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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION



Washington, D.C. 20549



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FORM 10-K



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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, 2004



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. ̈



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, 2003 was $21,417,966. The aggregate market value is computed with reference to the closing price per share on that date.



Registrants Common Stock outstanding at September 24, 2004 was
5,646,555 shares.



Portions of Registrants definitive
Proxy Statement for its November 1, 2004 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, 2004



|         |  |                                                                                       |  |     
|-------- |  | ------------------------------------------------------------------------------------- |  | ----
|         |  |                                                                                       |  | 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 about Market Risk                            |  | 26  
|         |  |                                                                                      
|ITEM 8.  |  | Consolidated Financial Statements and Supplementary Data                              |  | 27  
|         |  |                                                                                      
|ITEM 9.  |  | Changes in and Disagreements With Accountants on Accounting and Financial Disclosure  |  | 47  
|         |  |                                                                                      
|ITEM 9A  |  | Controls and Procedures                                                               |  | 47  
|         |  |                                                                                      
|         |  | PART III                                                                              |  |     
|         |  |                                                                                      
|ITEM 10. |  | Directors and Executive Officers of the Registrant                                    |  | 47  
|         |  |                                                                                      
|ITEM 11. |  | Executive Compensation                                                                |  | 47  
|         |  |                                                                                      
|ITEM 12. |  | Security Ownership of Certain Beneficial Owners and Management                        |  | 47  
|         |  |                                                                                      
|ITEM 13. |  | Certain Relationships and Related Transactions                                        |  | 47  
|         |  |                                                                                      
|         |  | PART IV                                                                               |  |     
|         |  |                                                                                      
|ITEM 14. |  | Principal Accounting Fees and Services                                                |  | 48  
|         |  |                                                                                      
|ITEM 15. |  | Exhibits, Financial Statement Schedules and Reports on Form 8-K                       |  | 48  
|         |  |                                                                                      
|         |  | Signatures                                                                            |  | 52  



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##### Table of Contents

PART I



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



General



The Sands
Regent and subsidiaries (the Company, we and our) operate casinos and tourist-based facilities through our wholly-owned subsidiaries: Zante, Inc., which owns and operates the Sands Regency Casino Hotel
(Sands) in downtown Reno, Nevada; Last Chance, Inc., which operates the Gold Ranch Casino and RV Resort (Gold Ranch) in Verdi, Nevada; and Plantation Investments, Inc., which owns and operates Rail City Casino (Rail
City) in Sparks, Nevada. The Company was incorporated in Nevada in 1965.



The Sands has approximately 29,000 square feet of gaming space and a full selection of gaming alternatives, including 600 slot machines, 19 table games, keno, bingo, and a sportsbook operated by Leroys
Sportsbooks. Additionally, the Sands resort complex has 832 hotel rooms, including 29 suites, a health spa, and a large outdoor swimming pool. Dining options at the Sands include 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 restaurant, both which are franchises operated by third parties. The
facility also includes an entertainment cabaret, three cocktail lounges, a comedy club 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 1,100 vehicles. The Sands offers large, attractive hotel rooms
at reasonable prices to travel groups, air wholesalers, and motor coaches primarily from Western Canada, the Pacific Northwest and Northern California. Due to the city-sponsored ReTRAC project (Reno Transportation Railroad Access Corridor), the
Sands has temporarily lost utility in varying degrees of up to 30% of its parking (see Risks Related to our Business in the Management Discussion and Analysis section of this report).



Gold Ranch offers approximately 252 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 restaurant cross-promotions. Gold Ranch tries to attract as much traffic as possible off Interstate 80, the major Nevada/California thoroughfare.



On May 1, 2004, the Company acquired Rail City in Sparks, Nevada. Rail City
has approximately 16,600 square feet of gaming space housing 634 slots, 6 table games, keno, a sportsbook operated by Cal Neva, a 24-hour family-style restaurant and a bar. Substantially all of Rail Citys customer base comes from northern
Nevada and a majority of its customers reside in close proximity to the casino.



The Companys operations are conducted 24 hours per 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 overall operating and marketing philosophy emphasizes in-house and citywide special events, generous
promotions, highly competitive pricing, and liberal gaming odds. A great deal of emphasis is placed on marketing to local patrons, especially at Rail City, however, the majority of the total revenue of the Companys downtown Reno property is
attributable to tourism. 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 extend
credit to its gaming clientele.



Marketing



SANDS REGENCY.    At the Sands we have continued to
successfully address the challenges presented by the proliferation of casino gambling in our key feeder markets, and the inability of the Reno market as a whole to



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effectively market itself as a destination for travelers. This has been accomplished through aggressive marketing plans that play to the strengths that we
have developed over the past several years  those being the locals market, out-of-market visitors seeking value for their entertainment dollar, and special interest groups.



We have continued to successfully grow our locals market share at the Sands by offering compelling promotions, players
club benefits that are competitive with any club in the market, and special events geared specifically for this group. In addition, we have added new events and promotions to our existing schedule, which has helped us increase out of market
visitation by creating new reasons to visit the Sands.



Our
advertising strategy in the local market has also evolved over the past year, and we have begun to focus more effort on direct mail programs that target locals who are not currently customers of the Sands. The strategy behind this approach is to
focus on zip codes where our most loyal customers reside. This allows us to create a more targeted strategy while using a medium (direct mail and database marketing) in which the results are more measurable than traditional mediums like television,
radio, and newspaper advertising.



At the Sands we continue to
appeal to the budget conscious traveler by offering large, remodeled hotel rooms at reasonable prices. We feel our hotel rooms are superior to other value-oriented properties, and have been further improved over the past year, as we have added new
furnishings to them. Furthermore, our food outlets (Tony Romas, Mels Diner) offer large portions at competitive prices. Our gaming product also meets and often exceeds the expectations of this market segment. We offer a large variety of
games with some of the best odds in the Reno market. We are also one of only three casinos in the market to offer bingo.



Special interest groups such as bowlers, cribbage players, shuffleboard players, and pool players continue to be a staple for the Sands. A complete
schedule of tournaments throughout the year allows us to cater to each of these groups.



GOLD RANCH.    At Gold Ranch the key to success is our ability to continue to capture market share from two distinct customer segments  locals and tourists traveling on Interstate 80 between
Reno and the Bay Area. In the coming year we will focus our marketing efforts on these two groups while applying the knowledge we have gained through our experiences since acquiring Gold Ranch. In addition, current plans are to install a slot
tracking system, players club, and cashless ticket-in ticket-out slot technology in Spring 2005 to more effectively compete with other casinos in the Reno market. These additions are significant and will allow us to effectively
capture more business from these customer segments by executing a marketing plan that will include the following components:



| | 1) |  | Customer acquisition and the use of direct mail programs to generate visitation through time sensitive offers. These programs have been used successfully in the past to generate
incremental business into the casino. Through more effective targeting and stronger offers, we expect this to increase significantly in the coming year.
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 2) |  | The ability to capitalize on our location by luring customers traveling on Interstate 80 into our property. The competitive prices offered at our gas pumps will be a key driving
force with respect to this group. Even though traffic counts on I-80 have been growing very slowly in past years, we believe we can maintain or grow our fair share and continue to reap the benefits of our location directly adjacent to I-80.
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 3) |  | Increase customer awareness and increase occupancy at the RV Resort. We have experienced an increase of over 15% in the past year, and through advertising in key travel
publications, direct mail to past customers, and our website, we expect to see continued increases in our occupancy over the next year. Our goal is to see annual occupancy increase from just over 55% last year to 65% in the coming year.
| | -- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



We will use promotions and special events to
generate mid-week local business. These promotions, in conjunction with the direct mail programs mentioned earlier, will continue to be a key component to our marketing efforts. We have established a series of successful special events at Gold Ranch
since the purchase, and will augment these events with more promotional activities in the coming year. The key is to continue to build the database so that we are able to reach significantly more potential customers in our key locals market
(Truckee, Verdi, and Northwest Reno). This will continue to be a challenge for us at Gold Ranch until a players club is established, making it easier to drive visitation and qualify the gaming worth of these visitors.



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RAIL CITY CASINO.    At Rail City Casino strength of marketing and brand identity
have been the major focus of our advertising campaigns, as well as, putting the FUN back into gaming. Customer loyalty and retention has also been an area of major focus; subsequent to the events of September 11, 2001 and, with the increasing
presence of gaming in California, many of the hotel casinos in the area are now heavily campaigning for local customers. Sensing the trend, Rail City Casino significantly increased our promotions and customer loyalty programs. We will continue to
strive to be Your friendly neighborhood casino. This is accomplished through the following programs:



| |  |  | Customer Appreciation
| | - |  | ---------------------



Rail City will continue to show its appreciation for its customers through birthday comps and personal attention by the City Express Ambassadors. The
Ambassadors continue to provide a family-type atmosphere for our guests. They know many of our customers by name and even their card numbers! They provide personalized service and attention to each guest.



| |  |  | Reward all of our loyal customers
| | - |  | ---------------------------------



Rail City promotions will continue to focus on rewarding our loyal players club members, as well as those players who prefer to remain untracked.



| |  |  | Attract New Customers
| | - |  | ---------------------



Rail City Casino will continue to utilize television, newspaper, radio and print to attract new customers. We have added a new television and radio
advertising aimed at the Spanish-speaking population. Additionally, we utilize casino signage to inform our guests about current promotions.



Competition



Competition among casinos in the Reno market is intense. The expansion of Native American gaming in northern California, the Pacific Northwest, and
British Columbia has had and will continue to have impact on total gaming revenues of the greater Reno area. Over the last three years, existing Native American casinos in northern California have undergone significant expansions. In addition,
Station Casinos Thunder Valley opened in June of 2003, just off I-80, the main link between Reno and northern California. More Native American casinos are planned in northern California and many are partnering with existing gaming companies
that have greater financial resources than the Company to promote their facilities.



With our purchase of Rail City in May 2004, we have tried to lessen our dependence on tourism. Now over 70% of its company-wide gaming revenues are from local patrons. However, many of the 17 major casinos and
hotel/casinos in the Reno area are attempting to compete for the local customer due primarily to the decrease in tourism caused by Native American casinos. Many of our direct competitors in the Reno market have greater financial and other resources
than we do.



Employees



At June 30, 2004, the Company employed 711 people at the Sands, including 83
salaried employees and 628 hourly employees; 113 people at Gold Ranch, including 13 salaried employees and 100 hourly employees; and 329 people at Rail City, including 45 salaried and 284 hourly employees. None of the Companys employees is
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, Washoe County, for Gold Ranch, and the City of Sparks for Rail City (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., Last Chance, Inc.
and Plantation Investments, 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 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.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------



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



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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.



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.



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A casino entertainment tax is also paid by casino operations where entertainment is furnished in
connection with the selling of food or beverages. 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), the City of Sparks (Plantation) 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 all 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 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. Additionally the Company maintains a Code of Conduct, and a copy is available by written request submitted to:



THE SANDS REGENT

CORPORATE OFFICES

345 NORTH ARLINGTON AVENUE

RENO, NEVADA 89501



7



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##### Table of Contents

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



The Company owns and operates the casino and hotel towers at the Sands on an 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 an approximately 2.7 acre site located adjacent to the casino/hotel site.Management considers the Sands facility to be in good condition and well maintained. Approximately 30% of the Sands parking facilities has lost some utility 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 Risks Related to our Business 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.



On May 1, 2004, the Company acquired Rail City Casino in Sparks, Nevada. The
Company owns the building and 3 of the 4 parcels of the 6.7 acre site. The parcel not owned by Rail City is owned by the State of Nevada. This 2.6 acre parcel is subject to a ground lease and is currently used for surface parking. The ground lease
has terms determined to be below market (see Note 3- Intangible Assets). Management considers the Rail City 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 89 gaming devices in 15 locations in the greater 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 2004.



8



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##### Table of Contents

PART II



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



Our common stock is listed on the NASDAQ Small Cap Market and traded under the symbol SNDS. The following table
sets forth the quarterly high and low closing share price information for the periods indicated:



|                                |  |      |      |     |   |     
|------------------------------- |  | ---- | ---- | --- | - | ----
|                                |  | High |      | Low
|Fiscal year ended June 30, 2004 |  |      |      |     |   |     
|First Quarter                   |  | $    | 3.06 |     | $ | 2.30
|Second Quarter                  |  |      | 3.78 |     |   | 1.93
|Third Quarter                   |  |      | 4.37 |     |   | 2.51
|Fourth Quarter                  |  |      | 3.39 |     |   | 2.35
|                                |  |     
|Fiscal year ended June 30, 2003 |  |      |      |     |   |     
|First Quarter                   |  | $    | 4.00 |     | $ | 2.92
|Second Quarter                  |  |      | 6.00 |     |   | 3.85
|Third Quarter                   |  |      | 8.80 |     |   | 5.75
|Fourth Quarter                  |  |      | 8.95 |     |   | 6.27



As of September 24,
2004, the Company had approximately 220 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. During the last two fiscal years, we have not paid cash dividends and we intend to continue to retain earnings for use in our business. Our agreement
with our lenders allows for the payment of cash dividends, however there are certain restrictions.



The following table presents information regarding outstanding options and shares reserved for issuance under existing equity compensation plans at June
30, 2004:



|                                                           |  |                                                                                             |  |                                                                             |      |                                                                                                                                             |       
|---------------------------------------------------------- |  | ------------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------- | ---- | ------------------------------------------------------------------------------------------------------------------------------------------- | ------
|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     |  | 638,500                                                                                     |  | $                                                                           | 2.61 |                                                                                                                                             | 43,614
|Equity compensation plans not approved by security holders |  |                                                                                            |  |                                                                             |     |                                                                                                                                             |      
|Total                                                      |  | 638,500                                                                                     |  | $                                                                           | 2.61 |                                                                                                                                             | 43,614



9



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##### Table of Contents

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



|                                                                           |  |                                                               |           |   |         |   |           |         |  |   |           |   |  |      |           |   |  |   |           |  
|-------------------------------------------------------------------------- |  | ------------------------------------------------------------- | --------- | - | ------- | - | --------- | ------- |  | - | --------- | - |  | ---- | --------- | - |  | - | --------- | -
|                                                                           |  | For the years ended June 30,                                  |          
|                                                                           |  | 2004(1)(2)                                                    |           |   | 2003(1) |   |           | 2002(1) |  |   | 2001      |   |  | 2000 |          
|                                                                           |  | (Dollars in thousands, except percentages and per share data) |          
|STATEMENT OF OPERATIONS DATA:                                              |  |                                                               |           |   |         |   |           |         |  |   |           |   |  |      |           |   |  |   |           |  
|Net operating revenues                                                     |  | $                                                             | 62,349    |   |         | $ | 55,683    |         |  | $ | 34,067    |   |  | $    | 35,763    |   |  | $ | 36,248    |  
|Income from operations                                                     |  |                                                               | 4,904     |   |         |   | 4,292     |         |  |   | 1,268     |   |  |      | 2,946     |   |  |   | 2,881     |  
|Net income (loss)                                                          |  |                                                               | 6,891     |   |         |   | 1,868     |         |  |   | (189      | ) |  |      | 1,232     |   |  |   | 1,491     |  
|Net income (loss) per share:                                               |  |                                                               |           |   |         |   |           |         |  |   |           |   |  |      |           |   |  |   |           |  
|Basic                                                                      |  | $                                                             | 1.32      |   |         | $ | 0.38      |         |  | $ | (0.04     | ) |  | $    | 0.27      |   |  | $ | 0.33      |  
|Diluted                                                                    |  | $                                                             | 1.24      |   |         | $ | 0.36      |         |  | $ | (0.04     | ) |  | $    | 0.26      |   |  | $ | 0.32      |  
|Weighted average number of shares used in computing income per shareBasic |  |                                                               | 5,206,321 |   |         |   | 4,930,713 |         |  |   | 4,558,907 |   |  |      | 4,500,614 |   |  |   | 4,496,754 |  
|Diluted                                                                   |  |                                                               | 5,558,834 |   |         |   | 5,198,915 |         |  |   | 4,558,907 |   |  |      | 4,751,774 |   |  |   | 4,568,014 |  
|                                                                           |  |                                                               |           |   |        
|OPERATING DATA:                                                            |  |                                                               |           |   |         |   |           |         |  |   |           |   |  |      |           |   |  |   |           |  
|Casino square footage                                                      |  |                                                               | 53,600    |   |         |   | 37,000    |         |  |   | 37,000    |   |  |      | 29,000    |   |  |   | 29,000    |  
|Number of slot machines                                                    |  |                                                               | 1,486     |   |         |   | 843       |         |  |   | 860       |   |  |      | 651       |   |  |   | 665       |  
|Number of hotel rooms                                                      |  |                                                               | 832       |   |         |   | 836       |         |  |   | 836       |   |  |      | 836       |   |  |   | 836       |  
|Hotel occupancyrooms sold                                                 |  |                                                               | 267,000   |   |         |   | 256,000   |         |  |   | 245,000   |   |  |      | 262,000   |   |  |   | 257,000   |  
|Hotel occupancypercentage                                                 |  |                                                               | 87.7      | % |         |   | 83.9      | %       |  |   | 80.2      | % |  |      | 85.9      | % |  |   | 83.9      | %
|Number of RV spaces                                                        |  |                                                               | 105       |   |         |   | 105       |         |  |   | 105       |   |  |      |          |   |  |   |          |  
|RV occupancyspaces sold                                                   |  |                                                               | 21,734    |   |         |   | 16,016    |         |  |   | 1,379     |   |  |      |          |   |  |   |          |  
|RV occupancypercentage                                                    |  |                                                               | 56.6      | % |         |   | 41.8      | %       |  |   | 43.8      | % |  |      |          |   |  |   |          |  
|                                                                           |  |                                                               |           |   |        
|Net cash provided by (used in):                                            |  |                                                               |           |   |         |   |           |         |  |   |           |   |  |      |           |   |  |   |           |  
|Operating activities                                                       |  | $                                                             | 9,205     |   |         | $ | 6,682     |         |  | $ | 2,157     |   |  | $    | 4,560     |   |  | $ | 6,905     |  
|Investing activities                                                       |  |                                                               | (33,740   | ) |         |   | (1,950    | )       |  |   | (16,113   | ) |  |      | (3,358    | ) |  |   | (2,043    | )
|Financing activities                                                       |  |                                                               | 26,014    |   |         |   | (6,395    | )       |  |   | 9,433     |   |  |      | (238      | ) |  |   | (1,216    | )
|                                                                           |  |                                                               |           |   |        
|BALANCE SHEET DATA:                                                        |  |                                                               |           |   |         |   |           |         |  |   |           |   |  |      |           |   |  |   |           |  
|Cash and cash equivalents                                                  |  | $                                                             | 5,443     |   |         | $ | 3,965     |         |  | $ | 5,648     |   |  | $    | 10,160    |   |  | $ | 9,940     |  
|Total assets                                                               |  |                                                               | 91,593    |   |         |   | 55,446    |         |  |   | 59,144    |   |  |      | 47,883    |   |  |   | 47,092    |  
|Long-term debt                                                             |  |                                                               | 36,943    |   |         |   | 13,426    |         |  |   | 19,026    |   |  |      | 10,000    |   |  |   | 10,205    |  
|Total stockholders equity                                                 |  |                                                               | 45,542    |   |         |   | 35,531    |         |  |   | 33,608    |   |  |      | 32,619    |   |  |   | 31,337    |  

---

|(1) |  | The results of Gold Ranch following its acquisition on June 1, 2002 were included for the month of June 2002 and the full year in fiscal 2003 and 2004.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) |  | The results of Rail City following its acquisition on May 1, 2004 were included for May and June of fiscal 2004.
|--- |  | ----------------------------------------------------------------------------------------------------------------



|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, we, our, or us) operate
the Sands Regency Casino Hotel (the Sands) in downtown Reno, Nevada, the Gold Ranch Casino and RV Resort (the Gold Ranch) on Interstate-80 in Verdi, Nevada, and Rail City Casino (Rail City) in Sparks, Nevada. The
Sands has 832 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 options, including 600 slot machines, 19 table games, keno, bingo, and a
sportsbook operated by Leroys Race and Sportsbooks. Additionally, the Sands has a Just for Laughs comedy club, a cabaret lounge, and a health spa.



On June 1, 2002, the Company acquired Gold Ranch. Gold Ranchs gaming options include 252 slot machines, a California lottery station on Gold
Ranchs property which straddles the Nevada/California border, and a Leroys



10



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##### Table of Contents

sportsbook. Additionally, Gold Ranch has a 105 space RV park, 2 restaurants (a 24-hour family style restaurant and a Jack-in-the-Box), and an ARCO gas
station and convenience store.



On May 1, 2004, the Company
acquired Rail City in Sparks, Nevada. Rail City has approximately 16,600 square feet of gaming space housing 634 slots, 6 table games, keno, a Cal Neva sportsbook, a 24-hour family-style restaurant and a bar.



Consolidated financial results for the year ended June 30, 2002 include one
month of operations for Gold Ranch, and each of fiscal 2003 and 2004 include a full year of Gold Ranch operations. Consolidated financial results for the year ended June 30, 2004 include two months of operations for Rail City.



Reclassifications have been made to the fiscal 2003 and 2002 consolidated
financial statements to conform to the 2004 presentation.



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 our 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 we 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 our 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 recoverable. 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. In the year ended June 30, 2004, the Company accelerated the depreciation associated with the fuel pumps at Gold Ranch (see
Note 13).



Goodwill and other intangible assets



The provisions of SFAS No. 142 require us to review
goodwill and other intangibles annually for impairment. We completed our annual review and determined that there is no impairment of assets at June 30, 2004. 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. Receivables or note receivables, which are outside the normal
course of business are addressed on an individual basis. Refer to Note 4.



11



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##### Table of Contents

Self-insurance accrued liability



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



Litigation accrued liability



We assess our exposure to loss contingencies including legal matters and provide for an exposure if the potential loss is judged to be probable and
estimable. If the actual loss from a contingency differs from managements estimate, operating results could be impacted. We carry general liability insurance with umbrella coverage and other insurance, subject to an applicable deductible, to
protect it against large losses.



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. We estimate the percentage of rewards
earned that will eventually be redeemed based on experience and various special circumstances.



Results of OperationsComparison of fiscal 2004 to fiscal 2003



CONSOLIDATED RESULTS.    For the year ended June 30, 2004, the Companys net operating revenues increased from $55.7 million to
$62.3 million, or 12.0%, from the year ended June 30, 2003. Without the two month results of Rail City, which was acquired May 1, 2004, net revenues would have increased from $55.7 million in fiscal 2003 to $58.2 million, or 4.5%, in fiscal 2004.
The Sands net operating revenues were $34.4 million for fiscal 2004, compared to $33.5 million in fiscal 2003, a 2.7% increase. The Sands benefited from an usually strong winter and early spring, which is typically a very slow season. Gold
Ranch had net operating revenues of $23.8 million in fiscal 2004, compared to $22.2 million in fiscal 2003, a 7.2% increase. This increase resulted from higher gasoline prices at the high volume fuel and convenience store. Rail Citys net
revenues were $4.1 million for two months of operations.



Our
consolidated income from operations was $4.9 million for the year ended June 30, 2004, compared to $4.3 million for the year ended June 30, 2003. Income from operations for the Sands was just under $2.8 million in fiscal 2004 as compared to over
$2.8 million in fiscal 2003. The Sands had a net operating revenue increase, but slightly lower income from operations due mainly to increased marketing expense designed to counter the effects of the ReTRAC project and the new Thunder Valley Casino
in nearby Rocklin, California (see Risks Related to our Business later in this discussion). Gold Ranchs income from operations decreased to $1.5 million in fiscal 2004, compared to $1.8 million in fiscal 2003, lower primarily due
to a $195,000 charge for impairment of its gasoline pumps. Rail City had income from operations of $1.0 million in its first two months of operations under the Company. Finally, corporate costs of the parent company amounted to $439,000, larger than
the $324,000 operating expenses of the prior year, due to an allocation of corporate salaries and bonus expense precipitated by the purchase of Rail City.



Consolidated net income was $6.9 million, or $1.32 per share ($1.24 diluted) for the year ended June 30, 2004 compared to $1.9 million, or $.38 per share
($.36 diluted) for the year ended June 30, 2003. The large improvement in fiscal 2004 net income was due primarily to two events. First, the Company received payments of $4.4 million on a previously fully-reserved note receivable the Company
possessed in connection with its December 1998 sale of the Copa Casino (see Gain on previously reserved note receivable in this discussion), and secondly, Rail City contributed $442,000 to net income in its first two months of
operations. Without these two events, the Company would have had net income of $2.0 million, or $.38 per share ($.36 diluted) as compared to the $1.9 million, or $.38 per share ($.36 diluted), net income of fiscal 2003.



12



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##### Table of Contents

Year-over-year comparisons are affected by large non-operating gains from the collection of a note
receivable that was previously reserved. The following is consolidated pro forma net income information that is presented as if i) neither year realized these non-operating gains and ii) Rail City was acquired July 1, 2002, as presented in Note
1(a).



|                                                                          |  |                             |   |  |       |  
|------------------------------------------------------------------------- |  | --------------------------- | - |  | ----- | -
|                                                                          |  | For the yearsended June 30, |  
|(dollars in thousands):                                                   |  | 2004                        |   |  | 2003  |  
|Pro forma net income                                                      |  | 8,380                       |   |  | 3,717 |  
|Non-operating gain from collection on previously reserved note receivable |  | (4,393                      | ) |  | (413  | )
|Tax effect of non-operating gain                                          |  | (78                         | ) |  |      |  
|                                                                          |  |                             |   |  |       |  
|Pro forma net income                                                      |  | 3,909                       |   |  | 3,304 |  
|                                                                          |  |                             |   |  |       |  
|Pro forma earnings per share                                              |  |                             |   |  |       |  
|Basic                                                                     |  | 0.75                        |   |  | 0.67  |  
|Diluted                                                                   |  | 0.70                        |   |  | 0.64  |  



SANDS REGENCY HOTEL
AND CASINO.    The Sands net revenues increased $936,000, from $33.5 million for fiscal 2003 to $34.4 million in fiscal 2004, as the downtown Reno property benefited from the mens American Bowlers Congress triennial
tournament, which was a month longer and drew larger numbers to the Reno area than last years Womens Invitational Bowlers Congress triennial tournament. Further, former patrons of the closed Sundowner Casino, situated adjacent to the
Sands, provided the Sands with incremental guest counts. Factors moderating the downtown Reno propertys revenues included the intermittent street disruptions caused by ongoing work on the downtown railroad trench (ReTRAC project), high fuel
prices, and increased competition from Native American casinos, especially from the nearby Thunder Valley Casino in Rocklin, California, which opened in May 2003.



Gaming revenues for the Sands increased from $21.5 million in fiscal 2003 to $22.3 million in fiscal 2004. Gaming revenues
for fiscal 2004 tracked lower to the prior year through approximately November 2003, primarily attributable to a soft fiscal first quarter, which was weakened by: i) street closures from the ReTRAC project and ii) less patronage from by the
northern California feeder market who gave trial to the newly opened Thunder Valley Casino. In the March 2004 quarter, which was unusually strong in what is typically a seasonally slow period, the gaming revenues turned higher on the year-over-year
comparison and remained higher, finishing higher than the prior year by $832,000, or 3.9%. The increase in gaming revenues was partially offset by lost revenues from our keno operations, which was outsourced to a third party on May 17, 2004, and now
realizes only a small percentage of total keno revenues, but also experiences reduced costs.



Lodging revenues for the Sands increased for the year ended June 30, 2004, to $9.0 million from $8.5 million for fiscal 2003. The Sands average room rate was $33.90 for fiscal 2004 versus $33.22 for fiscal 2003,
which contributed approximately $176,000 to the increase in lodging revenues. However, the primary reason for the lodging revenue increase was an additional 10,225, or 4.0%, more rooms sold in the 2004 fiscal year than in fiscal 2003. The Sands
benefited from less rooms available in the market, as two downtown hotels, the Comstock and the Sundowner, were closed most of the year, both currently being remodeled into condominiums.



Despite an increase in net revenues at the Sands, income from operations decreased $64,000, or 2.2%, from fiscal 2003 to
fiscal 2004, due to a variety of factors, including increased marketing costs to combat the negative effects of both the ReTRAC project and the new competition from California casinos. Further, the wholesale prices for meat used in the restaurants
was markedly higher, the 2003 Nevada legislature enacted new taxes which increased operating costs over $90,000, and finally, depreciation costs were higher due to the first full year of amortization of two large projects completed in fiscal 2003:
i) the hotel guest rooms remodel and ii) the slot machine player tracking system upgrade.



13



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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 30,2004 |        |   | Percentchange |      |   | Year endedJune 30,2003 |  
|Gaming revenues            |  | $                      | 22,326 |   |               | 4.0  | % |                        | $ | 21,471 |  
|Gaming expenses            |  | $                      | 10,029 |   |               | 3.2  | % |                        | $ | 9,715  |  
|Expense margin             |  |                        | 44.9   | % |               |      |   |                        |   | 45.2   | %
|                           |  |                        |       
|Lodging revenues           |  | $                      | 9,038  |   |               | 6.1  | % |                        | $ | 8,515  |  
|Lodging expenses           |  | $                      | 3,918  |   |               | -1.7 | % |                        | $ | 3,984  |  
|Expense margin             |  |                        | 43.3   | % |               |      |   |                        |   | 46.8   | %
|                           |  |                        |       
|Food and beverage revenues |  | $                      | 5,017  |   |               | -2.8 | % |                        | $ | 5,162  |  
|Food and beverage expenses |  | $                      | 3,266  |   |               | 6.6  | % |                        | $ | 3,065  |  
|Expense margin             |  |                        | 65.1   | % |               |      |   |                        |   | 59.4   | %
|                           |  |                        |       
|Other revenues             |  | $                      | 1,530  |   |               | 1.1  | % |                        | $ | 1,513  |  
|Other expenses             |  | $                      | 548    |   |               | -1.3 | % |                        | $ | 556    |  
|Expense margin             |  |                        | 35.8   | % |               |      |   |                        |   | 36.7   | %
|                           |  |                        |       
|Total net revenues         |  | $                      | 34,408 |   |               | 2.7  | % |                        |   | 33,494 |  
|Total operating expenses   |  | $                      | 31,629 |   |               | 3.2  | % |                        |   | 30,651 |  
|Expense margin             |  |                        | 91.9   | % |               |      |   |                        |   | 91.5   | %
|                           |  |                        |       
|Maintenance and utilities  |  | $                      | 3,454  |   |               | -1.6 | % |                        | $ | 3,508  |  
|Percent of net revenues    |  |                        | 10.0   | % |               |      |   |                        |   | 10.5   | %
|                           |  |                        |       
|General and administrative |  | $                      | 6,988  |   |               | 4.9  | % |                        | $ | 6,664  |  
|Percent of net revenues    |  |                        | 20.3   | % |               |      |   |                        |   | 19.9   | %



GOLD RANCH CASINO AND
RV RESORT.    For the year ended June 30, 2004, Gold Ranch had net revenues of $23.8 million, compared to $22.2 million for the year ended June 30, 2003. This increase was attributable primarily to gasoline revenue and in
particular an increase in the price of gasoline. The average retail price of a gallon of gasoline was $1.58 for fiscal 2003 compared to $1.85 for fiscal 2004. Gasoline gallons sold declined by 213,000, or 2.7%, due in part to slightly less traffic
on Interstate 80 during the fiscal year. Additionally, during the last half of the 2004 fiscal year, Gold Ranch experienced some competitive gasoline pricing on the I-80 corridor in California. At times, Gold Ranch wasnt able to sell gasoline
as cheaply as its California competitors and maintain its margins.



Gaming revenue for Gold Ranch is comprised of slot machine revenue and, to a lesser degree, revenue from a California lottery ticket station. Gaming revenue increased from $5.7 million for the year ended June 30, 2003 to $5.8 million for
the year ended June 30, 2004. Management believes the substantially flat results were due, in part, to the decrease in the number of customers drawn by inexpensive gasoline and to competition from casinos in Northern California. Further, gaming
revenues were negatively impacted by a lower than theoretical hold percentage on its slot machines. Hold percentage is the percentage the house wins, which is compared to total dollars played. Management believes the excessively low-hold
problem of its slot machines was due to an isolated incident and has taken corrective action.



Gold Ranchs income from operations for the year ended June 30, 2004 declined from the year ended June 30, 2003 by $229,000, or 12.9%. The primary reason for the decline was a non-cash charge of $195,000 taken on
its gasoline pumps. Further, management believes that the intermittently malfunctioning pumps may have contributed to the gallons sold shortfall. Other items contributing to Gold Ranchs decrease in income from operations include higher meat
prices in its restaurant, new taxes enacted by the 2003 Nevada legislature, which among other things, increased the Nevada tax on cigarettes and negatively impacted convenience store volume and gross margins.



14



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##### Table of Contents

The following table highlights Gold Ranchs sources of revenues and expenses for the:



|                                    |  |                        |        |   |               |      |   |                        |   |        |  
|----------------------------------- |  | ---------------------- | ------ | - | ------------- | ---- | - | ---------------------- | - | ------ | -
|(dollars in thousands)              |  | Year endedJune 30,2004 |        |   | Percentchange |      |   | Year endedJune 30,2003 |  
|Gaming revenues                     |  | $                      | 5,771  |   |               | 1.0  | % |                        | $ | 5,713  |  
|Gaming expenses                     |  | $                      | 2,243  |   |               | 8.6  | % |                        | $ | 2,065  |  
|Expense margin                      |  |                        | 38.9   | % |               |      |   |                        |   | 36.1   | %
|                                    |  |                        |       
|Lodging revenues                    |  | $                      | 510    |   |               | 40.8 | % |                        | $ | 362    |  
|Lodging expenses                    |  | $                      | 193    |   |               | 18.6 | % |                        | $ | 163    |  
|Expense margin                      |  |                        | 37.9   | % |               |      |   |                        |   | 45.0   | %
|                                    |  |                        |       
|Food and beverage revenues          |  | $                      | 1,641  |   |               | 0.5  | % |                        | $ | 1,633  |  
|Food and beverage expenses          |  | $                      | 1,138  |   |               | 13.7 | % |                        | $ | 1,001  |  
|Expense margin                      |  |                        | 69.3   | % |               |      |   |                        |   | 61.3   | %
|                                    |  |                        |       
|Fuel and convenience store revenues |  | $                      | 16,245 |   |               | 9.6  | % |                        | $ | 14,817 |  
|Fuel and convenience store expenses |  | $                      | 15,411 |   |               | 9.7  | % |                        | $ | 14,045 |  
|Expense margin                      |  |                        | 94.9   | % |               |      |   |                        |   | 94.8   | %
|                                    |  |                        |       
|Total net revenues                  |  | $                      | 23,802 |   |               | 7.3  | % |                        |   | 22,189 |  
|Total operating expenses            |  | $                      | 22,257 |   |               | 9.0  | % |                        |   | 20,415 |  
|Expense margin                      |  |                        | 93.5   | % |               |      |   |                        |   | 92.0   | %
|                                    |  |                        |       
|Maintenance and utilities           |  | $                      | 680    |   |               | -1.9 | % |                        | $ | 693    |  
|Percent of net revenues             |  |                        | 2.9    | % |               |      |   |                        |   | 3.1    | %
|                                    |  |                        |       
|General and administrative          |  | $                      | 1,866  |   |               | -8.0 | % |                        | $ | 2,029  |  
|Percent of net revenues             |  |                        | 7.8    | % |               |      |   |                        |   | 9.0    | %



RAIL CITY
CASINO.    The Company acquired Rail City in May 2004. For the two months ended June 30, 2004, Rail City had $3.7 million of gaming revenues during the spring/summer season, which in contrast to the Companys other
properties, is historically a slightly softer season than the winter months. Rail Citys other material revenue center is food and beverage, which is comprised of one high volume restaurant and bar. Food and beverage revenues were $879,000 for
the 2 months.



Rail City had income from operations of $1
million for the two months ended June 30, 2004 and an operating expense margin of 75.4%. The following table highlights Rail Citys sources of revenues and expenses for the:



|                           |  |                        |       |  
|-------------------------- |  | ---------------------- | ----- | -
|(dollars in thousands)     |  | Year endedJune 30,2004 |      
|Gaming revenues            |  | $                      | 3,700 |  
|Gaming expenses            |  | $                      | 1,397 |  
|Expense margin             |  |                        | 37.8  | %
|                           | 
|Food and beverage revenues |  | $                      | 879   |  
|Food and beverage expenses |  | $                      | 531   |  
|Expense margin             |  |                        | 60.4  | %
|                           | 
|Total net revenues         |  | $                      | 4,139 |  
|Total operating expenses   |  | $                      | 3,119 |  
|Expense margin             |  |                        | 75.4  | %
|                           | 
|Maintenance and utilities  |  | $                      | 219   |  
|Percent of net revenues    |  |                        | 5.3   | %
|                           | 
|General and administrative |  | $                      | 647   |  
|Percent of net revenues    |  |                        | 15.6  | %



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##### Table of Contents

CORPORATE COSTS.    Corporate costs of the parent company, including public company
reporting and related legal and accounting fees, were $439,000 in the year ended June 30, 2004, compared to $324,000 in the year ended June 30, 2003. The $115,000 increase was due to some senior management bonuses at the parent company. For the
fiscal year ended June 30, 2004, the total amount of management bonuses absorbed by the parent company was approximately $140,000, as compared to no bonuses allocated to the parent company in the prior year. Additionally, director fees increased in
2004 by $56,000 over the prior year. Conversely, the Company actively sought to decrease some of the costs associated with being a public company, which have increased in recent years, and year-over-year cost reductions were experienced in annual
report production costs, directors and officers insurance, and in corporate-related legal fees, which, in total, decreased $71,000 and partially offset the cost increases.



INTEREST EXPENSE.    Interest expense was almost $1.2 million for the year ended June 30, 2004, compared
to slightly more than $1.2 million in the year ended June 30, 2003. The decrease resulted despite our acceleration of the expensing of loan fees from our previous bank debt, which was refinanced in May 2004. We realized the amortization of loan fees
in our interest expense and those fees were $231,000 greater in 2004 than the prior year. Throughout fiscal 2004, the Company continued its policy to pay down its long-term line of credit with any available cash. This was accelerated by a $4.4
million settlement we received on a note receivable we held in connection with the December 1998 sale of the Copa Casino. On May 1, 2004, we increased our bank debt from $2.4 million to approximately $42.9 million to fund the Rail City acquisition.
(see Capital Resources and Liquidity in this section for a more detailed explanation).



LOSS ON ABANDONMENT OF NEW PROJECTS.    In the year ended June 30, 2004, the Company took a $46,000 write-off of costs we had incurred
on an opportunity we are still pursuing, which involves expanding the number of slot machines we have in one of our slot route locations from the current 8 machines to 150. The Company maintains the required non-restricted state license to turn this
operation into a casino; however, in January 2004, the Reno City Council denied the Companys request to expand, resulting in the loss. We believe the action taken by the council was arbitrary and we have taken taken legal action. In the year
ended June 30, 2003, we abandoned our plans to build a casino in Minden, Nevada, resulting in a loss of $59,000.



GAIN ON PREVIOUSLY RESERVED NOTE RECEIVABLE.    On November 13, 2003, we reached an agreement with Gulfside Casino Partnership (d/b/a
the Copa Casino in Gulfport, Mississippi), regarding a final settlement of amounts owed to the Company pursuant to a non-interest bearing promissory note issued to the Company in connection with its December 1998 sale of its interest in the Copa
Casino. The terms of the note required a monthly payment to the Company in an amount equal to the greater of $15,000 or 2% of the Copa Casinos gross gaming revenues (4% beginning July 2004) until the note is paid in full. At the time of the
settlement, the unpaid balance of the note was $5.0 million. On November 28, 2003, the Company received an approximately $4.0 million cash payment as final settlement under the note. The Company had not previously recognized a gain on the settlement
amount due primarily to the Companys uncertainty of the Copas current managements ability to obtain long-term financing, as well as competitive, legal, financial, environmental and various other risks facing the casino. As a
result, in December 2003, the Company recognized a gain for the full settlement amount of $4.0 million plus debt service payments of $387,000 made during the period.



16



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##### Table of Contents

FEDERAL INCOME TAX-EFFECTIVE RATE. The Companys effective tax rate of 14.3% varies significantly
from the statutory rate due to circumstances involving the Companys 1998 sale of the Copa Casino. At the time of the Copa Casinos sale, the Companys tax basis in the Copa Casino was $7.3 million and its financial basis was $2.7
million. The sales price included a note for $8.0 million and $500,000 in cash. The $8.5 million proceeds from the sale was recognized for tax purposes and a $1.2 million tax gain was recorded. No gain was recognized for financial statement
purposes. A deferred tax asset was recognized for $1.9 million with a related valuation allowance of $1.5 million. The valuation allowance was recorded due to the uncertainty of receiving any future payments in relation to the sale. In fiscal 2003,
payments were received, which reduced the net deferred tax asset to $270,000. In fiscal 2004, a payment of $4.0 was received in a negotiated settlement of the note. In addition, the remaining $1.0 million due was written off as bad debt for tax
purposes, as this was previously recorded as part of the tax gain in 1998. Accordingly, the valuation allowance was reversed, the deferred tax asset was utilized, and the overall tax rate was reduced as a result of this transaction.



Comparison of fiscal 2003 to 2002



CONSOLIDATED RESULTS.    For the year ended June 30,
2003, the Companys net operating revenues increased from $34.1 million to $55.7 million, or 63.3%, 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 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 3.4%.
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 6.0%, 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 fiscal 2003 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 (first quarter of fiscal 2003), as Reno tourism
rebounded 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 expense 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, new slot machine related technology purchased in December 2002 has proven to be less labor intensive and has allowed for a reduction in labor hours in the
slot department.



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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 |  
|Gaming revenues            |  | $                      | 21,471 |   |               | 4.8  | % |                        | $ | 20,483 |  
|Gaming expenses            |  | $                      | 9,715  |   |               | -1.6 | % |                        | $ | 9,875  |  
|Expense margin             |  |                        | 45.2   | % |               |      |   |                        |   | 48.2   | %
|                           |  |                        |       
|Lodging revenues           |  | $                      | 8,515  |   |               | 6.3  | % |                        | $ | 8,010  |  
|Lodging expenses           |  | $                      | 3,984  |   |               | 1.0  | % |                        | $ | 3,946  |  
|Expense margin             |  |                        | 46.8   | % |               |      |   |                        |   | 49.3   | %
|                           |  |                        |       
|Food and beverage revenues |  | $                      | 5,162  |   |               | -5.5 | % |                        | $ | 5,463  |  
|Food and beverage expenses |  | $                      | 3,065  |   |               | -6.1 | % |                        | $ | 3,265  |  
|Expense margin             |  |                        | 59.4   | % |               |      |   |                        |   | 59.8   | %
|                           |  |                        |       
|Other revenues             |  | $                      | 1,513  |   |               | 9.4  | % |                        | $ | 1,382  |  
|Other expenses             |  | $                      | 556    |   |               | -3.9 | % |                        | $ | 578    |  
|Expense margin             |  |                        | 36.7   | % |               |      |   |                        |   | 41.8   | %
|                           |  |                        |       
|Total net revenues         |  | $                      | 33,494 |   |               | -6.4 | % |                        | $ | 35,786 |  
|Total operating expenses   |  | $                      | 30,651 |   |               | -6.7 | % |                        | $ | 32,840 |  
|Expense margin             |  |                        | 91.5   | % |               |      |   |                        |   | 91.8   | %
|                           |  |                        |       
|Maintenance and utilities  |  | $                      | 3,508  |   |               | 1.6  | % |                        | $ | 3,453  |  
|Percent of net revenues    |  |                        | 10.5   | % |               |      |   |                        |   | 9.6    | %
|                           |  |                        |       
|General and administrative |  | $                      | 6,664  |   |               | 0.0  | % |                        | $ | 6,666  |  
|Percent of net revenues    |  |                        | 19.9   | % |               |      |   |                        |   | 18.6   | %



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. Further, one months revenues can
not be annualized to help draw comparisons 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.



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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 endedJune 30,2003 |        |   | Percentchange (1) |  | Year endedJune 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  | %
|                                    |  |                        |       
|Total net revenues                  |  |                        | 22,189 |   |                   |  |                        |   | 1,681 |  
|Total operating expenses            |  |                        | 20,415 |   |                   |  |                        |   | 1,479 |  
|Expense margin                      |  |                        | 92.0   | % |                   |  |                        |   | 88.0  | %
|                                    |  |                        |       
|Maintenance and utilities           |  | $                      | 693    |   |                   |  |                        | $ | 48    |  
|Percent of net revenues             |  |                        | 3.1    | % |                   |  |                        |   | 2.8   | %
|                                    |  |                        |       
|General and administrative          |  | $                      | 2,029  |   |                   |  |                        | $ | 140   |  
|Percent of net revenues             |  |                        | 9.1    | % |                   |  |                        |   | 8.3   | %

---

|(1) |  | Since the Company acquired the Gold Ranch in June 2002, the percentage change between fiscal 2002 and 2003 is not meaningful.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------



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, 2002, 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 to the June 1, 2002 Gold Ranch acquisition was 10.8%,
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, but the
insurance carrier, Legion Indemnity, is insolvent and not expected to make any payment to the



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##### Table of Contents

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 emanating from the same two 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.



LOSS ON DISPOSITION
OF ASSETS/PROJECT ABANDONMENTS.    The Company had losses on 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. In fiscal 2002 the Companys
losses on 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 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 PREVIOUSLY RESERVED NOTE RECEIVABLE.    During the year ended June 30, 2003, the Company received $737,000 in payments
pursuant to a non-interest bearing promissory note issued to the Company in connection with its December 1998 sale of its interest in the Copa Casino. The Company recognized a gain for $413,000 of the payment amount because it had not previously
done so, due to the Companys uncertainty of the Copas current managements ability to obtain long-term financing, as well as competitive, legal, financial, environmental and various other risks facing the casino. Subsequently, in
the year ended June 30, 2004, the Company realized an additional gain for $4.4 million and the note has been settled in full (see Note 4).



Seasonality



As is true for most casinos in the Reno area, especially for casinos with lodging, tourism declines rather substantially 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 aggressively pursued local
patrons for the last several years. In May 2004, the Company acquired Rail City, a locals casino, which historically experiences above average demand during the winter months. Despite this acquisition, management anticipates that the trend of
experiencing lower operating margins and revenues in the second and third quarters of each fiscal year may diminish somewhat, but will continue.



Capital Resources and Liquidity



The Companys cash and cash equivalents increased from $4.0 million at June 30, 2003 to $5.4 million at June 30, 2004. The increase results from
the cash requirements necessary to operate a new casino. The Company keeps operating cash only on hand; excess cash is used to pay down its line of credit. We had negative working capital of $1.5 million as of June 30, 2004, compared to working
capital of $1.6 million as of June 30, 2003. This resulted from our aggressive pay down policy on our line of credit. At June 30, 2004, the Company had $6.8 million of credit lines available.



Cash flow from operations provided $9.2 million during the year ended June
30, 2004, compared to $6.7 million for the prior year. A substantial portion of the increase resulted from a $1.4 million change in the Companys income tax position, which was a net receivable of $611,000 on June 30, 2003 and is a payable of
$768,000 on June 30, 2004.



Investing activities accounted for
a total of $33.7 million of net cash outflows for the year ended June 30, 2004, compared to net cash outflows of $6.4 million in the prior year. Net cash paid in the Rail City acquisition was $36.0 million. Additionally, we invested $2.3 million in
annual capital expenditures, higher than the $1.7 million invested last year, but less than the $3.0 million expended in fiscal year ended June 30, 2002. Cash inflows of $4.4 million from the settlement of a note receivable, partially offset the
cash used to acquire Rail City and used on capital expenditures.



20



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##### Table of Contents

Financing activities provided $26.0 million of net cash inflows during the year ended June 30, 2004,
compared to $6.4 million of net cash outflows in the prior year. The bank debt of $6.8 million at July 1, 2003, was repaid in full with the final $2.4 million refinanced in conjunction with the May 1, 2004 Rail City acquisition. Subordinated debt of
$4.4 million, from the Companys May 2002 acquisition of Gold Ranch Casino and RV Resort, was retired. This retirement was refinanced in March 2004 by a three-part debt and equity transaction with a private investor that consisted of (i) $2.4
million of equity raised by issuing 500,000 shares of common stock for $5.22 per share, (ii) a secured convertible note in the amount of $1.6 million, with a conversion price of $6.52, which is convertible into 246,012 shares of common stock, and
(iii) a warrant to purchase up to 100,000 shares of our common stock, subject to certain limitations, at an exercise price of $7.82 per share. Additionally, the Company paid $1.0 million in costs to obtain the new bank and private investor debt
financing.



At June 30, 2004, 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 for the foreseeable future; 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, 2004.



|                               |  |                        |            |                  |   |             |  |             |            |              |   |            |  |   |          
|------------------------------ |  | ---------------------- | ---------- | ---------------- | - | ----------- |  | ----------- | ---------- | ------------ | - | ---------- |  | - | ---------
|                               |  | Payments due by period
|                               |  | Total                  |            | Less than 1 year |   | 1 - 3 years |  | 4 - 5 years |            | After 5years
|Long-term debt                 |  | $                      | 36,942,939 |                  | $ | 3,143,570   |  | $           | 12,753,597 |              | $ | 21,045,772 |  | $ |         
|Interest on long-term debt (1) |  |                        | 12,242,201 |                  |   | 3,218,416   |  |             | 5,448,260  |              |   | 3,575,525  |  |   |         
|Operating leases (2)           |  |                        | 4,552,083  |                  |   | 575,000     |  |             | 1,150,000  |              |   | 1,150,000  |  |   | 1,677,083
|Other (3)                      |  |                        | 1,607,994  |                  |   | 203,115     |  |             | 406,230    |              |   | 406,230    |  |   | 592,419  
|                               |  |                        |            |                  |   |             |  |             |            |              |   |            |  |   |          
|                               |  | $                      | 55,345,217 |                  | $ | 7,140,101   |  | $           | 19,758,087 |              | $ | 26,177,527 |  | $ | 2,269,502
|                               |  |                        |            |                  |   |             |  |             |            |              |   |            |  |   |          

---

|(1) |  | Interest is calculated by assuming the Company keeps its line of credit fully advanced and the table assumes a weighted average interest rate of 7.5% until maturity. All long-term
debt matures within 5 years.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) |  | Represents contractual lease obligations to Prospector Gaming Enterprises (PGE) 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. The Company has paid
$575,000, $575,000, and $47,917, on this obligation in fiscal years 2004, 2003, and 2002, respectively.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) |  | Represents management fees due to PGE in connection with the RV park at Gold Ranch. Future amounts payable are subject to adjustment based on changes in interest rates. The Company
has paid $192,213, $169,922, and $14,105, on this obligation in fiscal years 2004, 2003, and 2002, respectively.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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.



21



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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 Securities and Exchange Commission:



| |  |  | 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;
| | - |  | -------------------------------------------



| |  |  | 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;
| | - |  | ----------------------



| |  |  | the effects terrorists attacks or war may have on the gaming industry;
| | - |  | ----------------------------------------------------------------------



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



| |  |  | the matters discussed below under Risks related to our Business.
| | - |  | ------------------------------------------------------------------



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.



Risks Relating to our Business



An investment in our common stock involves a high degree of risk. You should consider the risks described below and the other information contained in
this report carefully before deciding to invest in the Company. If any of the following risks actually occur, our business, financial condition and operating results would be materially harmed. As a result, the trading price of our common stock
could decline, and you could lose a part or all of your investment.



Our
business may be adversely impacted if the Reno economy declines.



We heavily market to and rely upon business from Reno area residents. In recent years, Reno has enjoyed robust business growth and has attracted a number of technology, product distribution and marketing companies. These businesses have
created jobs and helped fuel residential development, including the Reno metropolitan area. Should there be negative changes in the business and job conditions in Reno, our locals business, which is a substantial part of our overall business, could
be adversely impacted.



We may be unable to successfully integrate the
operations of Rail City and/or experience significant charges to earnings as a result of the acquisition that may adversely affect our stock price and financial condition.



Acquisitions typically entail many risks and could result in difficulties in integrating the operations and personnel of
acquired companies. If we are not able to successfully integrate Rail City, we may not obtain the advantages that the acquisition was intended to create, which may adversely affect our business, results of operations, financial condition and cash
flows and the market price of our stock. In addition, in connection with acquisition, we could experience disruption in our business or employee base.



In addition, as a result of the Rail City acquisition we have experienced, and will likely continue to experience, significant charges to earnings for
merger and related expenses that may include transaction costs or closure costs. These costs may include substantial fees for investment bankers, attorneys, accountants and financial printing costs. Charges that we may incur in connection with
acquisition could adversely affect our results of operations for particular quarterly or annual periods.



22



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##### Table of Contents

The gaming industry is highly competitive and increased competition could have a material adverse effect on our future
operations.



The gaming industry is highly competitive. As
competitive pressures from California Native American casinos increase, other Reno area casinos may intensify their targeting of the Reno area resident market, which is one of our key markets. Increased competitive pressures in the local market
could adversely impact our ability to continue to attract local residents to our facilities, or require us to use more expensive and therefore less profitable promotions to compete more efficiently. In addition, Native American gaming facilities in
California and other jurisdictions in some instances operate under regulatory requirements less stringent than those imposed on Nevada licensed casinos, which could afford them a competitive advantage in our markets.



Our business may be adversely impacted by expanded Native American gaming operations in
California and the Pacific Northwest.



Our largest sources
of tourist customers are California and the Pacific Northwest, including a large number who drive to Reno from the San Francisco and Sacramento metropolitan areas. 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. For example, Thunder Valley Casino, a large new Native American casino managed by Station
Casinos, Inc., opened June 9, 2003, 110 miles west of Reno in Rocklin, California. Californias well-documented budgetary problems have state officials in active negotiations to renegotiate certain compacts with Native



American tribes. Some Native American casino compacts have already been
changed to allow for additional slot machines. Further, there are at least two initiatives on Californias November ballot, the passage of which, would serve to increase the number of slots in that state. The effect of increased gaming in
California and other states is difficult to predict. However, our business would be adversely impacted if Thunder Valley and other casinos attract patrons who would otherwise travel to Reno. In addition, a significant portion of our customer base is
made up of Reno area residents. 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, which could materially and adversely impact our
business and financial results.



Adverse winter weather conditions in the
Sierra Nevada Mountains and Reno-Lake Tahoe area could have a material adverse effect on our results of operations and financial condition.



Adverse winter weather conditions, particularly snowfall, can deter our customers from traveling or make it difficult for them to frequent our facilities.
Adverse winter weather would most significantly affect our drive-in customers from northern California and the Pacific Northwest. If the Reno area itself were to experience prolonged adverse winter weather conditions, our results of operations and
financial condition could also be materially adversely affected.



Terrorist
attacks may seriously harm our business.



The terrorist
attacks that took place in the United States on September 11, 2001 were unprecedented events that created economic and business uncertainties, especially for the travel and tourism industry. The potential for future terrorist attacks, the national
and international responses, and other acts of war or hostility have created economic and political uncertainties that could materially adversely affect our business, results of operations, and financial condition in ways we currently cannot
predict.



If we lose our key personnel, our business could be materially
adversely affected



We depend on the continued performance
of our Chief Executive Officer and his management team. If we lose the services of our senior management personnel, and cannot replace such persons in a timely manner, our business could be materially adversely affected.



23



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Our business is subject to restrictions and limitations imposed by gaming regulatory authorities that could adversely
affect us.



The ownership and operation of casino gaming
facilities are subject to extensive state and local regulation. The State of Nevada and the applicable local authorities require various licenses, registrations, permits and approvals to be held by us. The Nevada Gaming Commission may, among other
things, limit, condition, suspend, or revoke or decline to renew a license for any cause deemed reasonable by such licensing authority. If we violate gaming laws or regulations, substantial fines could be levied against us and we could be forced to
forfeit a portion of our assets. The suspension, revocation or non-renewal of any of our licenses or the levy on us of substantial fines or forfeiture of assets would have a material and adverse effect on our business, financial condition and
results of operations.



If the State of Nevada or the City of Reno increases
gaming taxes and fees, our results of operations could be adversely affected.



State and local authorities raise a significant amount of revenue through taxes and fees on gaming activities. From time to time, legislators and officials have proposed changes in tax laws, or in the administration
of such laws, affecting the gaming industry. In addition, worsening economic conditions could intensify the efforts of state and local governments to raise revenues through increases in gaming taxes. If the State of Nevada, the Cities of Reno or
Sparks, or the County of Washoe were to increase gaming taxes and fees, our results of operations could be adversely affected.



Our operations continue to be negatively affected by the ongoing downtown Reno railroad trench project.



Work began in the Fall of 2003 on a project to build a trench through
downtown Reno for the purpose of constructing a below grade rail transport corridor. Large-scale excavation is currently underway. Known as ReTRAC (Reno Transportation Railroad Access Corridor), the project is anticipated to be completed by late
2006. Currently, Union Pacifics railroad tracks dissect downtown Reno, as well as the Sands parking facilities. ReTRAC has adversely affected the utility of nearly 300 of the Sands parking spaces to build an interim railroad track known
as the shoo-fly. The Company has also been informed that 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 $582,000 for its contribution to the project. The Company is amortizing $428,000 of the proceeds over the anticipated length of the project
(May 2003 through November 2006). Part of the proceeds, $154,000, represents land, specifically parking spaces, that were effectively sold to the City of Reno. The Company feels it was not adequately compensated for its contribution to the project
and filed a lawsuit in January 2004. Negotiations are continuing for a replacement bridge and additional parking, and as of the date of this report, the Company is in active negotiations with ReTRAC, 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 this project could still have an adverse material impact on the business levels of its downtown Reno property during the construction period.



Recently issued standards, rules and regulations of governing agencies and bodies could
result in material increases our corporate expense which could adversely affect our financial results.



We keep abreast of new generally acceptable accounting principles and rules and regulations issued or adopted by the Financial Accounting Standards Board,
the Securities and Exchange Commission, the NASDAQ and other standard setting agencies. These principles, rules and regulations often require us to expend funds in order to meet additional requirements. As a result, our expenses could materially
increase, which could adversely affect our



24



---

##### Table of Contents

financial results. Recently issued accounting standards affecting our financial results are described in Note 1 to our financial statements.



Our substantial indebtedness after the Rail City acquisition could adversely affect our
operations and financial results.



On May 1, 2004, the
Company acquired Rail City Casino in Sparks, Nevada. The major considerations given as to why Rail City was a good acquisition for the Company include, but not limited to:



| |  |  | customer deversification and property expansion potential;
| | - |  | ----------------------------------------------------------



| |  |  | management and marketing efficiencies of having a third casino in close proximity to others;
| | - |  | --------------------------------------------------------------------------------------------



| |  |  | an inherent market niche that compliments the Companys previous customer base; and
| | - |  | -----------------------------------------------------------------------------------



| |  |  | a proven industry performer with an efficient cost structure.
| | - |  | -------------------------------------------------------------



The future success of the Companys acquisition of Rail City will depend on a number of factors, including the successful integration of the
operations of Rail City. The difficulties of combining the operations of Rail City with that of the Company include, among others:



| |  |  | retaining key employees;
| | - |  | ------------------------



| |  |  | consolidating administrative infrastructures;
| | - |  | ---------------------------------------------



| |  |  | coordinating sales and marketing functions; and
| | - |  | -----------------------------------------------



| |  |  | minimizing the diversion of managements attention from ongoing business concerns.
| | - |  | ----------------------------------------------------------------------------------



In addition, even if the Company is able to integrate Rail Citys operations successfully, this integration may not
result in the realization of the full benefits and growth opportunities that we expect or these benefits may not be achieved within the anticipated time frame.



Our outstanding debt as of December 31, 2003 was approximately $6.9 million. After the Rail City acquisition, our debt increased to in excess of $44
million. As a result of this increase in debt, demands on our cash resources will increase. The increased levels of debt could, among other things:



| |  |  | require us to dedicate a substantial portion of our cash flow from operations to payments on our debt, thereby reducing funds available for working capital, capital expenditures,
dividends, acquisitions and other purposes;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | increase our vulnerability to, and limit flexibility in planning for, adverse economic and industry conditions;
| | - |  | ---------------------------------------------------------------------------------------------------------------



| |  |  | create competitive disadvantages compared to other companies with lower debt levels; and
| | - |  | ----------------------------------------------------------------------------------------



| |  |  | limit our ability to apply proceeds from an offering or asset sale to purposes other than the repayment of debt.
| | - |  | ----------------------------------------------------------------------------------------------------------------



25



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##### Table of Contents

|ITEM 7A.    QUANTITATIVE |  | AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|------------------------ |  | ---------------------------------------------



With the Credit Agreement executed in April 2004 in connection with the acquisition of Rail City, the Company has substantial variable interest rate debt
in the amount of $41.3 million. Assuming the credit facilities are fully advanced, the Company is subject to substantial market interest rate risks. A one percent increase in interest rates would result in an increase in interest expense of
approximately $413,000 annually.



Additionally, terms of the
Companys RV park management agreement with Prospector Gaming Enterprises (PGE), referenced as (3) in the Commitments and Contingencies section of this Report, state that the Company pay monthly an amount equal to 120%
of PGEs debt service on the underlying RV park note, which varies directly with changes in the Prime index. 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.



26



---

##### Table of Contents

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



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



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, 2004 and 2003, and the related consolidated statements of operations, stockholders equity, and cash flows for each of the three years in the period ended June 30, 2004. Our audits also included the consolidated financial
statement schedule listed as item 15 (a)(2). These financial statements and financial statement schedule are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements and financial
statement schedule based on our audits.



We conducted our
audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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, 2004 and 2003, and the results of their operations and their cash flows for each of the three years in the period ended June 30, 2004, in conformity with accounting principles generally accepted in the United States of
America. Also in our opinion, such consolidated financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects, the information set forth therein.



LOGO



Reno, Nevada

September 22, 2004



27



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##### Table of Contents

THE SANDS REGENT



CONSOLIDATED
BALANCE SHEETS



|                                                                                                  |  |          |             |   |      |   |             |  
|------------------------------------------------------------------------------------------------- |  | -------- | ----------- | - | ---- | - | ----------- | -
|                                                                                                  |  | June 30, |            
|                                                                                                  |  | 2004     |             |   | 2003 |  
|ASSETS                                                                                            |  |          |             |   |      |   |             |  
|Current assets                                                                                    |  |          |             |   |      |   |             |  
|Cash and cash equivalents                                                                         |  | $        | 5,443,278   |   |      | $ | 3,965,293   |  
|Accounts receivable, net of allowance of $32,000 and $61,000                                      |  |          | 713,868     |   |      |   | 675,217     |  
|Inventories                                                                                       |  |          | 774,680     |   |      |   | 637,012     |  
|Federal income tax refund receivable                                                              |  |          |            |   |      |   | 611,224     |  
|Prepaid expenses and other assets                                                                 |  |          | 2,014,367   |   |      |   | 1,246,567   |  
|                                                                                                  |  |          |             |   |      |   |             |  
|Total current assets                                                                              |  |          | 8,946,193   |   |      |   | 7,135,313   |  
|                                                                                                  |  |          |             |   |      |   |             |  
|Property and equipment                                                                            |  |          |             |   |      |   |             |  
|Land                                                                                              |  |          | 10,006,806  |   |      |   | 8,505,937   |  
|Buildings and improvements                                                                        |  |          | 42,823,166  |   |      |   | 40,998,942  |  
|Equipment, furniture and fixtures                                                                 |  |          | 24,633,667  |   |      |   | 20,569,009  |  
|Construction in progress                                                                          |  |          | 387,191     |   |      |   | 157,110     |  
|                                                                                                  |  |          |             |   |      |   |             |  
|                                                                                                  |  |          | 77,850,830  |   |      |   | 70,230,998  |  
|Less accumulated depreciation and amortization                                                    |  |          | 37,992,913  |   |      |   | 34,699,973  |  
|                                                                                                  |  |          |             |   |      |   |             |  
|Property and equipment, net                                                                       |  |          | 39,857,917  |   |      |   | 35,531,025  |  
|                                                                                                  |  |          |             |   |      |   |             |  
|Other assets                                                                                      |  |          |             |   |      |   |             |  
|Goodwill                                                                                          |  |          | 28,673,776  |   |      |   | 11,018,257  |  
|Other intangibles                                                                                 |  |          | 13,011,079  |   |      |   | 1,356,400   |  
|Other                                                                                             |  |          | 1,104,197   |   |      |   | 405,434     |  
|                                                                                                  |  |          |             |   |      |   |             |  
|Total other assets                                                                                |  |          | 42,789,052  |   |      |   | 12,780,091  |  
|                                                                                                  |  |          |             |   |      |   |             |  
|Total assets                                                                                      |  | $        | 91,593,162  |   |      | $ | 55,446,429  |  
|                                                                                                  |  |          |             |   |      |   |             |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                              |  |          |             |   |      |   |             |  
|Current liabilities                                                                               |  |          |             |   |      |   |             |  
|Accounts payable                                                                                  |  | $        | 3,380,581   |   |      | $ | 2,668,863   |  
|Accrued salaries, wages and benefits                                                              |  |          | 2,383,778   |   |      |   | 1,612,741   |  
|Other accrued expenses                                                                            |  |          | 465,023     |   |      |   | 254,639     |  
|Federal income tax payable                                                                        |  |          | 768,351     |   |      |   |            |  
|Deferred federal income tax liability                                                             |  |          | 258,279     |   |      |   | 206,470     |  
|Current maturities of long-term debt                                                              |  |          | 3,143,570   |   |      |   | 806,274     |  
|                                                                                                  |  |          |             |   |      |   |             |  
|Total current liabilities                                                                         |  |          | 10,399,582  |   |      |   | 5,548,987   |  
|Long-term debt                                                                                    |  |          | 33,799,369  |   |      |   | 12,620,040  |  
|Deferred federal income tax liability                                                             |  |          | 1,851,852   |   |      |   | 1,746,520   |  
|                                                                                                  |  |          |             |   |      |   |             |  
|Total liabilities                                                                                 |  |          | 46,050,803  |   |      |   | 19,915,547  |  
|                                                                                                  |  |          |             |   |      |   |             |  
|Common stock, $.10 par value, 20,000,000 shares authorized, 8,049,555 and 7,357,055 shares issued |  |          | 804,955     |   |      |   | 735,705     |  
|Additional paid-in capital                                                                        |  |          | 17,018,350  |   |      |   | 13,966,949  |  
|Retained earnings                                                                                 |  |          | 50,077,516  |   |      |   | 43,186,690  |  
|                                                                                                  |  |          |             |   |      |   |             |  
|                                                                                                  |  |          | 67,900,821  |   |      |   | 57,889,344  |  
|Treasury stock, at cost; 2,403,000 shares                                                         |  |          | (22,358,462 | ) |      |   | (22,358,462 | )
|                                                                                                  |  |          |             |   |      |   |             |  
|Total stockholders equity                                                                        |  |          | 45,542,359  |   |      |   | 35,530,882  |  
|                                                                                                  |  |          |             |   |      |   |             |  
|Total liabilities and stockholders equity                                                        |  | $        | 91,593,162  |   |      | $ | 55,446,429  |  
|                                                                                                  |  |          |             |   |      |   |             |  



See notes to
consolidated financial statements.



28



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##### Table of Contents

THE SANDS REGENT



CONSOLIDATED
STATEMENTS OF OPERATIONS



|                                                   |  |                              |            |   |      |   |            |      |  |   |            |  
|-------------------------------------------------- |  | ---------------------------- | ---------- | - | ---- | - | ---------- | ---- |  | - | ---------- | -
|                                                   |  | For the years ended June 30, |           
|                                                   |  | 2004                         |            |   | 2003 |   |            | 2002 | 
|REVENUES                                           |  |                              |            |   |      |   |            |      |  |   |            |  
|Gaming                                             |  | $                            | 31,796,169 |   |      | $ | 27,206,965 |      |  | $ | 21,173,695 |  
|Lodging                                            |  |                              | 9,548,392  |   |      |   | 8,877,706  |      |  |   | 8,040,613  |  
|Food and beverage                                  |  |                              | 7,537,243  |   |      |   | 6,794,931  |      |  |   | 5,615,082  |  
|Fuel and convenience store                         |  |                              | 16,244,986 |   |      |   | 14,817,055 |      |  |   | 1,070,216  |  
|Other                                              |  |                              | 1,730,932  |   |      |   | 1,639,797  |      |  |   | 1,390,847  |  
|                                                   |  |                              |            |   |      |   |            |      |  |   |            |  
|                                                   |  |                              | 66,857,722 |   |      |   | 59,336,454 |      |  |   | 37,290,453 |  
|Less promotional allowances                        |  |                              | 4,509,028  |   |      |   | 3,653,113  |      |  |   | 3,223,035  |  
|                                                   |  |                              |            |   |      |   |            |      |  |   |            |  
|Net revenues                                       |  |                              | 62,348,694 |   |      |   | 55,683,341 |      |  |   | 34,067,418 |  
|                                                   |  |                              |            |   |      |   |            |      |  |   |            |  
|OPERATING EXPENSES                                 |  |                              |            |   |      |   |            |      |  |   |            |  
|Gaming                                             |  |                              | 13,669,243 |   |      |   | 11,802,973 |      |  |   | 10,247,630 |  
|Lodging                                            |  |                              | 4,111,157  |   |      |   | 4,146,725  |      |  |   | 3,963,137  |  
|Food and beverage                                  |  |                              | 4,934,459  |   |      |   | 4,065,562  |      |  |   | 3,361,819  |  
|Fuel and convenience store                         |  |                              | 15,411,128 |   |      |   | 14,045,138 |      |  |   | 1,003,910  |  
|Other                                              |  |                              | 598,112    |   |      |   | 582,306    |      |  |   | 578,107    |  
|Maintenance and utilities                          |  |                              | 4,352,631  |   |      |   | 4,200,830  |      |  |   | 3,500,974  |  
|General and administrative                         |  |                              | 9,940,803  |   |      |   | 9,017,587  |      |  |   | 7,033,050  |  
|Depreciation and amortization                      |  |                              | 4,427,227  |   |      |   | 3,529,802  |      |  |   | 3,110,538  |  
|                                                   |  |                              |            |   |      |   |            |      |  |   |            |  
|                                                   |  |                              | 57,444,760 |   |      |   | 51,390,923 |      |  |   | 32,799,165 |  
|                                                   |  |                              |            |   |      |   |            |      |  |   |            |  
|INCOME FROM OPERATIONS                             |  |                              | 4,903,934  |   |      |   | 4,292,418  |      |  |   | 1,268,253  |  
|                                                   |  |                              |            |   |      |   |            |      |  |   |            |  
|OTHER INCOME / EXPENSE                             |  |                              |            |   |      |   |            |      |  |   |            |  
|Interest and other income                          |  |                              | 162        |   |      |   | 8,205      |      |  |   | 178,470    |  
|Interest and amortization of loan fees             |  |                              | (1,157,861 | ) |      |   | (1,215,971 | )    |  |   | (1,585,412 | )
|Non-recurring insurance lawsuit settlement         |  |                              |           |   |      |   | (547,205   | )    |  |   |           |  
|Loss on abandonment of new projects                |  |                              | (48,473    | ) |      |   | (58,798    | )    |  |   |           |  
|Loss on disposal of property and equipment         |  |                              | (46,627    | ) |      |   | (81,221    | )    |  |   | (182,127   | )
|Collections on previously reserved note receivable |  |                              | 4,393,403  |   |      |   | 413,021    |      |  |   |           |  
|                                                   |  |                              |            |   |      |   |            |      |  |   |            |  
|                                                   |  |                              | 3,140,604  |   |      |   | (1,481,969 | )    |  |   | (1,589,069 | )
|                                                   |  |                              |            |   |      |   |            |      |  |   |            |  
|INCOME (LOSS) BEFORE INCOME TAXES                  |  |                              | 8,044,538  |   |      |   | 2,810,449  |      |  |   | (320,816   | )
|INCOME TAX (PROVISION) BENEFIT                     |  |                              | (1,153,712 | ) |      |   | (942,056   | )    |  |   | 132,188    |  
|                                                   |  |                              |            |   |      |   |            |      |  |   |            |  
|NET INCOME (LOSS)                                  |  | $                            | 6,890,826  |   |      | $ | 1,868,393  |      |  | $ | (188,628   | )
|                                                   |  |                              |            |   |      |   |            |      |  |   |            |  
|NET INCOME (LOSS) PER SHARE                        |  |                              |            |   |      |   |            |      |  |   |            |  
|BASIC                                              |  | $                            | 1.32       |   |      | $ | 0.38       |      |  | $ | (0.04      | )
|DILUTED                                            |  | $                            | 1.24       |   |      | $ | 0.36       |      |  | $ | (0.04      | )
|WEIGHTED AVERAGE OF SHARES OUTSTANDING             |  |                              |            |   |      |   |            |      |  |   |            |  
|BASIC                                              |  |                              | 5,206,321  |   |      |   | 4,930,713  |      |  |   | 4,558,907  |  
|DILUTED                                            |  |                              | 5,558,834  |   |      |   | 5,198,915  |      |  |   | 4,558,907  |  



See notes to
consolidated financial statements.



29



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##### Table of Contents

THE SANDS REGENT



CONSOLIDATED
STATEMENTS OF STOCKHOLDERS EQUITY



For the years ended June 30,
2004, 2003, and 2002



|                                                         |  |              |  |                          |         |                  |   |            |                |        |            |       |  |           |  |   |             |   |  |   |            |  
|-------------------------------------------------------- |  | ------------ |  | ------------------------ | ------- | ---------------- | - | ---------- | -------------- | ------ | ---------- | ----- |  | --------- |  | - | ----------- | - |  | - | ---------- | -
|                                                         |  | Common Stock |  | AdditionalPaid-inCapital |         | RetainedEarnings |   |            | Treasury Stock |        |            | Total | 
|                                                         |  | Shares       |  | Amount                   |         |                  |   | Shares     |                | Amount |            |      
|Balances, July 1, 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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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 |  
|                                                         |  |              |  |                          |         |                  |   |            |                |        |            |       |  |           |  |   |             |   |  |   |            |  
|Net income                                               |  |              |  |                          |         |                  |   |            |                |        | 6,890,826  |       |  |           |  |   |             |   |  |   | 6,890,826  |  
|Issuance of Company common stockstock options exercised |  | 192,500      |  |                          | 19,250  |                  |   | 315,067    |                |        |            |       |  |           |  |   |             |   |  |   | 334,317    |  
|Issuance of Company common stock to private investor     |  | 500,000      |  |                          | 50,000  |                  |   | 2,391,106  |                |        |            |       |  |           |  |   |             |   |  |   | 2,441,106  |  
|Issuance of warrant to purchase Company common stock     |  |              |  |                          |         |                  |   | 345,228    |                |        |            |       |  |           |  |   |             |   |  |   | 345,228    |  
|                                                         |  |              |  |                          |         |                  |   |            |                |        |            |       |  |           |  |   |             |   |  |   |            |  
|Balances, June 30, 2004                                  |  | 8,049,555    |  | $                        | 804,955 |                  | $ | 17,018,350 |                | $      | 50,077,516 |       |  | 2,403,000 |  | $ | (22,358,462 | ) |  | $ | 45,542,359 |  
|                                                         |  |              |  |                          |         |                  |   |            |                |        |            |       |  |           |  |   |             |   |  |   |            |  



See notes to
consolidated financial statements.



30



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##### Table of Contents

THE SANDS REGENT



CONSOLIDATED
STATEMENTS OF CASH FLOWS



|                                                                                             |  |                              |             |   |      |   |            |      |  |   |             |  
|-------------------------------------------------------------------------------------------- |  | ---------------------------- | ----------- | - | ---- | - | ---------- | ---- |  | - | ----------- | -
|                                                                                             |  | For the years ended June 30, |            
|                                                                                             |  | 2004                         |             |   | 2003 |   |            | 2002 | 
|Operating Activities                                                                         |  |                              |             |   |      |   |            |      |  |   |             |  
|Net income (loss)                                                                            |  | $                            | 6,890,826   |   |      | $ | 1,868,393  |      |  | $ | (188,628    | )
|Adjustments to reconcile net income to net cash provided by operating activities:            |  |                              |             |   |      |   |            |      |  |   |             |  
|Depreciation and amortization                                                                |  |                              | 4,427,227   |   |      |   | 3,529,802  |      |  |   | 3,110,538   |  
|Loss on disposal of property and equipment                                                   |  |                              | 46,628      |   |      |   | 81,220     |      |  |   | 182,127     |  
|Collections on previously reserved note receivable                                           |  |                              | (4,393,403  | ) |      |   | (413,021   | )    |  |   |            |  
|(Increase) decrease in accounts receivable                                                   |  |                              | (21,695     | ) |      |   | (157,813   | )    |  |   | 100,709     |  
|(Increase) decrease in inventories                                                           |  |                              | (66,087     | ) |      |   | 78,773     |      |  |   | 75,357      |  
|(Increase) decrease in prepaid expenses and other current assets                             |  |                              | (234,410    | ) |      |   | 5,965      |      |  |   | (147,240    | )
|Decrease in other assets                                                                     |  |                              | 284,651     |   |      |   | 3,716      |      |  |   | 299,925     |  
|Increase (decrease) in accounts payable                                                      |  |                              | 131,662     |   |      |   | 613,320    |      |  |   | (402,850    | )
|Increase (decrease) in accrued salaries, wages, and benefits                                 |  |                              | 428,743     |   |      |   | 616,099    |      |  |   | (628,803    | )
|Increase in other accrued expenses                                                           |  |                              | 173,650     |   |      |   | 13,877     |      |  |   | 48,286      |  
|Change in federal income tax payable/receivable                                              |  |                              | 1,379,575   |   |      |   | (242,190   | )    |  |   | (361,558    | )
|Change in deferred federal income tax                                                        |  |                              | 157,141     |   |      |   | 684,246    |      |  |   | 69,370      |  
|                                                                                             |  |                              |             |   |      |   |            |      |  |   |             |  
|Net cash provided by operating activities (net of effect of the acquisition of subsidiaries) |  |                              | 9,204,508   |   |      |   | 6,682,387  |      |  |   | 2,157,233   |  
|                                                                                             |  |                              |             |   |      |   |            |      |  |   |             |  
|Investing Activities                                                                         |  |                              |             |   |      |   |            |      |  |   |             |  
|Purchase of short-term investments                                                           |  |                              |            |   |      |   |           |      |  |   | (10,000     | )
|Sales and maturities of short-term investments                                               |  |                              |            |   |      |   | 20,000     |      |  |   |            |  
|Payments received on note receivable                                                         |  |                              | 4,393,403   |   |      |   | 736,996    |      |  |   | 525,202     |  
|Net cash paid for wholly owned subsidiaries                                                  |  |                              | (36,039,196 | ) |      |   |           |      |  |   | (13,510,115 | )
|Investment in property and equipment                                                         |  |                              | (2,110,427  | ) |      |   | (1,652,955 | )    |  |   | (3,043,925  | )
|Payment for prior year purchases of property and equipment                                   |  |                              | (181,006    | ) |      |   | (1,098,461 | )    |  |   | (185,657    | )
|Proceeds from sale of assets                                                                 |  |                              | 196,733     |   |      |   | 44,500     |      |  |   | 111,938     |  
|                                                                                             |  |                              |             |   |      |   |            |      |  |   |             |  
|Net cash used in investing activities                                                        |  |                              | (33,740,493 | ) |      |   | (1,949,920 | )    |  |   | (16,112,557 | )
|                                                                                             |  |                              |             |   |      |   |            |      |  |   |             |  
|Financing Activities                                                                         |  |                              |             |   |      |   |            |      |  |   |             |  
|Issuance of long-term debt                                                                   |  |                              | 44,549,000  |   |      |   |           |      |  |   | 22,662,071  |  
|Payment of costs associated with the issuance of long-term debt in acquisition               |  |                              | (818,170    | ) |      |   |           |      |  |   | (283,507    | )
|Payment of costs associated with the refinancing of long-term debt                           |  |                              | (158,801    | ) |      |   |           |      |  |   |            |  
|Principal payments on long-term debt                                                         |  |                              | (20,678,709 | ) |      |   | (6,449,311 | )    |  |   | (12,981,770 | )
|Issuance of Company common stock                                                             |  |                              | 3,120,650   |   |      |   | 54,173     |      |  |   | 36,240      |  
|                                                                                             |  |                              |             |   |      |   |            |      |  |   |             |  
|Net cash provided by (used in) financing activities                                          |  |                              | 26,013,970  |   |      |   | (6,395,138 | )    |  |   | 9,433,034   |  
|                                                                                             |  |                              |             |   |      |   |            |      |  |   |             |  
|Increase (decrease) in cash and cash equivalents                                             |  |                              | 1,477,985   |   |      |   | (1,662,671 | )    |  |   | (4,522,290  | )
|Cash and cash equivalents, beginning of year                                                 |  |                              | 3,965,293   |   |      |   | 5,627,964  |      |  |   | 10,150,254  |  
|                                                                                             |  |                              |             |   |      |   |            |      |  |   |             |  
|Cash and cash equivalents, end of year                                                       |  | $                            | 5,443,278   |   |      | $ | 3,965,293  |      |  | $ | 5,627,964   |  
|                                                                                             |  |                              |             |   |      |   |            |      |  |   |             |  
|Supplemental cash flow information:                                                          |  |                              |             |   |      |   |            |      |  |   |             |  
|Property and equipment acquired by long term debt                                            |  | $                            |            |   |      | $ |           |      |  | $ | 14,687      |  
|Property and equipment acquired by accounts payable                                          |  | $                            | 295,386     |   |      | $ | 181,006    |      |  | $ | 1,098,461   |  
|Deferred loan fees amortized/written off                                                     |  | $                            | 263,553     |   |      | $ | 29,846     |      |  | $ | 301,381     |  
|Issuance of common stock to acquire subsidiaries                                             |  | $                            |            |   |      | $ |           |      |  | $ | 1,141,977   |  
|Interest paid, net of amount capitalized                                                     |  | $                            | 894,308     |   |      | $ | 1,186,124  |      |  | $ | 1,248,998   |  
|Federal income taxes paid (received)                                                         |  | $                            | (375,000    | ) |      | $ | 750,000    |      |  | $ | 160,000     |  
|                                                                                             |  |                              |            
|Fair value of assets acquired and liabilities assumed in business combinations:              |  |                              |             |   |      |   |            |      |  |   |             |  
|Current assets other than cash                                                               |  | $                            | 621,926     |   |      |   |            |      |  | $ | 268,511     |  
|Property and equipment                                                                       |  |                              | 6,657,448   |   |      |   |            |      |  |   | 2,583,136   |  
|Other long-term assets                                                                       |  |                              |            |   |      |   |            |      |  |   | 71,195      |  
|Intangibles                                                                                  |  |                              | 29,423,520  |   |      |   |            |      |  |   | 12,306,853  |  
|Accounts payable                                                                             |  |                              | (663,698    | ) |      |   |            |      |  |   | (577,603    | )
|Common stock issued                                                                          |  |                              |            |   |      |   |            |      |  |   | (1,141,977  | )
|                                                                                             |  |                              |             |   |      |   |            |      |  |   |             |  
|Cash paid net of cash acquired                                                               |  | $                            | 36,039,196  |   |      |   |            |      |  | $ | 13,510,115  |  
|                                                                                             |  |                              |             |   |      |   |            |      |  |   |             |  



See notes to
consolidated financial statements.



31



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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), Last Chance, Inc. (Last Chance), and Plantation Investments, Inc. (Plantation). The Company and its subsidiaries are incorporated in Nevada.



Zante owns and operates the Sands Regency Casino/Hotel (Sands) in
downtown Reno, Nevada, and a slot machine route, Pericles Distributing, which has slot machines in 15 locations in the greater Reno area. In December 2001, the Company formed Last Chance and on June 1, 2002, Last Chance acquired the Gold Ranch
Casino and RV 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 one month are consolidated into the fiscal year ended June 30, 2002, whereas a full fiscal year of results are consolidated into the years ended June 30, 2004 and 2003. On
May 1, 2004, the Company acquired 100% of the common stock of Plantation, which operates the Rail City Casino (Rail City) in Sparks, Nevada. The year ended June 30, 2004 includes two months of Rail City operations.



All significant intercompany balances and transactions have been eliminated
in consolidation. In accordance with SFAS 131Business Segments and Related Information, the Company segments some financial and operational information geographically, specifically, by major property- Sands, Gold Ranch, and Rail
City (see Note 11Business Segments).



Year-over-year
comparisons are affected by the May 1, 2004 acquisition of Rail City and the following is consolidated pro forma financial information that is presented as if the acquisition was completed July 1, 2002; the beginning of the two years presented.



|                                                                |  |                              |        |      |   |       
|--------------------------------------------------------------- |  | ---------------------------- | ------ | ---- | - | ------
|                                                                |  | For the years ended June 30,
|(dollars in thousands):                                         |  | 2004                         |        | 2003
|Net revenues as reported                                        |  | $                            | 62,349 |      | $ | 55,683
|Pro forma Rail City revenues July 2003April 2004 (10 months)   |  |                              | 20,841 |      |   |      
|Pro forma Rail City revenues July 2002June 2003 (12 months)    |  |                              |       |      |   | 20,529
|                                                                |  |                              |        |      |   |       
|Pro forma net revenues                                          |  |                              | 83,190 |      |   | 76,212
|                                                                |  |                              |        |      |   |       
|Net income as reported                                          |  |                              | 6,891  |      |   | 1,868 
|Pro forma Rail City net income July 2003April 2004 (10 months) |  |                              | 1,340  |      |   |      
|Pro forma Rail City net income July 2002June 2003 (12 months)  |  |                              |       |      |   | 1,849 
|                                                                |  |                              |        |      |   |       
|Pro forma net income                                            |  | $                            | 8,231  |      | $ | 3,717 
|                                                                |  |                              |        |      |   |       
|Pro forma earnings per share                                    |  |                              |        |      |   |       
|Basic                                                           |  | $                            | 1.58   |      | $ | 0.75  
|Diluted                                                         |  | $                            | 1.48   |      | $ | 0.71  



This pro forma
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, 2004, and 2003, have been included.



(b)    Nature of operations



The Company owns three Nevada style casinos, a slot route and a California
lottery station in the greater Reno, Nevada area and defines itself as a Gaming and Entertainment company. The Company also has significant gaming support facilities, including an 832 room hotel, multiple food and beverage venues, a 105
space RV Park, a high volume gas station, a convenience store, as well as other ancillary services.



32



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##### Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



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



(c)    Operating revenues



Gaming revenue represents the Company win from gaming activities, which
is the net of gaming wins and losses. The majority of gaming revenue is in the form of cash and therefore is not subject to any significant or complex revenue estimation or realization procedures. Lodging and Food and Beverage revenues include the
estimated retail value of rooms, food, and beverage provided to customers on a complimentary basis. These amounts are then deducted as promotional allowances to arrive at net revenues. The estimated cost of providing these promotional allowances
were charged to Gaming expense as follows:



|                  |  |                            |           |      |   |           |  |   |          
|----------------- |  | -------------------------- | --------- | ---- | - | --------- |  | - | ---------
|                  |  | Fiscal year ended June 30,
|                  |  | 2004                       |           | 2003 |   | 2002     
|Lodging           |  | $                          | 505,849   |      | $ | 539,346   |  | $ | 443,542  
|Food and beverage |  |                            | 1,982,733 |      |   | 1,582,096 |  |   | 1,464,469
|Other             |  |                            |          |      |   | 9,192     |  |   | 22,243   
|                  |  |                            |           |      |   |           |  |   |          
|                  |  | $                          | 2,488,582 |      | $ | 2,130,634 |  | $ | 1,930,254
|                  |  |                            |           |      |   |           |  |   |          



Other operating
revenue is comprised of casino/hotel ancillary services and Other operating expenses are the expenses associated with those revenues. The revenues and operating expenses for the gas station and convenience store at Gold Ranch have a separate
category-Fuel and convenience store. Fuel revenue from the convenience store is characterized by high revenue volumes but low gross profit margins relative to other profit centers.



(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.



(e)    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.



(f)    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 1 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.



(g)    Capitalized 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 was not material amount for the years ended June 30, 2004, 2003, and 2002.



(h)    Debt issuance costs



Debt issuance costs incurred in 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 included in Other Assets on the balance sheet.



33



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##### Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



(i)    Self-insurance accrued liability



The Company is self-insured for various levels of general liability,
workers compensation, and employee medical insurance. Insurance claims and reserves include 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. Actual self-insurance liabilities have not differed materially from accrued estimated
amounts for the years presented.



(j)    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 estimable. If the actual loss from a contingency differs form managements estimate, operating results could be impacted. Actual
litigation liabilities have 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 emanating from the same two 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.



(k)    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 that will be redeemed based on experience and/or special circumstances, if any. For instance, it is less likely customers will redeem small
balances than large balances. Additionally, locals have a higher redemption rate than non-locals. Actual customer reward liabilities have not differed materially from accrued estimated amounts during the years presented.



(l)    Goodwill and other intangible assets



Intangible assets consist of trademarks/trade names, customer database(s),
grandfathered gaming license(s), a below-market land lease, and goodwill. Goodwill and other intangibles are reviewed annually for impairment and, if necessary, an impairment loss will be recorded. Refer to Note 3 for a more complete the
Companys goodwill and other intangibles.



(m)    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



34



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##### Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



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, 2004, however the Company did accelerate the depreciation of gold ranch fuel pumps (see Note 13).



(n)    Concentrations of credit risk



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



(o)    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 of a change in tax rates on deferred tax assets and
liabilities is recognized in income in the period that includes the enactment date. The Company has a March 31 tax year-end.



(p)    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, 2004.



(q)    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.



(r)    Reclassifications



Reclassifications have been made to the 2003 and 2002 consolidated financial statements to conform to the 2004 presentation.



(s)    Recently issued accounting pronouncements



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



35



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



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 did not have a material effect on the
Companys results of operations or financial position.



(t)    Stock compensation program



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, |          
|                                                                                                                                |  | 2004           |           |   | 2003 |   |           | 2002 | 
|Net income (loss) as reported                                                                                                   |  | $              | 6,890,826 |   |      | $ | 1,868,393 |      |  | $ | (188,628  | )
|Total stock-based employee compensation expense under the fair-value based method for awards, net of related income tax
effects |  |                | (113,142  | ) |      |   | (68,053   | )    |  |   | (43,269   | )
|                                                                                                                                |  |                |           |   |      |   |           |      |  |   |           |  
|Pro forma net income (loss)                                                                                                     |  | $              | 6,777,684 |   |      | $ | 1,800,340 |      |  | $ | (231,897  | )
|                                                                                                                                |  |                |           |   |      |   |           |      |  |   |           |  
|Basic earnings (loss) per share:                                                                                                |  |                |           |   |      |   |           |      |  |   |           |  
|As reported                                                                                                                     |  | $              | 1.32      |   |      | $ | 0.38      |      |  |   | (0.04     | )
|Pro forma                                                                                                                       |  |                | 1.30      |   |      |   | 0.37      |      |  |   | (0.05     | )
|Diluted earnings (loss) per share:                                                                                              |  |                |           |   |      |   |           |      |  |   |           |  
|As reported                                                                                                                     |  | $              | 1.24      |   |      | $ | 0.36      |      |  |   | (0.04     | )
|Pro forma                                                                                                                       |  |                | 1.22      |   |      |   | 0.35      |      |  |   | (0.05     | )
|Weighted average assumptions:                                                                                                   |  |                |           |   |      |   |           |      |  |   |           |  
|Expected stock price volatility                                                                                                 |  |                | 100.0     | % |      |   | 100.0     | %    |  |   | 100.0     | %
|Risk-free interest rate                                                                                                         |  |                | 3.0       | % |      |   | 2.8       | %    |  |   | 2.9       | %
|Expected option lives                                                                                                           |  |                | 2.4 years |   |      |   | 2.5 years |      |  |   | 2.6 years |  
|Estimated fair value of options granted                                                                                         |  | $              | 3.56      |   |      | $ | 1.75      |      |  | $ | 1.66      |  



NOTE 2RAIL CITY CASINO
ACQUISITION



On May 1, 2004, the Company completed the
acquisition of 100% of the outstanding common stock of Plantation Investments, Inc. d/b/a Rail City Casino, a Nevada corporation, pursuant to a Stock Purchase Agreement, dated December 5, 2003 (the Purchase Agreement).



The major considerations given as to why Rail City was a good acquisition for
the Company include, but are not limited to:



| |  |  | customer deversification and property expansion potential;
| | - |  | ----------------------------------------------------------



| |  |  | management and marketing efficiencies of having a third casino in close proximity to others;
| | - |  | --------------------------------------------------------------------------------------------



| |  |  | an inherent market niche that compliments the Companys previous customer base; and
| | - |  | -----------------------------------------------------------------------------------



| |  |  | a proven industry performer with an efficient cost structure.
| | - |  | -------------------------------------------------------------



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##### Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



The preliminary purchase price of $38.1 million (including acquisition costs) was calculated based on
EBITDA (earnings before interest, taxes, depreciation and amortization) for Rail City for the twelve months preceding the closing date of the acquisition as prescribed in the agreement. The cash paid in connection with the transaction came from
three new loans totaling $42.9 million, which funded the entire acquisition as well as refinanced the balance of the previous primary debt, which had an outstanding balance of $2.4 million as of the closing date.



The purchase price of Rail City was allocated based on the fair market value
of assets acquired net of liabilities assumed. The Company commissioned third-party asset valuation professionals. The purchase price amount in excess of net assets acquired was allocated to goodwill. The following table summarizes the estimated
fair values of the assets acquired and liabilities assumed at the date of acquisition.



|                                    |  |                |            |  
|----------------------------------- |  | -------------- | ---------- | -
|                                    |  | At May 1, 2004 |           
|Current assets                      |  | $              | 2,701,246  |  
|Property, plant, and equipment, net |  |                | 6,657,448  |  
|Intangible assets                   |  |                | 11,768,000 |  
|Goodwill                            |  |                | 17,655,520 |  
|                                    |  |                |            |  
|Total assets acquired               |  |                | 38,782,214 |  
|                                    |  |                |            |  
|Current liabilities                 |  |                | (663,698   | )
|                                    |  |                |            |  
|Total liabilities assumed           |  |                | (663,698   | )
|                                    |  |                |            |  
|Net assets acquired                 |  | $              | 38,118,516 |  
|                                    |  |                |            |  



The Rail City
transaction was consummated using a Section 338 (h) (10) election for tax purposes, as such, the Company anticipates all goodwill and intangible assets to be deductible for tax purposes.



NOTE 3INTANGIBLE ASSETS



Gold Ranch



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:



|                             |  |                  |            |     |              |   |                     |  |   |           
|---------------------------- |  | ---------------- | ---------- | --- | ------------ | - | ------------------- |  | - | ----------
|Class                        |  | InitialValuation |            |     | Amortization |   | As of June 30, 2004
|Goodwill                     |  | $                | 11,018,257 | (1) |              |   |                    |  | $ | 11,018,257
|Grandfathered gaming license |  |                  | 861,400    | (2) |              |   |                    |  |   | 861,400   
|Trademark/trade name         |  |                  | 485,000    | (2) |              |   |                    |  |   | 485,000   
|Other                        |  |                  | 10,000     | (2) |              |   |                    |  |   | 10,000    
|                             |  |                  |            |     |              |   |                     |  |   |           
|                             |  | $                | 12,374,657 |     |              | $ |                    |  | $ | 12,374,657
|                             |  |                  |            |     |              |   |                     |  |   |           

---

|(1) |  | The Company had initially recorded $10.9 million of goodwill in connection with the Gold Ranch acquisition, but was adjusted December 2002 to $11.0.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------

|(2) |  | The Company has determined that all intangible components have indefinite lives. In accordance with the provisions of SFAS 142, intangible assets with indefinite lives are not
subject to periodic amortization expense. They are, however, subject to impairment evaluation at least once per year, and would be written down during the period in which the impairment becomes evident.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Rail City



The following intangible assets were identified and allocated a portion of the purchase consideration in conjunction with the May 1, 2004 acquisition of
Rail City Casino:



|                             |  |                  |            |     |              |   |                     |  |   |           
|---------------------------- |  | ---------------- | ---------- | --- | ------------ | - | ------------------- |  | - | ----------
|Class                        |  | InitialValuation |            |     | Amortization |   | As of June 30, 2004
|Goodwill                     |  | $                | 17,655,520 |     |              |   |                    |  | $ | 17,655,520
|Grandfathered gaming license |  |                  | 6,344,000  | (1) |              |   |                    |  |   | 6,344,000 
|Trademark/trade name         |  |                  | 3,786,000  | (1) |              |   |                    |  |   | 3,786,000 
|Customer list/relationships  |  |                  | 1,190,000  | (2) |              |   | 110,263             |  |   | 1,079,737 
|Under-market land lease      |  |                  | 448,000    | (3) |              |   | 3,058               |  |   | 444,942   
|                             |  |                  |            |     |              |   |                     |  |   |           
|                             |  | $                | 29,423,520 |     |              | $ | 113,321             |  | $ | 29,310,199
|                             |  |                  |            |     |              |   |                     |  |   |           

---

|(1) |  | The Company has determined that intangible components of the grandfathered gaming license and the trademark/trade name have indefinite lives. In accordance with the provisions of
SFAS 142, intangible assets with indefinite lives are not subject to periodic amortization expense. They are, however, subject to impairment evaluation at least once per year, and would be written down during the period in which the impairment
becomes evident.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) |  | Customer relationships will be amortized over approximately seven years and on an accelerated basis, which was developed though an analysis of average expected customer life.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) |  | The under-market lease will be amortized straight-line over the life of the lease, which expires September 2028.
|--- |  | ----------------------------------------------------------------------------------------------------------------



Anticipated amortization expense over the next 5 years from intangibles which
are subject to amortization is as follows:



|            |  |                            |         |                         |   |       
|----------- |  | -------------------------- | ------- | ----------------------- | - | ------
|            |  | Customerlist/relationships |         | Under-market land lease
|Fiscal 2005 |  | $                          | 495,850 |                         | $ | 18,348
|Fiscal 2006 |  |                            | 251,071 |                         |   | 18,348
|Fiscal 2007 |  |                            | 115,612 |                         |   | 18,348
|Fiscal 2008 |  |                            | 51,685  |                         |   | 18,348
|Fiscal 2009 |  |                            | 22,617  |                         |   | 18,348



NOTE 4GAIN ON NOTE RECEIVABLE



On November 13, 2003, the Company reached an agreement
with Gulfside Casino Partnership (d/b/a the Copa Casino in Gulfport, Mississippi), regarding a final settlement of amounts owed to The Sands Regent pursuant to a non-interest bearing promissory note issued to the Company in connection with its
December 1998 sale of its interest in the Copa Casino. The terms of the note required a monthly payment to the Company in an amount equal to the greater of $15,000 or 2% of the Copa Casinos gross gaming revenues (4% beginning July 2004) until
the note is paid in full. At the time of the settlement, the unpaid balance of the note was $5.0 million. On November 28, 2003, the Company received an approximately $4.0 million cash payment as final settlement under the note. The Company had not
previously recognized a gain on the settlement amount due primarily to the Companys uncertainty of the Copas current managements ability to obtain long-term financing, as well as competitive, legal, financial, environmental and
various other risks facing the casino. As a result, in December 2003, the Company recognized a gain for the full settlement amount of $4.0 million plus debt service payments of $387,000 made during the period.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |  |          |            |      |   |          
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------- | ---------- | ---- | - | ---------
|NOTE 5LONG-TERM DEBT                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  | June 30,
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |  | 2004     |            | 2003
|Amount outstanding under a Wells Fargo Bank syndicated, $20,000,000 term loan collateralized by substantially all property and equipment of
Zante, Inc. and Plantation, Inc., as well as the furniture, fixtures, and equipment of Last Chance, Inc. The Companys current book value of the security interest on the loan is approximately $40.0 million. Terms of this note require that the
principal outstanding be reduced: to $17.0 million by May 2005, to $13.5 million by May 2006, to $9.5 million by May 2007, and to $5.0 million by May 2008. The note matures in May 2009 with all principal and interest under the note becoming due and
payable. The note has a variable interest rate based on LIBOR and/or the U.S. Prime Index plus the applicable margin as defined in the agreement. The interest rate at June 30, 2004 was LIBOR plus 4% or Prime plus 2.5%. The 30-day LIBOR was 1.03582%
and the Prime Index was 4% on June 30, 2004. Also as terms of the note, any principal payment on subordinated debt must be matched equally by an additional principal payment on this term loan. |  | $        | 19,250,000 |      | $ |         
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |  |         
|Amount outstanding under a Wells Fargo Bank syndicated $22,000,000 revolving credit facility, collateralized by substantially all property and
equipment of Zante, Inc. and Plantation, Inc.; as well as the furniture, fixtures, and equipment of Last Chance, Inc. The Companys current book value of the security interest on the loan is approximately $40.0 million. Terms of this note
require that the variable interest rate based on LIBOR and/or the U.S. Prime Index plus the applicable margin defined in the agreement. The interest rate at June 30, 2004 was LIBOR plus 4% or Prime plus 2.5%. The 30-day LIBOR was 1.03582% and the
Prime Index was 4% on June 30, 2004. This credit facility requires interest only payments and matures on May 1, 2009 with any unpaid interest or principal due and payable.                                                                                                                                                                                                                                                                                  |  |          | 15,500,000 |      |   |         
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |  |         
|Amount outstanding under a $880,000 unsecured subordinated note held by Wells Fargo Bank. The note has a fixed interest rate of 11.0% and
requires no principal payment until maturity on May 1, 2007, at which time any unpaid interest or principal is due and payable.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  |          | 880,000    |      |   |         
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |  |         
|Amounts outstanding under a $1,604,000 convertible promissory note held by David R. Belding, an investor. The note has a security interest in
the furniture, fixtures, and equipment of Last Chance, Inc. and is convertible into 246,012 shares of Company common stock, a conversion price of $6.52 per share. The note bears a fixed interest rate of 7.5%, an effective rate of 9.6%, and requires
no principal payment until maturity on March 25, 2007, at which time all principal and interest is due and payable unless extended at Mr. Beldings option for up to two additional years. The amount outstanding is discounted by $345,228, which
represents the amortized value of a warrant issued to Mr. Belding, which is exercisable into 100,000 shares of Company common stock at a strike price of $7.82 per share.                                                                                                                                                                                                                                                                               |  |          | 1,258,772  |      |   |         
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |  |         
|Amounts outstanding under a Nevada State Bank, ten 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 had a fixed interest rate at 7.17% for five years through June 1, 2007. This loan, which would have matured on June 5, 2012, was paid off in
2004.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |  |          |           |      |   | 8,600,000



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



NOTE 5LONG-TERM DEBT (contd)



|                                                                                                                                                                                                                                                                                                                                                                                                                                      |  |          |            |      |   |           
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------- | ---------- | ---- | - | ----------
|                                                                                                                                                                                                                                                                                                                                                                                                                                      |  | June 30,
|                                                                                                                                                                                                                                                                                                                                                                                                                                      |  | 2004     |            | 2003
|                                                                                                                                                                                                                                                                                                                                                                                                                                      |  |         
|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 7.25% based on the Prime index, plus 2.5%. This note, which would have matured on June 1, 2007, was paid off in 2004 in conjunction with the David
R. Belding transaction above. |  |          |           |      |   | 4,816,059 
|                                                                                                                                                                                                                                                                                                                                                                                                                                      |  |         
|Other                                                                                                                                                                                                                                                                                                                                                                                                                                 |  |          | 54,167     |      |   | 10,255    
|                                                                                                                                                                                                                                                                                                                                                                                                                                      |  |          |            |      |   |           
|                                                                                                                                                                                                                                                                                                                                                                                                                                      |  |          | 36,942,939 |      |   | 13,426,314
|                                                                                                                                                                                                                                                                                                                                                                                                                                      |  |          |            |      |   |           
|Less current maturities                                                                                                                                                                                                                                                                                                                                                                                                               |  |          | 3,143,570  |      |   | 806,274   
|                                                                                                                                                                                                                                                                                                                                                                                                                                      |  |          |            |      |   |           
|Long-term portion                                                                                                                                                                                                                                                                                                                                                                                                                     |  | $        | 33,799,369 |      | $ | 12,620,040
|                                                                                                                                                                                                                                                                                                                                                                                                                                      |  |          |            |      |   |           



The bank term loan and
revolving credit facility, which totaled $42.0 million when entered into in May 2004, 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 certain other financial ratios be maintained. The Company believes that it
is in compliance with all covenants and restrictions at June 30, 2004.



Long-term debt is payable as follows:



|                     |  |        |           
|-------------------- |  | ------ | ----------
|Year ending June 30, |  | Amount
|2005                 |  | $      | 3,143,570 
|2006                 |  |        | 3,660,597 
|2007                 |  |        | 9,093,000 
|2008                 |  |        | 4,625,000 
|2009                 |  |        | 16,420,772
|thereafter           |  |        |          
|                     |  |        |           
|Total                |  | $      | 36,942,939
|                     |  |        |           



NOTE 6STOCKHOLDERS EQUITY



As of June 30, 2004 and 2003, 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 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



40



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



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 100% in one year for grants to independent directors.



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



|                           |  |                  |   |  |                              |     
|-------------------------- |  | ---------------- | - |  | ---------------------------- | ----
|                           |  | Number ofOptions |   |  | WeightedAverageExercisePrice
|Options Outstanding        |  |                  |   |  |                              |     
|                           |  |                 
|Outstanding, July 1, 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 granted            |  | 100,000          |   |  |                              | 5.99
|Options exercised          |  | (192,500         | ) |  |                              | 1.74
|Options cancelled          |  |                 |   |  |                              |    
|                           |  |                  |   |  |                              |     
|Outstanding, June 30, 2004 |  | 638,500          |   |  | $                            | 2.61
|                           |  |                  |   |  |                              |     
|Options Exercisable        |  |                  |   |  |                              |     
|At June 30, 2002           |  | 541,500          |   |  | $                            | 1.61
|At June 30, 2003           |  | 590,250          |   |  |                              | 1.65
|At June 30, 2004           |  | 463,500          |   |  |                              | 1.82



At June 30, 2004,
options to purchase 43,614 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, 2004:



|                         |  |                     |  |                                                 |  |                               |      |                   |         |                               |   |     
|------------------------ |  | ------------------- |  | ----------------------------------------------- |  | ----------------------------- | ---- | ----------------- | ------- | ----------------------------- | - | ----
|                         |  | Options Outstanding |  | Options Exercisable                            
|Range of Exercise prices |  | NumberOutstanding   |  | WeightedAverageRemainingContractual Life(years) |  | WeightedAverageExercise Price |      | NumberExercisable |         | WeightedAverageExercise Price
|$0.875 to $2.48          |  | 366,000             |  | 4.7                                             |  | $                             | 1.48 |                   | 366,000 |                               | $ | 1.48
|$  3.00 to $6.92         |  | 272,500             |  | 8.7                                             |  |                               | 4.13 |                   | 97,500  |                               |   | 3.09
|                         |  |                     |  |                                                 |  |                               |      |                   |         |                               |   |     
|$0.875 to $6.92          |  | 638,500             |  | 6.4                                             |  | $                             | 2.61 |                   | 463,500 |                               | $ | 1.82
|                         |  |                     |  |                                                 |  |                               |      |                   |         |                               |   |     



41



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##### Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



NOTE 8FEDERAL INCOME TAXES



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



|         |  |      |            |   |      |   |          |      |  |   |         |  
|-------- |  | ---- | ---------- | - | ---- | - | -------- | ---- |  | - | ------- | -
|         |  | 2004 |            |   | 2003 |   |          | 2002 | 
|Current  |  | $    | (996,571   | ) |      | $ | (257,810 | )    |  | $ | 201,558 |  
|Deferred |  |      | (157,141   | ) |      |   | (684,246 | )    |  |   | (69,370 | )
|         |  |      |            |   |      |   |          |      |  |   |         |  
|         |  | $    | (1,153,712 | ) |      | $ | (942,056 | )    |  | $ | 132,188 |  
|         |  |      |            |   |      |   |          |      |  |   |         |  



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



|                           |  |       |   |  |      |   |  |       |  
|-------------------------- |  | ----- | - |  | ---- | - |  | ----- | -
|                           |  | 2004  |   |  | 2003 |   |  | 2002  |  
|Federal statutory tax rate |  | 35.0  | % |  | 35.0 | % |  | -35.0 | %
|Surtax exemption           |  | -1.0  | % |  | -1.0 | % |  | 1.0   | %
|General business credits   |  | -0.3  | % |  | -0.5 | % |  | -7.8  | %
|Other (1)                  |  | -19.4 | % |  | 0.0  | % |  | 0.6   | %
|                           |  |       |   |  |      |   |  |       |  
|                           |  | 14.3  | % |  | 33.5 | % |  | -41.2 | %
|                           |  |       |   |  |      |   |  |       |  

---

|(1) |  | 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 net deferred tax asset of $410,094 for the transaction.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | The note receivable discussed in Note 4 provided for a deferred tax asset and corresponding valuation allowance based on the uncertainty of receiving future payments. In December
2003, the Company settled with the debtor of this obligation and received an amount in excess of the net deferred tax asset previously recognized. With the settlement amount, the Company reversed the valuation allowance and then applied payment to
the deferred tax asset. The reversal of the valuation allowance had the effect of reducing the Companys effective income tax rate to 14.3% for the year ended June 30, 2004.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



|                                          |  |      |            |   |      |   |            |  
|----------------------------------------- |  | ---- | ---------- | - | ---- | - | ---------- | -
|                                          |  | 2004 |            |   | 2003 |  
|Deferred tax assets:                      |  |      |            |   |      |   |            |  
|Accrued expenses                          |  | $    | 174,440    |   |      | $ | 87,994     |  
|Tax basis differenceCopa note            |  |      |           |   |      |   | 1,841,384  |  
|Impairment of tangible assets             |  |      | 66,442     |   |      |   |           |  
|Other                                     |  |      | 13,398     |   |      |   | 9,902      |  
|                                          |  |      |            |   |      |   |            |  
|                                          |  |      | 254,280    |   |      |   | 1,939,280  |  
|                                          |  |      |            |   |      |   |            |  
|Less valuation allowance                  |  |      |           |   |      |   | (1,571,717 | )
|                                          |  |      |            |   |      |   |            |  
|                                          |  |      | 254,280    |   |      |   | 367,563    |  
|                                          |  |      |            |   |      |   |            |  
|Deferred tax liabilities:                 |  |      |            |   |      |   |            |  
|Intangibles                               |  |      | (601,242   | ) |      |   | (303,866   | )
|Property and equipment                    |  |      | (1,317,052 | ) |      |   | (1,701,626 | )
|Prepaid expenses                          |  |      | (446,117   | ) |      |   | (315,061   | )
|                                          |  |      |            |   |      |   |            |  
|                                          |  |      | (2,364,411 | ) |      |   | (2,320,553 | )
|                                          |  |      |            |   |      |   |            |  
|Net deferred federal income tax liability |  |      | (2,110,131 | ) |      |   | (1,952,990 | )
|                                          |  |      |            |   |      |   |            |  



42



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##### Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



NOTE 9EARNINGS PER SHARE



Earnings per share is 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 of stock options, convertible debt and a warrant (see Note 12). Dilution is determined based upon the assumption that the options, the
convertible debt, and the warrant are exercised or converted. The weighted average number of shares outstanding for the calculation of diluted earnings per share for the years ended June 30, 2004 and 2003, include the dilutive effect of the
Companys stock options only. In May 2004, the Company issued convertible debt and a warrant as summarized in Note 12. The dilutive effect of the convertible debt and the warrant to purchase common stock was not included because the associated
strike price(s) exceeded the average closing price of the Companys common stock for the period.



For the year ended June 30, 2002, stock options to purchase 676,000 shares were not included because the Company incurred a net loss for the period.



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



|                                                            |  |           |  |                 |       |   |        |           |                 |   |       |        |  |                 |  |   |       |  
|----------------------------------------------------------- |  | --------- |  | --------------- | ----- | - | ------ | --------- | --------------- | - | ----- | ------ |  | --------------- |  | - | ----- | -
|For the year ended June 30,                                 |  | 2004      |  |                 | 2003  |   |        | 2002      |                
|                                                            |  | Shares    |  | Per ShareAmount |       |   | Shares |           | Per ShareAmount |   |       | Shares |  | Per ShareAmount | 
|Basic net income (loss) per share                           |  | 5,206,321 |  | $               | 1.32  |   |        | 4,930,713 |                 | $ | 0.38  |        |  | 4,558,907       |  | $ | (0.04 | )
|Effect of dilutive securities, convertible debt and warrant |  | 352,513   |  |                 | (0.08 | ) |        | 268,202   |                 |   | (0.02 | )      |  |                |  |   |      |  
|                                                            |  |           |  |                 |       |   |        |           |                 |   |       |        |  |                 |  |   |       |  
|Diluted net income (loss) per share                         |  | 5,558,834 |  | $               | 1.24  |   |        | 5,198,915 |                 | $ | 0.36  |        |  | 4,558,907       |  | $ | (0.04 | )
|                                                            |  |           |  |                 |       |   |        |           |                 |   |       |        |  |                 |  |   |       |  



NOTE 10COMMITMENTS AND
CONTINGENCIES



|                               |  |                        |            |                 |   |            |  |            |            |              |   |            |  |   |          
|------------------------------ |  | ---------------------- | ---------- | --------------- | - | ---------- |  | ---------- | ---------- | ------------ | - | ---------- |  | - | ---------
|                               |  | Payments due by period
|Contractual Obligations        |  | Total                  |            | Less than1 year |   | 1 - 3years |  | 4 - 5years |            | After 5years
|Long-term debt                 |  | $                      | 36,942,939 |                 | $ | 3,143,570  |  | $          | 12,753,597 |              | $ | 21,045,772 |  | $ |         
|Interest on long-term debt (1) |  |                        | 12,242,201 |                 |   | 3,218,416  |  |            | 5,448,260  |              |   | 3,575,525  |  |   |         
|Operating leases (2)           |  |                        | 4,552,083  |                 |   | 575,000    |  |            | 1,150,000  |              |   | 1,150,000  |  |   | 1,677,083
|Other (3)                      |  |                        | 1,607,994  |                 |   | 203,115    |  |            | 406,230    |              |   | 406,230    |  |   | 592,419  
|                               |  |                        |            |                 |   |            |  |            |            |              |   |            |  |   |          
|                               |  | $                      | 55,345,217 |                 | $ | 7,140,101  |  | $          | 19,758,087 |              | $ | 26,177,527 |  | $ | 2,269,502
|                               |  |                        |            |                 |   |            |  |            |            |              |   |            |  |   |          

---

|(1) |  | Interest is calculated by assuming the Company keeps its line of credit fully advanced and the table assumes a weighted average interest rate of 7.5% until maturity. All long-term
debt matures within 5 years.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) |  | Represents contractual lease obligations to Prospector Gaming Enterprises (PGE) 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. The Company has paid
$575,000, $575,000, and $47,917, on this obligation in fiscal years 2004, 2003, and 2002, respectively.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) |  | Represents management fees due to PGE in connection with the RV park at Gold Ranch. Future amounts payable are subject to adjustment based on changes in interest rates. The Company
has paid $192,213, $169,922, and $14,105, on this obligation in fiscal years 2004, 2003, and 2002, respectively.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



43



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##### Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



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 emanating from the same two 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.



44



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##### Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



NOTE 11BUSINESS SEGMENTS



In accordance with SFAS No. 131Business Segments and Related Information, 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. Rail City information includes just two months operations for the fiscal year ended June 30, 2004.



|                                                              |  |          |            |   |      |   |            |  
|------------------------------------------------------------- |  | -------- | ---------- | - | ---- | - | ---------- | -
|                                                              |  | June 30, |           
|                                                              |  | 2004     |            |   | 2003 |  
|Gross revenues less promotional allowances                    |  |          |            |   |      |   |            |  
|Sands Regency Casino/Hotel                                    |  | $        | 34,408,470 |   |      | $ | 33,494,258 |  
|Gold Ranch Casino and RV Resort                               |  |          | 23,801,537 |   |      |   | 22,189,083 |  
|Rail City Casino                                              |  |          | 4,138,687  |   |      |   |           |  
|                                                              |  |          |            |   |      |   |            |  
|Total consolidated gross revenues less promotional allowances |  | $        | 62,348,694 |   |      | $ | 55,683,341 |  
|                                                              |  |          |            |   |      |   |            |  
|Operating profit (loss)                                       |  |          |            |   |      |   |            |  
|Sands Regency Casino/Hotel                                    |  | $        | 2,779,467  |   |      | $ | 2,842,999  |  
|Gold Ranch Casino and RV Resort                               |  |          | 1,544,740  |   |      |   | 1,773,607  |  
|Rail City Casino                                              |  |          | 1,019,198  |   |      |   |           |  
|Corporate Costs                                               |  |          | (439,471   | ) |      |   | (324,188   | )
|                                                              |  |          |            |   |      |   |            |  
|Total consolidated operating profit                           |  | $        | 4,903,934  |   |      | $ | 4,292,418  |  
|                                                              |  |          |            |   |      |   |            |  
|Interest income                                               |  |          |            |   |      |   |            |  
|Sands Regency Casino/Hotel                                    |  | $        | 102        |   |      | $ | 1,811      |  
|Gold Ranch Casino and RV Resort                               |  |          |           |   |      |   |           |  
|Rail City Casino                                              |  |          | 60         |   |      |   |           |  
|                                                              |  |          |            |   |      |   |            |  
|Total consolidated interest income                            |  | $        | 162        |   |      | $ | 1,811      |  
|                                                              |  |          |            |   |      |   |            |  
|Interest expense                                              |  |          |            |   |      |   |            |  
|Sands Regency Casino/Hotel                                    |  | $        | 217,845    |   |      | $ | 421,917    |  
|Gold Ranch Casino and RV Resort                               |  |          | 589,127    |   |      |   | 794,054    |  
|Rail City Casino                                              |  |          | 350,889    |   |      |   |           |  
|                                                              |  |          |            |   |      |   |            |  
|Total consolidated interest expense                           |  | $        | 1,157,861  |   |      | $ | 1,215,971  |  
|                                                              |  |          |            |   |      |   |            |  
|Depreciation and amortization                                 |  |          |            |   |      |   |            |  
|Sands Regency Casino/Hotel                                    |  | $        | 3,426,236  |   |      | $ | 3,136,377  |  
|Gold Ranch Casino and RV Resort                               |  |          | 684,018    |   |      |   | 393,425    |  
|Rail City Casino                                              |  |          | 316,973    |   |      |   |           |  
|                                                              |  |          |            |   |      |   |            |  
|Total consolidated depreciation and amortization              |  | $        | 4,427,227  |   |      | $ | 3,529,802  |  
|                                                              |  |          |            |   |      |   |            |  
|Assets                                                        |  |          |            |   |      |   |            |  
|Sands Regency Casino/Hotel                                    |  | $        | 36,246,640 |   |      | $ | 39,521,613 |  
|Gold Ranch Casino and RV Resort                               |  |          | 16,057,164 |   |      |   | 15,924,816 |  
|Rail City Casino                                              |  |          | 39,289,358 |   |      |   |           |  
|                                                              |  |          |            |   |      |   |            |  
|Total consolidated assets                                     |  | $        | 91,593,162 |   |      | $ | 55,446,429 |  
|                                                              |  |          |            |   |      |   |            |  
|Additions to long-lived assets                                |  |          |            |   |      |   |            |  
|Sands Regency Casino/Hotel                                    |  | $        | 1,879,079  |   |      | $ | 1,559,345  |  
|Gold Ranch Casino and RV Resort                               |  |          | 513,979    |   |      |   | 274,616    |  
|Rail City Casino                                              |  |          | 12,755     |   |      |   |           |  
|                                                              |  |          |            |   |      |   |            |  
|Total consolidated additions to long - lived assets           |  | $        | 2,405,813  |   |      | $ | 1,833,961  |  
|                                                              |  |          |            |   |      |   |            |  



45



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##### Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



NOTE 12DEBT AND EQUITY FINANCING BY PRIVATE INVESTOR



On March 25, 2004, the Company completed a financing arrangement by which it
issued to a private investor (i) 500,000 shares of common stock for $5.22 per share, (ii) a warrant to purchase up to 100,000 shares of common stock at an exercise price of $7.82 per share, and (iii) a secured convertible note in the amount of
$1,604,000, with a conversion price of $6.52, and convertible into 246,012 shares of common stock. The registration statement related to these instruments became fully effective May 7, 2004.



NOTE 13 LONG-LIVED ASSETS



The Company determined that its fuel pumps at Gold Ranch were going to be
replaced within one year. In the year ended June 30, 2004, we realized a $195,000 charge related to the fuel pumps and related equipment, which is included in depreciation and amortization on the Companys consolidated statement of operations.



NOTE 14CONDENSED QUARTERLY RESULTS (UNAUDITED)



|                                                    |  |              |        |               |      |        |              |       |               |        |   |      |        |   |     
|--------------------------------------------------- |  | ------------ | ------ | ------------- | ---- | ------ | ------------ | ----- | ------------- | ------ | - | ---- | ------ | - | ----
|(Dollars in thousands except per share information) |  | FirstQuarter |        | SecondQuarter |      |        | ThirdQuarter |       | FourthQuarter
|2004                                                |  |              |        |               |      |        |              |       |               |        |   |      |       
|Net revenues                                        |  | $            | 15,920 |               | $    | 12,745 |              |       | $             | 13,173 |   | $    | 20,511
|Income from operations                              |  |              | 1,670  |               |      | 240    |              |       |               | 145    |   |      | 2,849 
|Net income                                          |  |              | 1,082  |               |      | 4,335  |              |       |               | 30     |   |      | 1,444 
|Net income per share:                               |  | Basic        |        | $             | 0.22 |        | $            | 0.86  |               |        | $ | 0.01 |        | $ | 0.23
|                                                    |  | Diluted      |        | $             | 0.20 |        | $            | 0.81  |               |        | $ | 0.01 |        | $ | 0.23
|                                                    |  |              |        |              
|2003                                                |  |              |        |               |      |        |              |       |               |        |   |      |       
|Net revenues                                        |  | $            | 15,701 |               | $    | 12,446 |              |       | $             | 12,501 |   | $    | 15,035
|Income 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



46



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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 by the Securities Exchange Act of
1934, as amended, 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 year 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 1, 2004, 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 1, 2004, to be filed with the Securities and Exchange Commission.



|ITEM 12.    SECURITY |  | OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT   AND RELATED STOCKHOLDER MATTERS
|-------------------- |  | ---------------------------------------------------------------------------------------



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 1, 2004, 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 1, 2004, to be filed with the Securities and Exchange Commission



47



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##### Table of Contents

PART IV



|ITEM 14.    PRINCIPAL |  | ACCOUNTING FEES AND SERVICES
|--------------------- |  | ----------------------------



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 1, 2004, to be filed with the Securities and Exchange Commission



|ITEM 15.    EXHIBITS, |  | FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
|--------------------- |  | -----------------------------------------------------



(a)(1)    Financial Statements of the Company



|                                                                                         |  |   
|---------------------------------------------------------------------------------------- |  | --
|Included in Part II of this Report:                                                      |  |   
|Independent Auditors Report                                                             |  | 27
|Consolidated Balance SheetsJune 30, 2004 and 2003                                       |  | 28
|Consolidated Statements of OperationsYears Ended June 30, 2004, 2003 and 2002           |  | 29
|Consolidated Statements of Stockholders EquityYears Ended June 30, 2004, 2003 and 2002 |  | 30
|Consolidated Statements of Cash FlowsYears Ended June 30, 2004, 2003 and 2002           |  | 31
|Notes to Consolidated Financial Statements                                               |  | 32



(a)(2)    Financial Statement Schedules



SCHEDULE IIVALUATION AND QUALIFYING ACCOUNTS (in thousands)



Allowance for Doubtful Accounts Receivable



|                         |  |                            |    |                             |   |            |  |   |                       |   |  |   |   
|------------------------ |  | -------------------------- | -- | --------------------------- | - | ---------- |  | - | --------------------- | - |  | - | --
|                         |  | Balance atbeginningof year |    | Charged tocosts andexpenses |   | Deductions |  |   | Balance at endof year
|Year ended June 30, 2004 |  | $                          | 61 |                             | $ | 56         |  | $ | (85                   | ) |  | $ | 32
|Year ended June 30, 2003 |  |                            | 29 |                             |   | 98         |  |   | (66                   | ) |  |   | 61
|Year ended June 30, 2002 |  |                            | 54 |                             |   | 82         |  |   | (107                  | ) |  |   | 29



All other schedules
for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under related instructions of are inapplicable and therefore have been omitted or the information is presented in the
Consolidated Financial Statements or related notes.



(a)(3)    Exhibits



|    |  |                                                                                                                                                                                                                                                                    
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2.1 |  | 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). *
|    | 
|2.2 |  | Stock Purchase Agreement by and among Alliance Gaming Corporation, APT Games, Inc., and The Sands Regent dated December 5, 2003 (incorporated by reference to Sands on Form 10-Q for the
quarter ended December 31, 2003).*                                       
|    | 
|3.1 |  | Restated Articles of Incorporation of the Company (Exhibit 3(a) to the Companys Registration Statement (Registration No. 2-93453) on Form S-1).*                                                                                                                  
|    | 
|3.2 |  | 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).*                                                                      
|    | 
|3.3 |  | 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).*                                                                                       
|    | 
|3.4 |  | 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).*                                                                                                  
|    | 
|3.5 |  | 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).*                                                                                                   



48



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|     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     | 
|3.6  |  | 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).*                                                                                                                                                                                                                                                                                                                                                                     
|     | 
|3.7  |  | 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).*                                                                                                                                                                                                                                                                                                                                                            
|     | 
|3.8  |  | 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. (Exhibit 3(b)(v) to the Companys Form 10-K for the year ended June 30, 2002).*                                                                                                                                                                                                                                                                                                                      
|     | 
|3.9  |  | 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. (Exhibit 3(b)(vi) to the Companys Form 10-K for the year ended June 30, 2002).*                                                                                                                                                                                                                                                                                                                      
|     | 
|3.10 |  | Amendment to Article VII, Subparagraph 3, of the Amended and Restated Articles of Incorporation of The Sands Regent, a Nevada corporation, regarding change from staggered election of all
Board members to annual election of all Board members, and Amendment to Article XII, Subparagraph 1, regarding reduction of shareholder votes needed for certain matters, from super majority to simple majority, effective as of November 3,
2003.**                                                                                                                                                                
|     | 
|4.1  |  | 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).*                                                                                                                                                                                                                                                                                                                                                                                  
|     | 
|4.2  |  | 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).*                                                                                                                                                                                                                                                                                                                                                                                    
|     | 
|4.3  |  | Secured Convertible Note dated as of March 25, 2004, by and among The Sands Regent and David R. Belding (Incorporated by reference from the Companys Current Report on Form 8-K, filed
March 29, 2004, File No. 000-14050).*                                                                                                                                                                                                                                                                                                                                                                                   
|     | 
|4.4  |  | Warrant to Purchase Common Stock dated as of March 25, 2004, by and among The Sands Regent and David R. Belding (Incorporated by reference from the Companys Current Report on Form 8-K,
filed March 29, 2004, File No. 000-14050).*                                                                                                                                                                                                                                                                                                                                                                           
|     | 
|10.1 |  | 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).*                                                                                                                                                                                                                                                                                                                                                                                                  
|     | 
|10.2 |  | 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).*                                                                                                                                                                                                                                                                                                                                                                                                           
|     | 
|10.3 |  | 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).*                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|     | 
|10.4 |  | 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.*
|     | 
|10.5 |  | Secured Promissory Note, dated June 1, 2002, by and between Last Chance, Inc. and Prospector Gaming Enterprises, Inc.*                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          



49



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##### Table of Contents

|      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                              
|----- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|      | 
|10.6  |  | 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).*                                                 
|      | 
|10.7  |  | 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).*                                                                                                                                                                                                                
|      | 
|10.8  |  | 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).*                                                                                                                                     
|      | 
|10.9  |  | 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).*                                                                                                                                                                                                              
|      | 
|10.10 |  | 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).*                                                                                                                                                                                              
|      | 
|10.11 |  | 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).*                                                                                                                                                                                                           
|      | 
|10.12 |  | 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).*                                                                                                                                                        
|      | 
|10.13 |  | 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.*                                                                                                                                                                                                                                              
|      | 
|10.14 |  | 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).*
|      | 
|10.15 |  | 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).*                                                                                                                                           
|      | 
|10.16 |  | 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).*                                                                                                                           
|      | 
|10.17 |  | 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).*                                                                                                                                                                            
|      | 
|10.18 |  | 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).*                                                                                                                                                                             



50



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##### Table of Contents

|      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                              
|----- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|      | 
|10.19 |  | 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)*
|      | 
|10.20 |  | Employment Agreement, dated as of June 1, 2002, by and between Robert J. Medeiros (as Chief Operating Officer) and The Sands Regent.*                                                                                                                                                                                                                                                                                                        
|      | 
|10.21 |  | Management Agreement, dated as of May 31, 2002, by and between Prospector Gaming Enterprises, Inc., and Last Chance Inc.*                                                                                                                                                                                                                                                                                                                    
|      | 
|10.22 |  | Stock and Warrant Purchase Agreement dated as of March 25, 2004, by and among The Sands Regent and David R. Belding (Incorporated by reference from the Companys Current Report on Form
8-K, filed March 29, 2004).*                                                                                                                                                                                                                        
|      | 
|10.23 |  | Security Agreement dated as of March 25, 2004, by and among Last Chance, Inc., The Sands Regent and David R. Belding (Incorporated by reference from the Companys Current Report on Form
8-K, filed March 29, 2004).*                                                                                                                                                                                                                       
|      | 
|10.24 |  | Credit Agreement by and among The Sands Regent, Inc., Last Chance, Inc., Zante, Inc., the Lenders named therein and Wells Fargo Bank, N.A. dated April 2, 2004. (Incorporated by reference from
the Companys Form 8-K, filed May 11, 2004).*                                                                                                                                                                                                
|      | 
|10.25 |  | Subordinated Promissory Note by and among The Sands Regent and Alliance Gaming Corporation dated May 3, 2004. (Incorporated by reference from the Companys Form 8-K, filed May 11,
2004).*                                                                                                                                                                                                                                                  
|      | 
|10.26 |  | Supply Agreement by and among Bally Gaming, Inc. and The Sands Regent dated May 3, 2004. (Incorporated by reference from the Companys Form 8-K, filed May 11, 2004).*                                                                                                                                                                                                                                                                       
|      | 
|10.27 |  | Security Agreement by and among The Sands Regent, Last Chance, Inc. and Zante, Inc. and Wells Fargo Bank, N.A. dated May 3, 2004. (Incorporated by reference from the Companys Form 8-K,
filed May 11, 2004).*                                                                                                                                                                                                                              
|      | 
|10.28 |  | Pledge Agreement by and among The Sands Regent and Wells Fargo Bank, N.A. dated May 3, 2004. (Incorporated by reference from the Companys Form 8-K, filed May 11,
2004).*                                                                                                                                                                                                                                                                   
|      | 
|10.29 |  | Subordination Agreement by and among Alliance Gaming Corporation and Wells Fargo Bank, N.A. dated May 3, 2004. (Incorporated by reference from the Companys Form 8-K, filed May 11,
2004).*                                                                                                                                                                                                                                                 
|      | 
|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
|-- |  | --------------



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



On May 11, 2004, the Company filed a Form 8-K current report announcing the completion of the acquisition of Rail City.



On May 20, 2004, the Company furnished a Form 8-K for the results of
operations for the quarter ended March 31, 2004.



51



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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:  September 24, 2004 |  | By:              |  | /s/    FERENC B.
SZONY                                                             
|                          |  |                  |  | Ferenc B. Szony President and Chief Executive Officer (Principal Executive Officer)



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



|                                            |  |                                                  |  |                   
|------------------------------------------- |  | ------------------------------------------------ |  | ------------------
|Signature                                   |  | Capacity                                         |  | Date              
|                                            |  |                                                 
|/s/    JON N. BENGTSONJon N. Bengtson       |  | Chairman of the Board                            |  | September 24, 2004
|                                            |  |                                                 
|/s/    LOUIS J.
PHILLIPSLouis J.
Phillips   |  | Director                                         |  | September 24, 2004
|                                            |  |                                                 
|/s/    LARRY TUNTLANDLarry Tuntland         |  | Director                                         |  | September 24, 2004
|                                            |  |                                                 
|/s/    DOUG HAYESDoug Hayes                 |  | Director                                         |  | September 24, 2004
|                                            |  |                                                 
|/s/    DAVID R. GRUNDYDavid R. Grundy       |  | Director                                         |  | September 24, 2004
|                                            |  |                                                 
|/s/    PETE CLADIANOS
IIIPete Cladianos III |  | Director & Secretary                             |  | September 24, 2004
|                                            |  |                                                 
|/s/    ROBERT J.
MEDEIROSRobert J.
Medeiros |  | Chief Financial and Principal Accounting Officer |  | September 24, 2004



52