of $2.8
million, in fiscal 2000 versus fiscal 1999, consists of a decrease from the Copa
Casino of approximately $3.2 million as partially offset by an increase from the
Sands Regency of $529,000. The increase at the Sands Regency is due to increases
in advertising and promotional costs and expenses and in incentive compensation.
The increased advertising and promotional costs are due to expanded advertising
efforts and in-house promotional programs to attract hotel and non-hotel guests.

     The decrease in depreciation and amortization expense of $521,000, in the
year ended June 30, 2000 compared to the year ended June 30, 1999, is primarily
attributable to the Copa Casino.

     The decrease in interest and other expense of $552,000 includes a decrease
due to the elimination of the Copa Casino of $391,000 and a decrease at the
Sands Regency of approximately $161,000. The decrease at the Sands Regency is
primarily due to the elimination of prior accrued interest payable upon the
successful refinancing of the Company's secured bank debt.

     The gain on disposition of property and equipment in fiscal 2000 is
primarily due to an insurance recovery on the fire loss of a warehouse building
and its contents. The loss on disposition of property and equipment in fiscal
1999 consists of the write-off of the undepreciated basis of 102 motel rooms and
other low-rise buildings razed in fiscal 1999 and related lease terminations
costs for the early termination of a lease located in such structure. Such
structures were 30 to 35 years old and were replaced with a paved open area
utilized for parking and special events/promotions.

                                        11
<PAGE>   7
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
 ................................................................................

     The effective income tax rate for the twelve months ended June 30, 2000 is
different from the statutory rate due, in part, to the impact of certain tax
credits that otherwise reduce income taxes for federal income tax purposes.

     "EBITDA" improved from $3.7 million in the year ended June 30, 1999 to $6.1
million in the year ended June 30, 2000, a 65% increase. EBITDA includes
earnings before depreciation and amortization, interest expense, income taxes
and any gain (loss) on the disposal of property. EBITDA is not a calculation
determined pursuant to generally accepted accounting principles and is not an
alternative to operating income or net income and is not a measure of liquidity.
Since not all companies calculate this measure in the same manner, the Company's
EBITDA measure may not be comparable to similarly titled measures reported by
other companies. The Company presents EBITDA as a supplemental disclosure to
facilitate a more complete analysis of the Company's financial performance. The
Company believes that this disclosure enhances the understanding of the
financial performance of a company with substantial interest expense,
depreciation and amortization.

CAPITAL RESOURCES AND LIQUIDITY

     Cash, cash equivalents and short-term investments increased from $9.9
million at June 30, 2000 to $10.2 million at June 30, 2001. Cash and cash
equivalents provided from operating activities for the years ended June 30,
2001, 2000 and 1999 was $4.6 million, $6.9 million and $2.3 million,
respectively. In addition to cash generated from operating activities in fiscal
2001, cash was also generated from the maturity of short-term investments of
$943,000 and from payments on the note receivable from the sale of former
subsidiaries of $539,000. In fiscal 2000, cash was generated from the maturity
of short-term investments of $1.3 million, from the receipt of funds held in
escrow relative to the December 1998 sale of subsidiaries of $653,000 and from
payments on the note receivable from the sale of these former subsidiaries of
$534,000. In fiscal 1999, cash was generated through the issuance of long-term
debt of approximately $239,000. The Company's short-term investments, which
generally mature in one year or less, represent temporarily invested cash funds
which are generally readily convertible to cash.

     Uses of cash included the Company's purchase of short-term investments of
$200,000 and $2.0 million in fiscal 2001 and 2000, respectively and payments of
long-term debt of $288,000, $10.8 million and $862,000 in fiscal 2001, 2000 and
1999, respectively. $10 million of the long-term debt repayment in fiscal 2000
represented refinancing of bank debt which was otherwise due in full in fiscal
2000. Approximately $443,000 in cash was utilized in fiscal 2000 for the payment
of costs relative to the long-term debt refinancing. Cash was also utilized for
the acquisition of property and equipment in the amounts of $4.3 million, $2.8
million and $1.7 million in the years ended June 30, 2001, 2000 and 1999,
respectively. In fiscal 2001, $411,000 of cash was also paid for property and
equipment acquisitions made in the prior year. The property and equipment
acquisition amounts, for the years indicated, represent primarily furniture,
fixtures and equipment replacements and additions. In fiscal 1999, $500,000 of
cash from the former subsidiaries was deposited into an escrow which was
subsequently released to the Company in July 1999.

     At June 30, 2001, the Company believes that its cash funds and cash
generated from operations will be sufficient to meet its needs for the next
fiscal year. The Company generally invests its excess cash in securities which
are readily marketable and that are not subject to significant market value
fluctuations.

     The Company's working capital improved to approximately $8.4 million at
June 30, 2001 from approximately $7.7 million at June 30, 2000. Such improvement
was due to positive working capital generated from operations.

     Future expansion plans for the Reno facility and acquisition or
construction of additional gaming facilities will be considered based upon
future market conditions, available financial resources and the need to add
hotel rooms and other major facilities.

                                        12
<PAGE>   8

 ................................................................................

     Inflation has had only a slight impact on the Company's operating results.
Cost and expense increases have generally been passed on to the customers
through moderate price increases, higher table limits and upgraded slot machine
denominations.

RECENTLY ISSUED ACCOUNTING STANDARDS

     In June 2001, the FASB issued two new SFAS's, SFAS No. 141 entitled
"Business Combinations" and SFAS No. 142 entitled "Goodwill and Other Intangible
Assets". Together these statements will change the accounting for business
combinations and good will. SFAS No. 141 requires the purchase method of
accounting for all business combinations initiated after June 30, 2001 and
eliminates the pooling-of-interest method. SFAS No. 142 changes the accounting
for goodwill and indefinite lived intangible assets from an amortization method
to an impairment only approach. Thus, amortization of goodwill, including
goodwill recorded in past business combinations, will cease upon the adoption of
SFAS No. 142. Amortization will still be required for identifiable intangible
assets with finite lives. The Company is required to adopt SFAS No. 142 at the
beginning of its fiscal 2003 year but earlier adoption is permitted. We have not
yet completed our analysis of the impact that SFAS No. 141 and SFAS No. 142 will
have on our consolidated financial statements.

CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995

     The foregoing Management's Discussion and Analysis of Financial Condition
and Results of Operations contains various "forward-looking statements" within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended, which represent
the Company's expectations or beliefs concerning future events. Such statements
are identified by the words "anticipates", "believes", "expects", "intends",
"future", or words of similar import. Various important factors that could cause
actual results to differ materially from those in the forward-looking statements
include, without limitation, the following: increased competition in existing
markets or the opening of new gaming jurisdictions; a decline in the public
acceptance of gaming; the limitation, conditioning or suspension of any of the
Company's gaming licenses; increases in or new taxes imposed on gaming revenues
or gaming devices; a finding of unsuitability by regulatory authorities with
respect to the Company's officers, directors or key employees; loss or
retirement of key executives; significant increases in fuel or transportation
prices; adverse economic conditions in the Company's key markets; severe and
unusual weather in the Company's key markets and adverse results of significant
litigation matters.

                                        13
<PAGE>   9

THE SANDS REGENT
CONSOLIDATED BALANCE SHEETS
 ................................................................................

JUNE 30, 2001 AND 2000

<Table>
<Caption>
                                                                 2001           2000
                                                              -----------    -----------
<S>                                                           <C>            <C>
ASSETS
Current assets:
  Cash and cash equivalents.................................  $10,150,254    $ 9,186,487
  Short-term investments....................................       10,000        753,201
  Accounts receivable, less allowance for possible losses of
     $54,000 and $21,000....................................      550,269        507,175
  Note receivable, sale of subsidiaries.....................      180,000        180,000
  Inventories...............................................      643,876        630,562
  Federal income tax refund receivable......................        7,476        --
  Prepaid expenses and other assets.........................    1,051,890      1,041,934
                                                              -----------    -----------
          Total current assets..............................   12,593,765     12,299,359
                                                              -----------    -----------
Property and equipment:
  Land......................................................    8,486,668      8,486,668
  Buildings and improvements................................   38,785,470     37,306,906
  Equipment, furniture and fixtures.........................   18,802,000     18,150,063
  Construction in progress..................................      260,753        214,352
                                                              -----------    -----------
                                                               66,334,891     64,157,989
  Less accumulated depreciation and amortization............   32,136,905     31,027,361
                                                              -----------    -----------
       Property and equipment, net..........................   34,197,986     33,130,628
                                                              -----------    -----------
Other assets:
  Note receivable, sale of subsidiaries, net................      669,177      1,207,893
  Other.....................................................      422,175        454,132
                                                              -----------    -----------
          Total other assets................................    1,091,352      1,662,025
                                                              -----------    -----------
                                                              $47,883,103    $47,092,012
                                                              ===========    ===========
</Table>

---------------
 See notes to consolidated financial statements.

                                        14
<PAGE>   10

 ................................................................................

<Table>
<Caption>
                                                                  2001            2000
                                                              ------------    ------------
<S>                                                           <C>             <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable..........................................  $  2,256,766    $  2,429,720
  Accrued salaries, wages and benefits......................     1,435,212       1,391,858
  Other accrued expenses....................................       192,387         190,685
  Federal income tax payable................................            --         234,327
  Deferred federal income tax liability.....................       144,224         130,794
  Current maturities of long-term debt......................       180,637         262,997
                                                              ------------    ------------
          Total current liabilities.........................     4,209,226       4,640,381
Long-term debt..............................................    10,000,000      10,205,364
Deferred federal income tax liability.......................     1,055,150         909,494
                                                              ------------    ------------
          Total liabilities.................................    15,264,376      15,755,239
                                                              ------------    ------------
Commitments and contingencies...............................       --              --
Stockholders' equity:
  Preferred stock, $.10 par value, 5,000,000 shares
     authorized, none issued................................       --              --
  Common stock, $.10 par value, 20,000,000 shares
     authorized, 6,928,722 and 6,900,722 shares issued......       692,872         690,072
  Additional paid-in capital................................    12,777,392      12,730,547
  Retained earnings.........................................    41,506,925      40,274,616
                                                              ------------    ------------
                                                                54,977,189      53,695,235
  Treasury stock, at cost; 2,403,000 shares.................   (22,358,462)    (22,358,462)
                                                              ------------    ------------
          Total stockholders' equity........................    32,618,727      31,336,773
                                                              ------------    ------------
                                                              $ 47,883,103    $ 47,092,012
                                                              ============    ============
</Table>

                                        15
<PAGE>   11

THE SANDS REGENT
CONSOLIDATED STATEMENTS OF OPERATIONS
 ................................................................................

FOR THE YEARS ENDED JUNE 30, 2001, 2000, 1999

<Table>
<Caption>
                                                          2001           2000           1999
                                                       -----------    -----------    -----------
<S>                                                    <C>            <C>            <C>
Operating revenues:
  Gaming.............................................  $22,218,940    $21,612,684    $28,789,544
  Lodging............................................    9,073,917      8,651,692      8,562,860
  Food and beverage..................................    5,356,210      6,803,139      7,309,831
  Other..............................................    1,429,436      1,312,238      1,340,969
                                                       -----------    -----------    -----------
                                                        38,078,503     38,379,753     46,003,204
  Less complimentary lodging, food and beverage
     included above..................................    2,315,267      2,132,201      2,529,462
                                                       -----------    -----------    -----------
                                                        35,763,236     36,247,552     43,473,742
                                                       -----------    -----------    -----------
Operating costs and expenses:
  Gaming.............................................   10,388,503      9,719,694     14,791,729
  Lodging............................................    4,419,393      4,221,314      4,097,428
  Food and beverage..................................    4,226,147      5,943,627      6,305,549
  Other..............................................      583,037        562,327        526,099
  Maintenance and utilities..........................    3,302,847      3,038,730      4,642,598
  General and administrative.........................    6,924,116      6,994,927      9,746,135
  Depreciation and amortization......................    2,972,763      2,885,950      3,406,570
                                                       -----------    -----------    -----------
                                                        32,816,806     33,366,569     43,516,108
                                                       -----------    -----------    -----------
Income (loss) from operations........................    2,946,430      2,880,983        (42,366)
                                                       -----------    -----------    -----------
Other income (deductions):
  Interest and other income..........................      426,827        352,600        352,916
  Interest expense...................................   (1,154,975)    (1,195,542)    (1,747,990)
  Gain (loss) on disposition of property and
     equipment and lease termination costs...........     (391,190)       124,429       (511,782)
                                                       -----------    -----------    -----------
                                                        (1,119,338)      (718,513)    (1,906,856)
                                                       -----------    -----------    -----------
Income (loss) before income taxes....................    1,827,092      2,162,470     (1,949,222)
Income tax (provision) benefit.......................     (594,783)      (671,346)       561,557
                                                       -----------    -----------    -----------
Net income (loss)....................................  $ 1,232,309    $ 1,491,124    ($1,387,665)
                                                       ===========    ===========    ===========
Net income (loss) per share:
  Basic..............................................  $      0.27    $      0.33    ($      .31)
                                                       ===========    ===========    ===========
  Diluted............................................  $      0.26    $      0.33    ($      .31)
                                                       ===========    ===========    ===========
Weighted average shares outstanding:
  Basic..............................................    4,500,614      4,496,747      4,497,703
                                                       ===========    ===========    ===========
  Diluted............................................    4,751,774      4,568,007      4,497,703
                                                       ===========    ===========    ===========
</Table>

---------------
See notes to consolidated financial statements.

                                        16
<PAGE>   12

THE SANDS REGENT
CONSOLIDATED STATEMENTS OF
STOCKHOLDERS' EQUITY
 ................................................................................

FOR THE YEARS ENDED JUNE 30, 2001, 2000, 1999

<Table>
<Caption>
                         COMMON STOCK       ADDITIONAL                       TREASURY STOCK
                     --------------------     PAID-IN      RETAINED     ------------------------
                      SHARES      AMOUNT      CAPITAL      EARNINGS      SHARES        AMOUNT         TOTAL
                     ---------   --------   -----------   -----------   ---------   ------------   -----------
<S>                  <C>         <C>        <C>           <C>           <C>         <C>            <C>
Balances, July 1,
  1998.............  6,898,722   $689,872   $12,728,867   $40,171,157   2,400,000   $(22,354,835)  $31,235,061
Net loss...........     --          --          --         (1,387,665)     --            --         (1,387,665)
Purchase of Company
  Common Stock.....     --          --          --            --            3,000         (3,627)       (3,627)
                     ---------   --------   -----------   -----------   ---------   ------------   -----------
Balances, June 30,
  1999.............  6,898,722    689,872    12,728,867    38,783,492   2,403,000    (22,358,462)   29,843,769
Net income.........     --          --          --          1,491,124      --            --          1,491,124
Issuance of Company
  Common Stock,
  Stock Options
  Exercised........      2,000        200         1,680       --           --            --              1,880
                     ---------   --------   -----------   -----------   ---------   ------------   -----------
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,
  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
                     =========   ========   ===========   ===========   =========   ============   ===========
</Table>

---------------
See notes to consolidated financial statements.

                                        17
<PAGE>   13

THE SANDS REGENT
CONSOLIDATED STATEMENTS OF CASH FLOWS
 ................................................................................

FOR THE YEARS ENDED JUNE 30, 2001, 2000, 1999

<Table>
<Caption>
                                                              2001          2000          1999
                                                           -----------   -----------   -----------
<S>                                                        <C>           <C>           <C>
Operating activities:
  Net income (loss)......................................  $ 1,232,309   $ 1,491,124   $(1,387,665)
  Adjustments to reconcile net income (loss) to net cash
     provided by operating activities:
       Depreciation and amortization.....................    2,972,763     2,885,950     3,406,570
       (Gain) loss on disposal of property and
          equipment......................................      391,190      (124,429)      460,243
       (Increase) decrease in accounts receivable........      (43,094)      (64,539)       41,033
       (Increase) decrease in inventories................      (13,314)     (147,476)        1,942
       (Increase) decrease in prepaid expenses and other
          current assets.................................      (26,772)      172,800      (197,335)
       Decrease in other assets..........................       31,957       123,870        80,177
       Increase in accounts payable......................       52,794     1,204,054       272,988
       Increase (decrease) in accrued salaries, wages and
          benefits.......................................       43,354       538,182      (645,142)
       Increase (decrease) in other accrued expenses.....        1,702       (79,767)      367,255
       Change in federal income taxes
          payable/receivable.............................     (241,803)      534,328       387,268
       Change in deferred federal income taxes...........      159,086       371,098      (492,780)
                                                           -----------   -----------   -----------
Net cash provided by operating activities................    4,560,172     6,905,195     2,294,554
                                                           -----------   -----------   -----------
Investing activities:
  Purchase of short-term investments.....................     (200,000)   (1,993,201)           --
  Sales and maturities of short-term investments.........      943,201     1,250,000        10,000
  Payments received on notes receivable..................      538,716       533,580        96,343
  Receipt of funds previously held in escrow and included
     in accounts receivable relative to sale of
     subsidiaries........................................           --       653,330            --
  Down payment on sale of subsidiaries held in escrow and
     reflected in accounts receivable....................           --            --      (500,000)
  Cash retained by former subsidiary companies
     upon sale...........................................           --            --    (3,276,839)
  Additions to property and equipment....................   (4,256,493)   (2,814,181)   (1,683,863)
  Payment of accounts payable for prior year purchases of
     property and equipment..............................     (411,405)           --        (9,355)
  Proceeds from sale of property, equipment and other
     assets..............................................       27,655       327,783        32,369
                                                           -----------   -----------   -----------
Net cash used in investing activities....................   (3,358,326)   (2,042,689)   (5,331,345)
                                                           -----------   -----------   -----------
</Table>

---------------
See notes to consolidated financial statements.

                                        18
<PAGE>   14

 ................................................................................

<Table>
<Caption>
                                                             2001           2000          1999
                                                          -----------   ------------   -----------
<S>                                                       <C>           <C>            <C>
Financing activities:
  Issuance of long-term debt............................  $        --   $ 10,000,000   $   239,368
  Payment of costs relative to issuance of long-term
     debt...............................................           --       (442,904)           --
  Payments on long-term debt............................     (287,724)   (10,775,115)     (862,273)
  Issuance of Company common stock......................       49,645          1,880            --
  Purchase of Company common stock......................           --             --        (3,627)
                                                          -----------   ------------   -----------
Net cash used in financing activities...................     (238,079)    (1,216,139)     (626,532)
                                                          -----------   ------------   -----------
Increase (decrease) in cash and cash equivalents........      963,767      3,646,367    (3,663,323)
Cash and cash equivalents, beginning of year............    9,186,487      5,540,120     9,203,443
                                                          -----------   ------------   -----------
Cash and cash equivalents, end of year..................  $10,150,254   $  9,186,487   $ 5,540,120
                                                          ===========   ============   ===========
Supplemental cash flow information:
  Net investment in subsidiaries converted to note
     receivable upon sale, net..........................  $        --   $         --   $ 2,171,147
                                                          ===========   ============   ===========
  Payments received on note receivable from sale of
     subsidiaries held in escrow and reflected in
     accounts receivable................................  $        --   $         --   $   153,330
                                                          ===========   ============   ===========
  Property and equipment acquired by accounts payable...  $   185,657   $    411,405   $        --
                                                          ===========   ============   ===========
  Interest paid, net of amount capitalized..............  $ 1,139,975   $  1,331,532   $ 1,534,329
                                                          ===========   ============   ===========
  Federal income taxes paid.............................  $   677,500   $         --   $   300,000
                                                          ===========   ============   ===========
</Table>

                                        19
<PAGE>   15

THE SANDS REGENT
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
 ................................................................................

FOR THE YEARS ENDED JUNE 30, 2001, 2000, 1999

NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Principles of consolidation and basis of presentation

     The consolidated financial statements include the accounts of The Sands
Regent and its wholly-owned subsidiary Zante, Inc. ("Zante"), and, through
December 23, 1998, its wholly owned subsidiaries Patrician, Inc. ("Patrician"),
Artemis, Inc. ("Artemis") and Gulfside Casino, Inc. ("GCI"), and their general
partnership Gulfside Casino Partnership ("GCP") (together the "Company"). On
December 23, 1998, the Company sold Patrician, GCI and Artemis, which were the
sole partners in GCP, to unrelated third parties.

     All significant intercompany balances and transactions have been eliminated
in consolidation.

(b) Nature of operations

     The Company owns and operates The Sands Regency Casino/Hotel in Reno,
Nevada and, through December 23, 1998, the Copa Casino in Gulfport, Mississippi
which was owned and operated by GCP. The Company also owns and operates a slot
route service with various locations in the general Reno area. The Company's
operations are conducted in the casino-hotel industry and include gaming
activities, hotel, restaurant and other related support facilities. Because of
the integrated nature of these operations, the Company is considered to be
engaged in one industry segment.

     Casino operations are subject to extensive regulation in the States of
Nevada and Mississippi by the respective state Gaming Authorities. Management
believes that the Company's procedures for supervising casino operations and
recording casino and other revenues comply in all material respects with the
applicable regulations.

(c) Operating revenues

     In accordance with industry practice, the Company recognizes as casino
revenue the net win from gaming activities, which is the difference between
gaming wins and losses.

     Lodging, food and beverage furnished without charge to customers are
included in gross revenues at a value which approximates retail and then
deducted as complimentary services to arrive at net revenues. The cost of such
complimentary services is charged to gaming operating costs and expenses.

     The estimated costs of providing the complimentary services are as follows:

<Table>
<Caption>
                                                       2001         2000         1999
                                                    ----------   ----------   ----------
<S>                                                 <C>          <C>          <C>
Hotel.............................................  $  432,056   $  368,969   $  460,549
Food and beverage.................................   1,422,028    1,383,996    1,727,192
Other.............................................      41,136       35,108       31,204
                                                    ----------   ----------   ----------
                                                    $1,895,220   $1,788,073   $2,218,945
                                                    ==========   ==========   ==========
</Table>

     Other operating revenue is comprised of hotel/casino ancillary services.
Related costs and expenses are included in other operating costs and expenses.

                                        20
<PAGE>   16

 ................................................................................

(d) Cash and cash equivalents

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

(e) Short-term investments

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

(f) Inventories

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

(g) Property and equipment

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

(h) Impairment of long-lived assets

     The Company reviews the carrying values of its long-lived assets for
possible impairment whenever events or changes in circumstances indicate the
carrying amount of assets may not be recoverable. The Company does not believe
that any events or circumstances have occurred that would require the
realization or recognition of an impairment in the three years ended June 30,
2001.

(i) Income taxes

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

(j) Fair value of financial instruments

     The Company calculates the fair value of financial instruments and includes
this additional information in the Company's Notes to Consolidated Financial
Statements when the fair value is different

                                        21
<PAGE>   17
THE SANDS REGENT
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (continued)
 ................................................................................

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, 2001.

(k) Concentrations of credit risk

     Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of cash and cash equivalents
and short-term investments. The Company maintains cash in bank accounts with
balances, at times, in excess of federally insured limits. The Company has not
experienced any losses in such accounts.

(l) Recent Pronouncements of the Financial Accounting Standards Board ("FASB")
    and other authoritative accounting pronouncements

     On June 30, 1998, the FASB issued Statement of Financial Accounting
Standards ("SFAS") No. 133 entitled "Accounting for Derivative Instruments and
Hedging Activities". This statement establishes accounting and reporting
standards for derivative instruments and hedging activities. The Company adopted
SFAS No. 133 on July 1, 2000. Adoption of SFAS No. 133 did not have a material
impact on the financial statements of the Company because the Company does not
have significant derivative or hedging activities.

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

     In June 2001, the FASB issued two new SFAS's, SFAS No 141 entitled
"Business Combinations" and SFAS No. 142 entitled "Goodwill and Other Intangible
Assets". Together these statements will change the accounting for business
combinations and goodwill. SFAS No. 141 requires the purchase method of
accounting for all business combinations initiated after June 30, 2001 and
eliminates the pooling-of-interest method. SFAS No. 142 changes the accounting
for goodwill and indefinite lived intangible assets from an amortization method
to an impairment only approach. Thus, amortization of goodwill, including
goodwill recorded in past business combinations, will cease upon the adoption of
SFAS No. 142. Amortization will still be required for identifiable intangible
assets with finite lives. The Company is required to adopt SFAS No. 142 at the
beginning of it's fiscal 2003 year but earlier adoption is permitted. We have
not yet completed our analysis of the impact that SFAS No. 141 and SFAS No. 142
will have on our consolidated financial statements.

                                        22
<PAGE>   18

 ................................................................................

(m) Use of estimates

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

(n) Reclassifications

     Certain reclassifications have been made to the 2000 and 1999 consolidated
financial statements to conform to the 2001 presentation.

NOTE 2 -- SHORT-TERM INVESTMENTS

     Short-term investments, at June 30, 2001, consist of a certificate of
deposit carried at cost, which approximates market. Short-term investments at
June 30, 2000 primarily consisted of a government agency note carried at
amortized cost, which approximated market and matured in August 2000.

NOTE 3 -- NOTE RECEIVABLE, SALE OF SUBSIDIARIES

     In December 1998, the Company closed an agreement selling all of its
ownership interest in Patrician, GCI and Artemis, which included a 100%
ownership interest in the Copa Casino, for $8.5 million. Upon consummation of
the sales transaction, the Company's net investment in Patrician, GCI and
Artemis was $2.2 million which was reclassified as a note receivable, net. The
difference to the original $8.0 million face value of the note, after the
initial $500,000 payment, represents an unrecognized gain of approximately $5.8
million. Such gain will be recognized by the Company as it receives subsequent
payments after recovering the $2.2 million net investment. At June 30, 2001, the
balance of the note receivable, net (the net investment) is $849,000. It is
estimated that the net amount will be recovered in approximately mid-fiscal
2003. Thereafter, it is estimated that approximately $540,000 will be recognized
into income annually until the $8.0 million is paid in full. $180,000 of the
note receivable, sale of subsidiaries is reflected as a current asset.

     The original note, with an original face amount of $8.0 million is payable,
without interest, in monthly installments of $15,000 or 2 percent of gaming
revenue, whichever is greater, until paid in full.

     The purchasers of Patrician, GCI, Artemis and GCP have made certain claims
that GCP had previously made payments, aggregating up to approximately $600,000,
for the benefit of the Company. Management believes that all claims against the
Company have been released as a result of the execution of the original sales
documentation in 1998, that the claims are without merit and that the ultimate
outcome will not have a material adverse affect to the Company.

                                        23
<PAGE>   19
THE SANDS REGENT
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (continued)
 ................................................................................

NOTE 4 -- LONG-TERM DEBT

     Long-term debt consists of the following:

<Table>
<Caption>
                                                                      JUNE 30,
                                                              -------------------------
                                                                 2001          2000
                                                              -----------   -----------
<S>                                                           <C>           <C>
Bank term loan; interest at 10.75% per annum; monthly
  payments of interest only with the principal balance due
  in full in December 2004; subject to required principal
  payments to the extent that the balance exceeds certain
  multiples of EBITDA (3.5 through October 2001, 3.0 from
  November 2001 to October 2002, 2.75 from November 2002 to
  October 2003 and 2.5 from November 2003 to October 2004);
  secured by a deed of trust and security interest in all
  real, personal and other property of the Company, an
  assignment of the Note Receivable due from Gulf-side
  Casino Partnership and a pledge of the Company's 100%
  stock ownership interest in its wholly owned subsidiary,
  Zante, Inc................................................  $10,000,000   $10,000,000
Capital lease obligation; imputed interest at 8.6%; payable
  in monthly principal and interest payments in the amount
  of $26,794 over 60 months at which time a one dollar
  purchase option is exercisable; assets under the capital
  lease, with an original cost of $1,418,000 and accumulated
  depreciation of approximately $1,131,000 at June 30, 2001,
  are included in property and equipment and are being
  depreciated over their estimated useful lives.............      180,637       468,361
                                                               10,180,637    10,468,361
                                                              -----------   -----------
Less current maturities.....................................      180,637       262,997
                                                              -----------   -----------
Long-term portion...........................................  $10,000,000   $10,205,364
                                                              ===========   ===========
</Table>

     The bank term loan, entered into in December 1999, requires the Company to
comply with certain financial and other covenants, restricts future encumbrances
and limits situations where a change in control in the Company may occur. The
financial covenants include requiring that a minimum EBITDA (earnings before
interest expense, taxes, depreciation and amortization) be maintained, that a
minimum tangible net worth be maintained and that unrestricted cash, cash
equivalents and investments be maintained in an amount of at least $1.25
million. The covenants also include a limitation on capital expenditures in each
fiscal year, restrictions on investment activities and the sale or disposition
of a significant portion of the Company's assets, restrictions on advances from
Zante, Inc. to the Company and various other reporting and financial operating
requirements and restrictions. The Company believes that it is in compliance
with the covenants, requirements and restrictions at June 30, 2001.

     Long-term debt at June 30, 2001 is payable as follows:

<Table>
<Caption>
                        YEAR ENDING
                          JUNE 30,                              AMOUNT
                        -----------                           -----------
<S>                                                           <C>
  2002......................................................  $   180,637
  2003......................................................           --
  2004......................................................           --
  2005......................................................   10,000,000
                                                              -----------
                                                              $10,180,637
                                                              ===========
</Table>

                                        24
<PAGE>   20

 ................................................................................

NOTE 5 -- STOCK OPTION AND STOCK INCENTIVE PLANS

     The Company's second amended and restated stock option plan provides for
the granting of incentive stock options, as well as non-qualified stock options,
to executives and key employees. The plan also provides for the grant of
non-qualified stock options to independent (non-employee) directors. With
respect to grants of stock options to independent directors, the stock option
plan provides for the automatic grant of options to purchase 7,500 shares to an
independent director on each annual meeting date that such director continues to
serve. Further, the Board of Directors may grant an option to purchase up to
25,000 shares upon the appointment of a new independent director.

     The plan presently permits for the grant of options covering a maximum of
1,100,000 shares of the Company's common stock. The Company has reserved shares
to cover these requirements. The plan will continue until the year 2010, unless
terminated earlier. Under the plan, the per share exercise price of an option
cannot be less than 100% of the fair market value of the shares at date of grant
or 110% of the fair market value in the case of incentive stock options granted
to stockholders owning more than 10% of the outstanding common shares. The
options generally vest 25% to 50% each year after grant for employees and vest
in full in one year for grants to independent directors.

     Prior to the approval of an amendment to the Company's Stock Option Plan at
the November 1998 annual shareholders' meeting, allowing for the grant of stock
options to independent directors, the Board of Directors approved a
non-qualified stock option grant in fiscal 1998 to a then newly appointed
independent director to purchase 10,000 shares of common stock. Granted at fair
market value, the option vested one year from the date of grant and is subject
to a separate Non-Qualified Stock Option Agreement.

                                        25
<PAGE>   21
THE SANDS REGENT
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (continued)
 ................................................................................

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

<Table>
<Caption>
                                                                              WEIGHTED
                                                                              AVERAGE
                                                              NUMBER OF       EXERCISE
                                                               OPTIONS         PRICE
                                                              ---------    --------------
<S>                                                           <C>          <C>
Options Outstanding
-----------------------
  Outstanding, July 1, 1998.................................   420,000         $ 1.90
     Options granted........................................   165,500           0.94
     Options cancelled......................................   (38,000)         (2.46)
                                                               -------         ------
  Outstanding, June 30, 1999................................   547,500           1.57
     Options granted........................................    82,500           1.74
     Options exercised......................................    (2,000)         (0.94)
     Options cancelled......................................   (27,000)         (1.71)
                                                               -------         ------
  Outstanding, June 30, 2000................................   601,000           1.59
     Options 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 Exercisable
  At June 30, 1999..........................................   228,000         $ 1.83
                                                               =======         ======
  At June 30, 2000..........................................   370,500         $ 1.65
                                                               =======         ======
  At June 30, 2001..........................................   463,500         $ 1.57
                                                               =======         ======
</Table>

     At June 30, 2001, options to purchase 311,364 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, 2001:

<Table>
<Caption>
                                               OPTIONS OUTSTANDING
                                       ------------------------------------    OPTIONS EXERCISABLE
                                                      WEIGHTED                ----------------------
                                                       AVERAGE     WEIGHTED                 WEIGHTED
              RANGE OF                                REMAINING    AVERAGE                  AVERAGE
              EXERCISE                   NUMBER      CONTRACTUAL   EXERCISE     NUMBER      EXERCISE
               PRICES                  OUTSTANDING      LIFE        PRICE     EXERCISABLE    PRICE
              --------                 -----------   -----------   --------   -----------   --------
<S>                                    <C>           <C>           <C>        <C>           <C>
$ .88 to $1.69.......................    240,000      8.0 years     $1.13       159,000      $1.06
$1.81 to $3.00.......................    374,500      6.9 years      1.90       304,500       1.83
                                         -------      ---------     -----       -------      -----
$ .88 to $3.00.......................    614,500      7.3 years     $1.60       463,500      $1.57
                                         =======      =========     =====       =======      =====
</Table>

     The Company follows the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 123 -- "Accounting for Awards of Stock-Based
Compensation" which establishes financial accounting and reporting standards for
stock-based employee compensation plans and for transactions where equity
securities are issued for goods and services. It defines a fair value based
method of

                                        26
<PAGE>   22

 ................................................................................

accounting for an employee stock option, or similar equity instrument, and
encourages such method of accounting for all employee stock compensation plans.
As provided by SFAS No. 123, the Company has elected to continue to follow the
provisions of APB Opinion No. 25 -- "Accounting for Stock Issued to Employees"
which measures compensation costs for employee stock compensation plans using
the intrinsic value based method of accounting. Accordingly, no compensation
cost has been recognized.

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

<Table>
<Caption>
                                                                 JUNE 30,
                                                  --------------------------------------
                                                     2001         2000          1999
                                                  ----------   ----------    -----------
<S>                                               <C>          <C>           <C>
Net income (loss):
  As reported..................................   $1,232,309   $1,491,124    $(1,387,665)
  Pro forma....................................    1,178,288    1,409,309     (1,537,665)
Basic earnings (loss) per share:
  As reported..................................        $0.27        $0.33         $(0.31)
  Pro forma....................................         0.26         0.31          (0.34)
Diluted earnings (loss) per share:
  As reported..................................        $0.26        $0.33         $(0.31)
  Pro forma....................................         0.25         0.31          (0.34)
Weighted average assumptions:
  Expected stock price volatility..............        120.0%       100.0%         100.0%
  Risk-free interest rate......................          6.2%         6.1%           4.6%
  Expected option lives........................    2.2 years    2.6 years      2.2 years
  Estimated fair value of options granted......        $1.10        $1.03          $0.52
</Table>

NOTE 6 -- FEDERAL INCOME TAXES

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

<Table>
<Caption>
                                                         2001        2000        1999
                                                       ---------   ---------   --------
<S>                                                    <C>         <C>         <C>
Current..............................................  $(435,697)  $(300,249)  $ 68,776
Deferred.............................................   (159,086)   (371,097)   492,781
                                                       ---------   ---------   --------
                                                       $(594,783)  $(671,346)  $561,557
                                                       =========   =========   ========
</Table>

                                        27
<PAGE>   23
THE SANDS REGENT
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (continued)
 ................................................................................

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

<Table>
<Caption>
                                                              2001      2000      1999
                                                              -----     -----     -----
<S>                                                           <C>       <C>       <C>
Federal statutory tax rate..................................   35.0%     35.0%    (35.0)%
Surtax exemption............................................   (1.0)     (1.0)      1.0
General business credits....................................   (1.3)     (1.4)     (1.7)
Other.......................................................   (0.1)     (1.6)      6.9
                                                              -----     -----     -----
                                                               32.6%     31.0%    (28.8)%
                                                              =====     =====     =====
</Table>

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

<Table>
<Caption>
                                                                 2001          2000
                                                              -----------   -----------
<S>                                                           <C>           <C>
Deferred tax assets:
     Alternative minimum tax credit.........................  $   706,302   $ 1,125,418
     Accrued expenses.......................................       80,276        84,591
     Deferred gain..........................................      410,094       410,094
     Other..................................................       41,220        40,300
                                                              -----------   -----------
                                                                1,237,892     1,660,403
                                                              -----------   -----------
  Deferred tax liabilities:
     Property and equipment.................................   (2,171,546)   (2,445,006)
     Prepaid expenses.......................................     (265,720)     (255,685)
                                                              -----------   -----------
                                                               (2,437,266)   (2,700,691)
                                                              -----------   -----------
       Net deferred federal income tax liability............  $(1,199,374)  $(1,040,288)
                                                              ===========   ===========
</Table>

     The Company has a March 31 tax year-end.

NOTE 7 -- STOCKHOLDERS' EQUITY

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

NOTE 8 -- EARNINGS PER SHARE

     Earnings Per Share are calculated in accordance with Financial Accounting
Standards ("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 5) are exercised and repurchased at the average price for
the periods presented.

                                        28
<PAGE>   24

 ................................................................................

     The weighted average number of shares outstanding for the calculation of
diluted earnings per share, for the years ended June 30, 2001 and 2000 included
the dilutive effect of Company stock options to purchase common stock. For the
years ended June 30, 2001 and 2000, options to purchase 22,500 and 426,000
shares, respectively, of the Company's common stock were not included because
the exercise price exceeded the average market price. For the year ended June
30, 1999, options to purchase 547,500 shares were not included because the
Company incurred a net loss for the period.

NOTE 9 -- CONTINGENCIES

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

NOTE 10 -- CONDENSED QUARTERLY RESULTS (UNAUDITED)

<Table>
<Caption>
                                                FIRST        SECOND       THIRD        FOURTH
                                               QUARTER      QUARTER      QUARTER       QUARTER
                                             -----------   ----------   ----------   -----------
<S>                                          <C>           <C>          <C>          <C>
2001
  Operating revenues.......................  $10,136,213   $8,074,300   $7,774,579   $ 9,778,144
  Income (loss) from operations............    1,391,852      (75,053)       4,852     1,624,779
  Net income (loss)........................      757,117     (145,299)     (90,009)      710,500
  Net income (loss) per share:
     Basic.................................        $0.17       $(0.03)      $(0.02)        $0.16
     Diluted...............................        $0.16       $(0.03)      $(0.02)        $0.15

2000
  Operating revenues.......................  $ 9,184,266   $7,764,807   $8,624,079   $10,802,454
  Income (loss) from operations............      947,063     (305,969)     398,351     1,841,538
  Net income (loss)........................      610,955     (318,271)     143,428     1,055,012
  Net income (loss) per share:
     Basic.................................        $0.14       $(0.07)       $0.03         $0.23
     Diluted...............................        $0.13       $(0.07)       $0.03         $0.23
</Table>

                                        29
<PAGE>   25

INDEPENDENT AUDITORS' REPORT
 ................................................................................

To the Board of Directors and
Shareholders of The Sands Regent:

     We have audited the accompanying consolidated balance sheets of The Sands
Regent and subsidiaries (the "Company") as of June 30, 2001 and 2000, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the three years in the period ended June 30, 2001. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

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

     In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of The Sands Regent and
subsidiaries as of June 30, 2001 and 2000, and the results of their operations
and their cash flows for each of the three years in the period ended June 30,
2001 in conformity with accounting principles generally accepted in the United
States of America.

Deloitte & Touche LLP
Reno, Nevada
August 9, 2001

                                        30
<PAGE>   26

 ................................................................................

 CORPORATE OFFICERS
Katherene Latham
  Chairman of the Board

Pete Cladianos, Jr.
  Vice Chairman of the Board

Ferenc B. Szony
  President and Chief Executive Officer

David R. Wood
  Executive Vice President,
  Treasurer and Chief Financial Officer

Pete Cladianos III
  Secretary

 BOARD OF DIRECTORS
Katherene Latham
  Chairman of the Board

Pete Cladianos, Jr.
  Vice Chairman of the Board

Ferenc B. Szony(1)
  President and Chief Executive Officer

David R. Wood
  Executive Vice President,
  Treasurer and Chief Financial Officer

Pete Cladianos III
  Secretary

Jon N. Bengtson

Louis J. Phillips(1)

Larry Tuntland

 PUBLIC ACCOUNTANTS
Deloitte & Touche LLP
  Reno, Nevada

 SECURITIES COUNSEL
Latham & Watkins
  Costa Mesa, California

 TRANSFER AGENT & REGISTRAR
U.S. Stock Transfer Corporation
  Glendale, California

------------
(1) Standing for election to the Board of Directors at the November 5, 2001
    Annual Meeting.

 FORM 10-K REPORT

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

                                        31