<PAGE>   1

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

FOR THE YEARS ENDED JUNE 30,

<TABLE>
<CAPTION>
                                              1999(1)    1998      1997      1996         1995
                                              -------   -------   -------   -------     --------
                                                (Dollars in thousands, except per share data)
<S>                                           <C>       <C>       <C>       <C>         <C>
STATEMENT OF OPERATIONS DATA:
  Operating revenues(2).....................  $43,535   $59,211   $57,527   $59,072     $ 60,497
  Income (loss) from operations.............      (42)      233       245     4,192      (11,748)(3)
  EBITDA(4).................................    3,665     4,706     4,486     8,418       10,796
  Net income (loss).........................   (1,388)   (1,219)     (762)    2,042      (11,428)(3)
  Net income (loss) per share:
       Basic................................  $  (.31)  $  (.27)  $  (.17)  $   .45     $  (2.54)(3)
       Diluted..............................  $  (.31)  $  (.27)  $  (.17)  $   .45     $  (2.54)(3)
  Cash dividends per share..................    --        --        --      $   .15     $    .20

OPERATING DATA:
  Casino square footage(5)..................   27,000    51,000    51,000    51,000       51,000
  Number of slot machines(5)................      686     1,459     1,409     1,407        1,459
  Number of hotel rooms(5)..................      836       938       938       938          938
  Average hotel occupancy rate..............     76.4%     83.3%     84.3%     82.9%        87.1%

BALANCE SHEET DATA:
  Cash, cash equivalents and short-term
     investments(5).........................  $ 5,550   $ 9,453   $ 7,894   $11,557     $ 12,214
  Total assets(5)...........................   43,695    58,901    61,053    64,311       66,253
  Long-term debt(5).........................      491    14,643     4,658    14,816       17,808
  Total stockholders' equity(5).............   29,844    31,235    32,454    33,216       31,849
</TABLE>

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

(2) Revenues are net of complimentaries.

(3) Includes a write-off attributable to an impairment in long-lived assets of
    GCP and GCI. The negative impact of such write-off on income (loss) from
    operations, net income (loss) and net income (loss) per share was
    approximately $17.4 million, $13.9 million and $3.08, respectively.

(4) "EBITDA" consists of net income plus interest expense, income taxes,
    depreciation and amortization, and any loss (gain) on the disposition of
    property and equipment inclusive of impairment write-offs.

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

                                        5
<PAGE>   2
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
 ................................................................................

RESULTS OF OPERATIONS
COMPARISON OF 1999 TO 1998

     As further described in Note 3 to the Company's Consolidated Financial
Statements, the Company sold Patrician, GCI and Artemis, including the Copa
Casino, to unrelated third parties on December 23, 1998. The Company's
consolidated results of operations include the operating results of such
companies through this date. Management's Discussion and Analysis of Financial
Condition and Results of Operations will be directed at continuing operations
with only general and otherwise pertinent information provided regarding
operating results for the companies sold.

     For the year ended June 30, 1999, revenues decreased to $43.5 million from
$59.2 million in the prior year and income from operations decreased from
$233,000 to a loss from operations of $42,000. The decrease in revenues is due
to the elimination of revenues from the Copa Casino of approximately $12.9
million and a decline in revenues at the Sands Regency from $34.9 million in
fiscal 1998 to $32.1 million in fiscal 1999. The decrease in income from
operations consists of an increase from the Copa Casino of approximately $84,000
which was offset by a decrease from the Sands Regency of $359,000.

     For the same comparable fiscal years, the Company had a net loss of $1.4
million, or $.31 per share, in fiscal 1999 compared to a net loss of $1.2
million, or $.27 per share, in fiscal 1998. The Copa Casino had a net loss of
approximately $294,000 in the current fiscal year as compared to a net loss in
the prior fiscal year of $531,000. The Sands Regency's portion of the net loss
was $1.1 million as compared to a net loss of $688,000 in fiscal 1998.

     The decline in Sands Regency revenues, income from operations and net
income is attributable to a decline in hotel occupancy due, in part, to an
overall softening in the Reno area market, a reduction in group business at the
Sands Regency and the lack of a major city-wide bowling event. Every two out of
three years, the City of Reno hosts a major mens' or womens' bowling event which
starts in February and ends in July. Fiscal 1999 was the one year out of three
in which such a major bowling event was not held in Reno. Revenues were also
somewhat negatively impacted in the fourth quarter due to construction on the
Company's premises which included the razing of 102 older motel rooms and other
older buildings. Nonetheless, this decline in revenue was partially offset by
reduced costs and expenses commencing primarily in the second quarter of fiscal
1999. Such decline in costs and expenses is due to improved efficiencies and
methods of operations.

     The decrease in lodging revenue of $315,000 in the year ended June 30,
1999, compared to the year ended June 30, 1998, is due to a decrease in hotel
occupancy from 83.3%, or 285,000 room nights to 76.4% or 254,000 room nights.
The average daily room rate increased by over 8% to approximately $34 in fiscal
1999 from $31 in fiscal 1998. In early April 1999, the Company discontinued the
use of 102 older motel rooms, which were subsequently razed, leaving 836 tower
hotel rooms available for use.

     The decrease in gaming revenue of $14.2 million, in fiscal 1999 versus
fiscal 1998, is a result of a decrease in gaming revenue from the Copa Casino of
approximately $12.0 million and a decrease from the Sands Regency, primarily
slot revenue, of $2.1 million. The decrease in gaming revenue in Reno is
primarily due to a decrease in hotel occupancy. For the year ended June 30,
1999, casino gaming revenue per occupied room increased to approximately $75.50
from $72.80 in fiscal 1998.

                                        6
<PAGE>   3

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

     The decrease in food and beverage revenue of $1.2 million, for the year
ended June 30, 1999 versus the prior year, consists of a decrease from the Copa
Casino of approximately $1.1 million and decrease at the Sands Regency of
$111,000. Such decline at the Sands Regency is primarily due to the decline in
hotel occupancy. Food revenue per occupied room increased from approximately $19
in fiscal 1998 to $21 in fiscal 1999 which improvement is due, in part, to the
updating of food venues and increased menu prices.

     The decrease in other revenue of $347,000 consists of a decrease from the
Sands Regency of approximately $178,000 and a decrease from the Copa Casino of
$169,000. The decrease from the Sands Regency is composed of a decline in
various ancillary revenues. Approximately $58,000 of the $108,000 decrease in
other costs and expenses is due to the decrease in related revenue from the
Sands Regency. The remaining decrease in other costs and expenses of $50,000 is
attributable to the Copa Casino.

     The decrease in complimentary lodging, food and beverage, deducted from
revenue, of $405,000 is principally attributable to the Copa Casino.

     The decrease in gaming costs and expenses of $7.1 million in the twelve
months ended June 30, 1999, compared to the twelve months ended June 30, 1998,
consists of a decline from the Copa Casino of $5.9 million and a decline from
the Sands Regency of $1.2 million. The decrease at the Sands Regency consists of
decreases due to reduced gaming revenues and as a result of increased
efficiencies due to improved operating practices and methods. Such decrease
includes a decrease in salaries, wages and benefits of approximately $632,000.

     The decrease in lodging costs and expenses of $754,000 in fiscal 1999,
compared to fiscal 1998, consists of a decrease in salaries, wages and benefits
of approximately $579,000 and a decrease in various other costs and expenses of
$175,000. Such declines are due to the decline in hotel occupancy and to
improved efficiencies at the Sands Regency.

     The decrease in food and beverage costs and expenses of $1.2 million, in
the current year compared to the prior year, consists of a decrease from the
Copa Casino of approximately $1.1 million and a decrease at the Sands Regency of
approximately $177,000. The decline at the Sands Regency is primarily
attributable to a decrease in restaurant operating costs and expenses resulting
in an improved restaurants profit margin.

     The decrease in maintenance and utilities costs and expenses of $1.3
million consists of decreases from the Copa Casino of $925,000 and from the
Sands Regency of approximately $339,000. The decrease at the Sands Regency
consists of decreases in utility costs, repair costs and various other costs and
expenses of $128,000, $111,000 and $100,000, respectively. Such decreases are
due, in part, to the decrease in hotel occupancy and improvements in operating
efficiencies.

     The decrease in general and administrative costs and expenses of $4.2
million consists of a decrease from the Copa Casino of approximately $4.4
million and increases from the Sands Regency and The Sands Regent of
approximately $58,000 and $132,000, respectively. The slight increase at the
Sands Regency is primarily due to an increase in advertising and promotional
costs and expenses of $568,000 as offset by decreases in salaries, wages and
benefits of approximately $442,000 and in various other costs and expenses. The
increase in advertising and promotional costs and expenses is due to the

                                        7
<PAGE>   4
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
 ................................................................................

implementation of new print, billboard and radio advertising campaigns in the
Reno and Northern California market areas and expanded in-house promotional
programs. The decreases in salaries, wages and benefits, and in various other
costs and expenses, are due, in part, to improved operating methods and
practices.

     The decrease in depreciation and amortization expense of $646,000, in
fiscal 1999 versus fiscal 1998, is primarily attributable to the Copa Casino.

     The decrease in interest and other expense of $685,000 consist of a decline
from the Sands Regency of $258,000 and a decrease relative to the Copa Casino
operation of $427,000. The decrease from the Sands Regency is due to a lower
effective overall interest rate on reduced long-term debt.

     The loss on razing of buildings and related lease terminations costs in
fiscal 1999 includes the write-off of the undepreciated basis of 102 motel rooms
in low-rise buildings and other structures primarily rented to third parties,
and certain costs related to the early termination of a lease located in the
rental structure. Such structures were 30 to 35 years old and are being replaced
with a paved open area utilized for parking and special events/promotions.

     The effective income tax rate for the twelve months ended June 30, 1999 is
different from the statutory rate due to certain items, primarily attributable
to the Copa Casino, that are not deductible for federal income tax purposes.

     As is true for other hotel/casinos in the Reno area, demand for the
Company's facilities declines in the winter. Due to lower room rates and a lower
level of gaming play per occupied room, operating margins and, to a lesser
extent, revenues are lower during the second and third fiscal quarters. The
Sands Regency has not historically been affected as severely as many other
hotel/casinos in the Reno area because the Company attracts high levels of group
business during that period. This group business and the Company's flexible
pricing strategy have historically enabled the Company to maintain relatively
high levels of hotel occupancy. Management anticipates that the trend of
experiencing lower operating margins in the second and third quarters of each
fiscal year will continue.

COMPARISON OF 1998 TO 1997

     For the year ended June 30, 1998, revenues increased to $59.2 million from
$57.5 million in the prior year and income from operations decreased slightly
from $245,000 to $233,000. The increase in revenue is attributable to the Sands
Regency where revenue increased from $32.2 million in fiscal 1997 to $34.8
million in fiscal 1998, over an 8% increase. Such increase at the Sands Regency
was partially offset by a decrease in revenue at the Copa Casino of $1.0 million
to $24.4 million in fiscal 1998. The slight decrease in income from operations
consists of an increase in income from operations from the Sands Regency of $2.2
million to $304,000 which was offset by a decline in income from operations from
the Copa Casino of approximately $2.2 million to a loss from operations of
$71,000.

     For the same comparable fiscal years, the Company had a net loss of $1.2
million, or loss per share of $.27, in fiscal 1998 compared to a net loss of
$762,000, or loss per share of $.17, in fiscal 1997. The Sands Regency had a net
loss of approximately $688,000 in fiscal 1998 which compared favorably to a net
loss in fiscal 1997 of $1.5 million. Such improvement from the Sands Regency was
offset by a decline at the Copa Casino. For the year ended June 30 1998, the
Copa Casino incurred a net loss of approximately $532,000 as compared to net
income in the prior year of approximately $741,000.

                                        8
<PAGE>   5

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

     The increases at the Sands Regency are due to an increase in gaming,
lodging and food and beverage revenue per occupied room. The declines in
revenues, income (loss) from operations and net income (loss) at the Copa Casino
are due to a decline in customer counts and an increase in costs and expenses.
The decline in customers is due, in part, to the construction on Highway 90
which significantly impaired access to the Copa Casino for most of fiscal 1998.

     The increase in lodging revenue of $416,000 in the year ended June 30,
1998, compared to the year ended June 30, 1997, is primarily due to an increase
in the average daily rate from approximately $29 in fiscal 1997 to $31 in fiscal
1998. For the same comparable periods, hotel occupancy declined slightly from
84.3% to 83.3%.

     The increase in gaming revenue of $487,000 includes a 9% increase in gaming
revenue from the Sands Regency of $1.6 million. Such increase was offset by a
decline in gaming revenue from the Copa Casino of approximately $1.1 million.
The increase in gaming revenue in Reno is primarily due to an increase in gaming
revenue from hotel guests and an increase in local patrons. Gaming revenue per
occupied room increased from approximately $62 in the year ended June 30, 1997
to $69 in the year ended June 30, 1998. The decline in gaming revenue at the
Copa Casino is due to a reduction in the number of customers which the Company
attributes, in part, to the curtailment of access to the Copa because of
construction on Highway 90. Not until July 1998 had construction progressed to
the point where access to the Copa Casino had finally improved to any
significance.

     The increase in food and beverage revenue of $638,000, in fiscal 1998
compared to fiscal 1997, includes an increase in restaurant revenue at the Sands
Regency of approximately $472,000 and an increase at the Copa Casino of
$174,000. At the Sands Regency, food revenue per occupied room increased from
approximately $17 in the fiscal 1997 to $19 in fiscal 1998. This increase is
partially attributable to improvements and upgrades to the Sands Regency's
restaurant facilities. The increase in restaurant revenue at the Copa Casino,
partially offset by a decrease in Copa Casino beverage revenue, is due to the
Copa's operation of a buffet restaurant in fiscal 1998. Previously operated by a
third party through May 1997, the buffet restaurant was subsequently eliminated
in July 1998 due to low customer counts and high operating costs.

     The increase in other revenue of $142,000 is in ancillary revenue from the
Sands Regency.

     The increase in gaming costs and expense of $247,000, in the year ended
June 30, 1998 compared to the year ended June 30, 1997, is comprised of an
increase from the Copa Casino of approximately $387,000 and a decrease from the
Sands Regency of approximately $140,000. The increase in Copa Casino costs and
expenses is primarily attributable to added costs and expenses associated with
the slot player's club, which was commenced in April 1997, of $555,000. This
increase was partially offset by a reduction in gaming taxes due to reduced
gaming revenue. The decrease at the Sands Regency is composed of increases in
gaming player's club costs and gaming taxes and licenses related to the
increased revenue, respectively, of $154,000 and $140,000 which were more than
offset by decreases in various other gaming cost and expense items due,
partially, to improved efficiency.

     The increase in food and beverage costs and expense of $987,000 in the
fiscal 1998, compared to fiscal 1997, consists of increases at the Copa Casino
and Sands Regency, respectively, of $735,000 and $252,000. The increase at the
Copa Casino includes $404,000 in added food costs associated with the buffet
restaurant and increased other food operating costs and expenses in the Copa's
other food

                                        9
<PAGE>   6
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
 ................................................................................

operation due to changes in products being offered to the public. The Copa's
buffet restaurant was operated by the Copa from May 1997 to July 1998 when it
was closed due to low customer counts and high operating costs. The increase at
the Sands Regency consists primarily of promotional discounts offered on certain
restaurant food products of approximately $308,000 and a decrease in various
other food and beverage costs and expenses.

     The increase in maintenance and utilities costs and expenses of $249,000 is
primarily attributable to the Copa Casino. It includes an increase in hurricane
evacuation expenses of $202,000 as a result of preparedness actions necessary
during Hurricane Danny in July 1997 and increases in other maintenance and
repair costs aggregating approximately $103,000. Such increases have been offset
by a decrease in costs and expenses associated with maintenance dredging
performed under and around the ship during the fourth quarter of fiscal 1997.

     The increase in general and administrative costs and expenses of $77,000,
in the year ended June 30, 1998 compared to the year ended June 30, 1997,
consists principally of a decrease from the Copa Casino of approximately
$189,000 and an increase from the Sands Regency of approximately $266,000. The
decrease from the Copa Casino is attributable to a decrease in advertising and
promotional costs of approximately $412,000. This decrease was partially offset
by an increase in legal and professional costs of $183,000. The decrease in
direct advertising and promotional costs is due, in part, to the implementation
of the slot player's club which includes various promotional costs that
supercede some prior promotional programs. The increase in legal and
professional costs is related to the legal actions with the State Port of
Mississippi at Gulfport which culminated in a trial in October 1997.

     The increase in general and administrative costs and expenses at the Sands
Regency includes an increase in performance based compensation for the facility
of approximately $287,000, increases due to the implementation of a casino
marketing department in mid-fiscal 1998 of approximately $153,000 and increases
in various other general and administrative costs and expenses aggregating
approximately $103,000. Such increases were offset by a decrease in various
promotional costs and expenses due to the refinement of promotional programs in
the gaming player's club included in gaming costs and expenses.

     The increase in depreciation and amortization expense of $247,000 is
primarily due to additional depreciation taken on assets placed in service in
fiscal 1998 and 1997 at the Copa Casino. During such years, significant property
and equipment additions and replacements were undertaken including the
acquisition of a new slot player tracking/monitoring and accounting system.

     The decrease in interest and other income of approximately $75,000, in
fiscal 1998 compared to fiscal 1997, includes a decrease from the Sands Regency
of approximately $365,000 and an increase from the Copa Casino of approximately
$290,000. The decrease from the Sands Regency is primarily due to the
non-recurrence of a gain on the sale of a non-casino property in Reno in fiscal
1997. The increase from the Copa Casino is due to the non-recurrence of a prior
year loss from the write-off of the undepreciated cost of the slot
monitoring/accounting system replaced in the fourth quarter of fiscal 1997 and
the write-off of certain capitalized costs for projects no longer deemed viable.

     The increase in interest expense of $507,000 is primarily attributable to
the Sands Regency. It includes the write-off of unamortized loan fees of
approximately $138,000, due to the amendment of the Sands Regency's bank debt
effective January 31, 1998, and the non-recurrence of approximately

                                       10
<PAGE>   7

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

$77,000 in interest expense capitalized into property and equipment for projects
undertaken in fiscal 1997. It also includes an increase in interest expense due
to an increase in the interest rate to a default rate of interest of prime plus
three percent in the six months preceeding the January 1998 amendment. The
amended loan agreement presently specifies an interest rate of prime plus one
and one-half percent.

CAPITAL RESOURCES AND LIQUIDITY

     Cash, cash equivalents and short-term investments decreased from $9.5
million at June 30, 1998 to $5.6 million at June 30, 1999. Approximately $3.3
million of this decrease was due to cash retained by the former subsidiaries.
Cash and cash equivalents provided from operating activities for the years ended
June 30, 1999, 1998 and 1997 was $2.3 million, $3.0 million and $3.3 million,
respectively. In fiscal 1999, cash was generated through the issuance of
long-term debt of approximately $239,000. In fiscal 1998, the Company received
cash of approximately $1.2 million as a result of the early repayment of a note
receivable which was not otherwise due to be paid until fiscal 1999. In fiscal
1997, cash was also generated through the issuance of long-term debt of $498,000
and from the sale of non-hotel/casino properties located in Reno, Nevada of
$475,000. The Company's short-term investments, which generally mature in one
year or less, represent temporarily invested cash funds which are generally
readily convertable to cash.

     Uses of cash included the Company's payments of long-term debt of $862,000,
$731,000 and $4.9 million in fiscal 1999, 1998 and 1997, respectively. Cash was
also utilized for the acquisition of property and equipment in the amounts of
$1.7 million, $2.0 million and $3.1 million in the years ended June 30, 1999,
1998 and 1997, respectively. The property and equipment acquisition amounts, for
the years indicated, represent primarily furniture, fixtures and equipment
replacements and additions. In fiscal 1999, $500,000 of cash from the former
subsidiaries was deposited into an escrow as security for certain
representations and warranties by the Company which was subsequently released to
the Company in July 1999.

     At June 30, 1999, the Company believes that its cash funds and cash
generated from operations, coupled with the refinancing of its existing bank
debt, will be sufficient to meet its needs for the next fiscal year. The Company
generally invests its excess cash in securities which are readily marketable and
that are not subject to significant market value fluctuations.

     The Company's working capital declined to a deficit of approximately $4.2
million at June 30, 1999 primarily as a result of the reclassification to
current of approximately $10.4 million of long-term debt due to its bank. Such
decrease was partially offset by the sale of Patrician, Inc., Gulfside Casino,
Inc. and Artemis, Inc., which included the 100% ownership interest in the Copa
Casino ("former subsidiaries") to third parties in December 1998 as further
discussed in Note 3 to the Company's Consolidated Financial Statements. Such
former subsidiaries had a deficit working capital at the date of sale of
approximately $9.6 million. The long-term bank debt is due in full in January
2000 and the Company is presently in discussions to refinance such obligation.

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

                                       11
<PAGE>   8
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
 ................................................................................

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

YEAR 2000

     The Year 2000 issue is the result of information technology ("IT") and
non-IT (embedded technology such as microcontrollers) hardware and software
systems and components utilizing two digits, rather than four digits, to define
the year. Date-sensitive hardware and software systems and components may
recognize a date using "00" as the year 1900 rather than the year 2000. This is
generally referred to as the "Year 2000 Problem" or the "Y2K Problem". This
could result in IT and non-IT hardware or software system and component ("Y2K
Systems and Components") failures or miscalculations causing disruptions of
operations and the ability to engage in normal business activities.

     The Company has undertaken a study and assessment of its Y2K Systems and
Components in order to determine the impact of the Y2K Problem on such Y2K
Systems and Components. This study and evaluation includes specifically
identifying those Y2K Systems and Components utilized by the Company that may be
non-Y2K compliant, evaluating necessary corrective actions and implementing
corrective actions, including appropriate testing, so as to minimize the impact
of the Y2K Problem on the Company. Corrective actions may include software or
hardware modifications or the replacement of Y2K Systems and Components that are
non-Y2K compliant. The Company's Y2K study and assessment has also been, and
will be, utilized with respect to those Y2K Systems and Components that may be
subsequently acquired by the Company with greater reliance given to third party
representations.

     The Company has generally completed the identification, evaluation and
corrective actions phases which includes internal reviews and testing as well as
inquires to third parties supplying or maintaining Y2K Systems. The
implementation phase is also in progress and is anticipated to be significantly
completed by October 1999. Certain additional follow-up testing is also
anticipated to take place and will continue through the second quarter of fiscal
2000.

     The Company has also undertaken a more limited study and assessment of the
Y2K Problem with respect to third party vendors, suppliers, customers and other
business associates. Such study and assessment is directed toward third parties
that have a material relationship with the Company or may materially affect the
Company's operations such as major customers and suppliers, financial
institution and communications providers. The scope of such limited study and
assessment has been limited, by necessity, to appropriate inquiries of such
third parties. The Company believes, based on the wide attention that the Y2K
Problem has received, the relative size and prominence of certain third parties
and the preliminary information received, to date, from select third parties,
that the impact of the Y2K Problem on such third parties will not have a
material affect on the Company's operations. The Company has generally completed
the study and assessment of the Y2K Problem relative to its material third party
vendors, suppliers, customers and other business associates and will continue to
follow up on incomplete and failed responses.

     The Company has, and will, utilize both internal and external resources to
achieve Y2K compliance which will include modifying certain Y2K Systems and
Components and replacing others. The Company presently estimates that the
remaining costs to assure material Y2K compliance will be less than

                                       12
<PAGE>   9

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

$100,000, to be incurred over the next 6 months. Such estimate is based upon the
Company's study and assessment and is subject to modification as conditions
change or more information is obtained. There can be no guarantee that this
estimate will be achieved and actual results could materially differ from the
estimate. Costs to date have been immaterial.

     The Company believes that the scope and time table of its study and
assessment of Y2K Systems and Components, to achieve Y2K compliance, is adequate
and realistic. Further, the Company believes that those Y2K Systems and
Components with a greater likelihood of adversely impacting the Company's
business and financial performance will be Y2K compliant in a timely manner.
Nevertheless, if one or more of the Company's Y2K Systems and Components fail to
achieve Y2K compliance, or are overlooked, there could be a material adverse
impact on the Company's business operations or financial performance.
Additionally, there can be no assurances that the Y2K Systems and Components of
third parties, which may materially affect the Company, will be timely converted
to assure Y2K compliance.

     The Company has not formulated a contingency plan in the event one or more
of the Company's, or third party's, Y2K Systems and Components fail to achieve
Y2K compliance. The Company will continue to review the necessity for a
contingency plan as its Y2K study and assessment progresses. The decision to
develop a contingency plan will be based upon an evaluation of potential future
unavoided or unavoidable risks of Y2K noncompliance and the adverse impact to
the Company.

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

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

                                       13
<PAGE>   10

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

JUNE 30, 1999 AND 1998

<TABLE>
<CAPTION>
                                                                 1999           1998
                                                              -----------    -----------
<S>                                                           <C>            <C>
ASSETS
Current assets:
  Cash and cash equivalents.................................  $ 5,540,120    $ 9,203,443
  Short-term investments....................................       10,000        250,000
  Accounts receivable, less allowance for possible losses of
     $27,000 and $72,000....................................    1,095,966        549,613
  Note receivable, sale of subsidiaries -- current..........      180,000        --
  Inventories...............................................      483,086        579,016
  Federal income tax refund receivable......................      300,001        687,269
  Prepaid expenses and other assets.........................    1,214,734      1,416,625
                                                              -----------    -----------
          Total current assets..............................    8,823,907     12,685,966
                                                              -----------    -----------
Property and equipment:
  Land......................................................    8,092,923      8,092,923
  Buildings, ship and improvements..........................   35,751,549     45,941,607
  Equipment, furniture and fixtures.........................   18,508,036     25,654,167
  Construction in progress..................................      767,816        509,247
                                                              -----------    -----------
                                                               63,120,324     80,197,944
  Less accumulated depreciation and amortization............   30,125,978     34,551,822
                                                              -----------    -----------
       Property and equipment, net..........................   32,994,346     45,646,122
                                                              -----------    -----------
Other assets:
  Deferred federal income tax asset.........................      --             258,752
  Note receivable, sale of subsidiaries, net................    1,741,473        --
  Other.....................................................      135,098        310,473
                                                              -----------    -----------
          Total other assets................................    1,876,571        569,225
                                                              -----------    -----------
                                                              $43,694,824    $58,901,313
                                                              ===========    ===========
</TABLE>

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

                                       14
<PAGE>   11

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

<TABLE>
<CAPTION>
                                                                  1999            1998
                                                              ------------    ------------
<S>                                                           <C>             <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable..........................................  $    814,261    $  1,927,356
  Accrued salaries, wages and benefits......................       853,676       2,006,096
  Other accrued expenses....................................       270,452       2,049,138
  Deferred federal income tax liability.....................       299,404         275,541
  Current maturities of long-term debt......................    10,752,496       6,764,949
                                                              ------------    ------------
          Total current liabilities.........................    12,990,289      13,023,080
Long-term debt..............................................       490,980      14,643,172
Deferred federal income tax liability.......................       369,786              --
                                                              ------------    ------------
          Total liabilities.................................    13,851,055      27,666,252
                                                              ------------    ------------
Commitments and contingencies...............................            --              --
Stockholders' equity:
  Preferred stock, $.10 par value, 5,000,000 shares
     authorized, none issued................................            --              --
  Common stock, $.05 par value, 20,000,000 shares
     authorized, 6,898,722 shares issued....................       344,936         344,936
  Additional paid-in capital................................    13,073,803      13,073,803
  Retained earnings.........................................    38,783,492      40,171,157
                                                              ------------    ------------
                                                                52,202,231      53,589,896
  Treasury stock, at cost; 2,403,000 and 2,400,000 shares...   (22,358,462)    (22,354,835)
                                                              ------------    ------------
          Total stockholders' equity........................    29,843,769      31,235,061
                                                              ------------    ------------
                                                              $ 43,694,824    $ 58,901,313
                                                              ============    ============
</TABLE>

                                       15
<PAGE>   12

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

FOR THE YEARS ENDED JUNE 30, 1999, 1998, 1997

<TABLE>
<CAPTION>
                                                          1999           1998           1997
                                                       -----------    -----------    -----------
<S>                                                    <C>            <C>            <C>
Operating revenues:
  Gaming.............................................  $28,789,544    $42,971,378    $42,484,575
  Lodging............................................    8,562,860      8,878,096      8,461,714
  Food and beverage..................................    7,309,831      8,547,651      7,910,110
  Other..............................................    1,340,969      1,687,505      1,545,345
                                                       -----------    -----------    -----------
                                                        46,003,204     62,084,630     60,401,744
  Less complimentary lodging, food and
     beverage included above.........................    2,468,164      2,873,400      2,874,795
                                                       -----------    -----------    -----------
                                                        43,535,040     59,211,230     57,526,949
                                                       -----------    -----------    -----------
Operating costs and expenses:
  Gaming.............................................   14,853,027     22,000,607     21,753,369
  Lodging............................................    4,097,428      4,851,303      4,918,433
  Food and beverage..................................    6,305,549      7,554,325      6,566,859
  Other..............................................      526,099        634,543        678,566
  Maintenance and utilities..........................    4,642,598      5,906,916      5,658,004
  General and administrative.........................    9,746,135     13,977,577     13,901,048
  Depreciation and amortization......................    3,406,570      4,052,727      3,805,522
                                                       -----------    -----------    -----------
                                                        43,577,406     58,977,998     57,281,801
                                                       -----------    -----------    -----------
Income (loss) from operations........................      (42,366)       233,232        245,148
                                                       -----------    -----------    -----------
Other income (deductions):
  Interest and other income..........................      320,482        345,936        420,490
  Interest expense...................................   (1,747,990)    (2,433,271)    (1,926,378)
  Loss on razing of buildings and related lease
     termination costs...............................     (479,348)            --             --
                                                       -----------    -----------    -----------
                                                        (1,906,856)    (2,087,335)    (1,505,888)
                                                       -----------    -----------    -----------
Loss before income taxes.............................   (1,949,222)    (1,854,103)    (1,260,740)
Income tax benefit...................................      561,557        634,881        498,928
                                                       -----------    -----------    -----------
Net loss.............................................  $(1,387,665)   $(1,219,222)   $  (761,812)
                                                       ===========    ===========    ===========
Net loss per share:
     Basic...........................................  $      (.31)   $      (.27)   $      (.17)
                                                       ===========    ===========    ===========
     Diluted.........................................  $      (.31)   $      (.27)   $      (.17)
                                                       ===========    ===========    ===========
Weighted average shares outstanding..................    4,497,703      4,498,722      4,498,722
                                                       ===========    ===========    ===========
</TABLE>

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

                                       16
<PAGE>   13

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

FOR THE YEARS ENDED JUNE 30, 1999, 1998, 1997

<TABLE>
<CAPTION>
                             COMMON STOCK       ADDITIONAL                       TREASURY STOCK
                         --------------------     PAID-IN      RETAINED     ------------------------
                          SHARES      AMOUNT      CAPITAL      EARNINGS      SHARES        AMOUNT         TOTAL
                         ---------   --------   -----------   -----------   ---------   ------------   -----------
<S>                      <C>         <C>        <C>           <C>           <C>         <C>            <C>
Balances, July 1,
  1996.................  6,898,722   $344,936   $13,073,803   $42,152,191   2,400,000   $(22,354,835)  $33,216,095
Net loss...............         --         --            --      (761,812)         --             --      (761,812)
                         ---------   --------   -----------   -----------   ---------   ------------   -----------
Balances, June 30,
  1997.................  6,898,722    344,936    13,073,803    41,390,379   2,400,000    (22,354,835)   32,454,283
Net loss...............         --         --            --    (1,219,222)         --             --    (1,219,222)
                         ---------   --------   -----------   -----------   ---------   ------------   -----------
Balances, June 30,
  1998.................  6,898,722    344,936    13,073,803    40,171,157   2,400,000    (22,354,835)   31,235,061
Net loss...............         --         --            --    (1,387,665)         --             --    (1,387,665)
Purchase of Company
  Common Stock.........         --         --            --            --       3,000         (3,627)       (3,627)
                         ---------   --------   -----------   -----------   ---------   ------------   -----------
BALANCES, JUNE 30,
  1999.................  6,898,722   $344,936   $13,073,803   $38,783,492   2,403,000   $(22,358,462)  $29,843,769
                         =========   ========   ===========   ===========   =========   ============   ===========
</TABLE>

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

                                       17
<PAGE>   14

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

FOR THE YEARS ENDED JUNE 30, 1999, 1998, 1997

<TABLE>
<CAPTION>
                                                               1999          1998          1997
                                                            -----------   -----------   ----------
<S>                                                         <C>           <C>           <C>
Operating activities:
  Net loss................................................  $(1,387,665)  $(1,219,222)  $ (761,812)
  Adjustments to reconcile net loss to net cash provided
     by operating activities:
       Depreciation and amortization......................    3,406,570     4,052,727    3,805,522
       Loss on disposal of property and equipment.........      460,243        73,792       15,341
       (Increase) decrease in accounts receivable.........       41,033      (131,595)     (18,000)
       Decrease in inventories............................        1,942        15,174      149,176
       (Increase) in prepaid expenses and other current
          assets..........................................     (197,335)      (73,400)    (317,837)
       Decrease in other assets...........................       80,177        26,400      128,420
       Increase (decrease) in accounts payable............      272,988      (862,089)     207,268
       Increase (decrease) in accrued salaries, wages and
          benefits........................................     (645,142)      190,255      128,909
       Increase in other accrued expenses.................      367,255       357,581      315,456
       Change in federal income taxes
          payable/receivable..............................      387,268       375,388     (921,288)
       Change in deferred federal income taxes............     (492,780)      199,540      590,688
       Decrease in other liability........................      --            --           (18,723)
                                                            -----------   -----------   ----------
Net cash provided by operating activities.................    2,294,554     3,004,551    3,303,120
                                                            -----------   -----------   ----------
Investing activities:
  Purchase of short-term investments......................      --            --           (50,000)
  Sale and maturity of short-term investments.............       10,000       --            --
  Payments received on note receivable....................      --          1,237,156        7,107
  Down payment on sale of subsidiaries held in escrow and
     reflected in accounts receivable.....................     (500,000)      --            --
  Payments received on note receivable, sale of
     subsidiaries, net....................................       96,343       --            --
  Cash retained by former subsidiary companies upon
     sale.................................................   (3,276,839)      --            --
  Additions to property and equipment.....................   (1,683,863)   (1,995,750)  (3,105,448)
  Proceeds from sale of property, equipment and other
     assets...............................................       32,369        44,650      501,490
                                                            -----------   -----------   ----------
Net cash used in investing activities.....................   (5,321,990)     (713,944)  (2,646,851)
                                                            -----------   -----------   ----------
</TABLE>

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

                                       18
<PAGE>   15

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

<TABLE>
<CAPTION>
                                                               1999          1998         1997
                                                            -----------   ----------   -----------
<S>                                                         <C>           <C>          <C>
Financing activities:
  Payment of accounts payable for prior year purchases of
     property and equipment...............................  $    (9,355)  $   --       $   --
  Issuance of long-term debt..............................      239,368       --           497,940
  Payments on long-term debt..............................     (862,273)    (730,845)   (4,867,508)
  Purchase of Company common stock........................       (3,627)      --           --
                                                            -----------   ----------   -----------
Net cash used in financing activities.....................     (635,887)    (730,845)   (4,369,568)
                                                            -----------   ----------   -----------
Increase (decrease) in cash and cash equivalents..........   (3,663,323)   1,559,762    (3,713,299)
Cash and cash equivalents, beginning of year..............    9,203,443    7,643,681    11,356,980
                                                            -----------   ----------   -----------
Cash and cash equivalents, end of year....................  $ 5,540,120   $9,203,443   $ 7,643,681
                                                            ===========   ==========   ===========
Supplemental cash flow information:
  Net investment in subsidiaries converted to note
     receivable upon sale, net............................  $ 2,171,147   $   --       $   --
                                                            ===========   ==========   ===========
  Payments received on note receivable from sale of
     subsidiaries held in escrow and reflected in accounts
     receivable...........................................  $   153,330   $   --       $   --
                                                            ===========   ==========   ===========
  Property and equipment acquired by accounts payable.....  $   --        $   76,914   $   223,977
                                                            ===========   ==========   ===========
  Property and equipment acquired by long-term debt.......  $   --        $   --       $   903,227
                                                            ===========   ==========   ===========
  Property and equipment acquired by conversion of other
     assets...............................................  $   --        $   --       $   400,000
                                                            ===========   ==========   ===========
  Interest paid, net of amount capitalized................  $ 1,534,329   $2,026,378   $ 1,594,085
                                                            ===========   ==========   ===========
  Federal income taxes paid...............................  $   300,000   $   --       $   --
                                                            ===========   ==========   ===========
</TABLE>

                                       19
<PAGE>   16

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

FOR THE YEARS ENDED JUNE 30, 1999, 1998, 1997

NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Principles of consolidation and basis of presentation

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

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

(b) Nature of operations

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

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

(c) Operating revenues

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

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

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

<TABLE>
<CAPTION>
                                                       1999         1998         1997
                                                    ----------   ----------   ----------
<S>                                                 <C>          <C>          <C>
Hotel.............................................  $  460,549   $  442,875   $  445,572
Food and beverage.................................   1,727,192    2,202,749    2,221,535
Other.............................................      31,204       55,192       51,843
                                                    ----------   ----------   ----------
                                                    $2,218,945   $2,700,816   $2,718,950
                                                    ==========   ==========   ==========
</TABLE>

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

                                       20
<PAGE>   17

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

(d) Cash and cash equivalents

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

(e) Short-term investments

     The Company accounts for its short-term investments in accordance with the
provisions of Statement of Financial Accounting Standards ("SFAS") No.
115 -- "Accounting for Certain Investments in Debt and Equity Securities". This
statement requires that unrealized gains and losses on securities defined as
"available-for-sale" be excluded from income and be reported in a separate
component of stockholders' equity. Securities that the Company has the ability
and positive intent to hold to maturity are classified as "held-to-maturity" and
are reported at the lower of aggregate cost or market. As of June 30, 1999, the
Company's short-term investments were not subject to the provisions of SFAS No.
115.

(f) Inventories

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

(g) Property and equipment

     Property and equipment are stated at cost, net of impairment write-downs to
estimated net realizable values. 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, ship and
improvements and 5 to 20 years for equipment, furniture and fixtures. Assets
sold or otherwise disposed of are removed from the property accounts and the
resulting gains or losses are included in income.

(h) Impairment of long-lived assets

     The Company reviews the carrying values of its long-lived and identifiable
intangible assets for possible impairment whenever events or changes in
circumstances indicate that the carrying amount of assets may not be
recoverable.

(i) Income taxes

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

                                       21
<PAGE>   18
THE SANDS REGENT
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (continued)
 ................................................................................

(j) Fair value of financial instruments

     The Company calculates the fair value of financial instruments and includes
this additional information in the Company's Notes to Consolidated Financial
Statements when the fair value is different 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, 1999.

(k) Concentrations of credit risk

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

(l) Recent Pronouncements of the Financial Accounting Standards Board ("FASB")

     On June 30, 1998, the FASB issued SFAS No. 133 entitled "Accounting for
Derivative Instruments and Hedging Activies". This statement establishes
accounting and reporting standards for derivative instruments and hedging
activities and is effective for fiscal years beginning after June 15, 2000.
Management does not believe this new SFAS will have a material impact on the
financial statements of the Company but because of the complexity of SFAS No.
133, the ultimate impact has not yet been determined.

(m) Use of estimates

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

(n) Reclassifications

     Certain reclassifications have been made to the 1998 consolidated financial
statements to conform to the 1999 presentation.

                                       22
<PAGE>   19

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

NOTE 2 -- SHORT-TERM INVESTMENTS

     Short-term investments consist of certificates of deposit which are carried
at cost, which approximates market.

NOTE 3 -- NOTE RECEIVABLE, SALE OF SUBSIDIARIES

     On December 23, 1998, the Company closed on an agreement selling all of its
ownership interest in Patrician, GCI and Artemis, which included a 100%
ownership interest in the Copa Casino, to two former GCI shareholders for $8.5
million. The agreement provided for an initial payment of $500,000, which was
deposited into escrow, with the balance payable in monthly installment of
$15,000 or 2% of the Copa's gross gaming revenues, whichever is greater. The
payments held in escrow as security for certain representations and warranties
aggregated $653,000 at June 30, 1999 and are included in accounts receivable on
the consolidated balance sheet. Such amounts held in escrow, including earned
interest, were released to the Company in July 1999.

     Upon consummation of the sales transaction, the Company's net investment in
Patrician, GCI and Artemis was $2.2 million. This net $2.2 million investment
was reclassified as a note receivable, net. The difference to the original $8.0
million face value of the note, after the initial $500,000 payment, represents
an unrecognized gain of approximately $5.8 million. Such gain will be recognized
by the Company as it receives subsequent payments after recovering the $2.2
million net investment. $180,000 of the note receivable, sale of subsidiaries is
reflected as a current asset.

     The combined net assets of Patrician, GCI, Artemis and GCP sold by the
Company on December 23, 1998 consisted of the following:

<TABLE>
<S>                                                           <C>
Current assets..............................................  $  4,065,998
Property and Equipment, net.................................    10,439,417
Deferred tax benefit, non-current...........................     1,214,957
Other assets................................................        92,238
Current liabilities.........................................   (13,641,463)
                                                              ------------
                                                              $  2,171,147
                                                              ============
</TABLE>

     The new owners of Patrician, GCI, Artemis and GCP have made certain claims
that GCP had previously made payments for the benefit of the Company and are
seeking to recover such payments. Preliminary discussions are in progress.
Management believes that the claims are without merit and that the ultimate
outcome will not have a material adverse affect on the Company.

                                       23
<PAGE>   20
THE SANDS REGENT
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (continued)
 ................................................................................

NOTE 4 -- LONG-TERM DEBT

     Long-term debt consists of the following:

<TABLE>
<CAPTION>
                                                                      June 30,
                                                              -------------------------
                                                                 1999          1998
                                                              -----------   -----------
<S>                                                           <C>           <C>
Bank term loan; interest at prime plus 2.5% per annum from
  February 1, 1999 to maturity in January 2000, subject to a
  maximum of 14% per annum; at June 30, 1999, the interest
  rate was 10.25% per annum; monthly principal and interest
  payments of the greater of $120,000 or the monthly accrued
  interest from February 1, 1999 to maturity when the
  remaining balance is due in full; semi-annual principal
  payments due in the amount of average cash and cash
  equivalents in excess of $5.5 million for June and
  December of each year; secured by deeds of trust on all
  real property and otherwise collateralized by all
  furniture, fixtures, equipment and all other properties of
  the Company...............................................  $10,532,066   $10,849,143
Capital lease obligation; imputed interest at 8.6%; payable
  in monthly principal and interest payments in the amount
  of $26,794 over 60 months at which time a one dollar
  purchase option is exercisable; assets under the capital
  lease, with an original cost of $1,481,000 and accumulated
  depreciation of approximately $614,000 at June 30, 1999,
  are included in property and equipment and are being
  depreciated over their estimated useful lives.............      711,410       980,767
Contract payable by GCP to International Game Technology
  ("IGT"); principal and interest payments of $55,000,
  including interest at 10% per annum, due monthly
  commencing September 1, 1996 through August 1, 1999 at
  which time the remaining unpaid principal balance of $3.2
  million is due in full; secured by certain gaming
  equipment.................................................           --     3,537,143
Notes payable by GCI to former minority stockholders of GCI
  as issued pursuant to a settlement agreement in August
  1993; interest at 6% per annum and unpaid since May 1994;
  secured by GCI's ownership interest in GCP which is .006%
  at June 30, 1998; principal payments past due since 1994;
  in accordance with a Chancery Court judgement, as further
  discussed in Note 9, the entire principal balance, is due
  in full and is included in current maturities at June 30,
  1998......................................................           --     6,000,000
Other.......................................................           --        41,068
                                                              -----------   -----------
                                                               11,243,476    21,408,121
Less current maturities.....................................   10,752,496     6,764,949
                                                              -----------   -----------
Long-term portion...........................................  $   490,980   $14,643,172
                                                              ===========   ===========
</TABLE>

     As discussed in Note 3, The Company closed on an agreement selling all of
its ownership interest in Patrician, GCI and Artemis, which included a 100%
ownership interest in GCP, on December 23, 1998. The long-term debt obligations
due IGT and GCI above were included in such sale.

     The bank term loan, which was restructured effective January 31, 1998,
requires the Company to comply with certain financial covenants, restricts
future encumbrances and requires certain existing major shareholders of the
Company to continue to hold a significant ownership interest in and to be
involved in the management of the Company. The financial covenants include
restrictions on investment activities and the sale or disposition of a
significant portion of the Company's assets and also require

                                       24
<PAGE>   21

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

minimum capital expenditures in each fiscal year, subject to a maximum per
fiscal year. The financial covenants additionally require that a minimum EBITDA
(earnings before interest expense, taxes, depreciation and amortization, and any
loss (gain) on the disposition of property and equipment inclusive of impairment
write-offs) be maintained and restrict advances by Zante to the Company. The
loan agreement also requires that no shareholder, other than the existing major
shareholders, may own 20% or more of the issued and outstanding voting stock of
the Company. The Company believes that it is in compliance with these covenants.
The Company is also presently in discussions to refinance such obligation which
comes due in January 2000.

     Long-term debt at June 30, 1999 is payable as follows:

<TABLE>
<CAPTION>
                        YEAR ENDING
                          JUNE 30,                              AMOUNT
                        -----------                           -----------
<S>                                                           <C>
  2000......................................................  $10,752,496
  2001......................................................      285,346
  2002......................................................      205,634
                                                              -----------
                                                              $11,243,476
                                                              ===========
</TABLE>

     The Company entered into an interest rate swap agreement, effective April
1, 1994, to fix the variable interest rate due under the original,
pre-restructured, bank term and revolving line of credit loan. Under such
agreement, the Company pays the bank interest at a fixed rate of 6.25% per annum
on the notional amount and the bank pays the Company interest at a variable rate
(currently 5.06%) based on the London Interbank Offer Rate ("LIBOR") on the
notional amount. The notional amount of the swap coincides with the original
principal reduction schedule of the superceded bank term and revolving line of
credit loan (currently $3.2 million) which will be fully amortized in April
2000. The notional amount may be reduced by the Company, in whole or in part,
upon notice by the Company to the bank and a fair market settlement of such
reduction between the parties. The fair value of the interest rate swap
agreement is a liability of approximately $5,000 at June 30, 1999 which was
based on estimated termination values. The interest rate swap, which is also
secured by a deed of trust and all properties of the Company, is subject to
market risk as interest rates fluctuate.

     Of the total interest expense of $1,926,000 in 1997, $97,000 has been
capitalized into construction costs.

NOTE 5 -- STOCK OPTION AND STOCK INCENTIVE PLANS

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

     The plan presently permits for the grant of options covering a maximum of
800,000 shares of the Company's common stock. The Company has reserved shares to
cover these requirements. The plan will

                                       25
<PAGE>   22
THE SANDS REGENT
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (continued)
 ................................................................................

continue until the year 2007, unless terminated earlier. Under the plan, the per
share exercise price of an option cannot be less than 100% of the fair market
value of the shares at date of grant or 110% of the fair market value in the
case of incentive stock options granted to stockholders owning more than 10% of
the outstanding common shares. The options generally vest 20% to 50% each year
after grant for employees and vest in full in one year for grants to independent
directors.

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

     In December 1997, The Board of Directors of the Company authorized the
repricing of certain incentive stock options. The effect of the repricing
resulted in the cancellation and reissuance of 318,000 options with a price
equal to the market value of the common stock at the date of repricing. The
options granted to replace the cancelled options that were previously vested
will vest on the first anniversary date of the repricing. The options granted to
replace the unvested cancelled options will vest 25% each year commencing on the
first anniversary date of the repricing.

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

<TABLE>
<CAPTION>
                                                                             WEIGHTED
                                                              NUMBER OF      AVERAGE
                                                               OPTIONS    EXERCISE PRICE
                                                              ---------   --------------
<S>                                                           <C>         <C>
Options Outstanding
  Outstanding, July 1, 1996.................................   334,000        $ 4.71
                                                              --------        ------
  Outstanding, June 30, 1997................................   334,000          4.71
     Options granted........................................   404,000          1.83
     Options cancelled......................................  (318,000)        (4.77)
                                                              --------        ------
  Outstanding, June 30, 1998................................   420,000          1.90
     Options granted........................................   165,500          0.94
     Options cancelled......................................   (38,000)        (2.46)
                                                              --------        ------
  OUTSTANDING, JUNE 30, 1999................................   547,500        $ 1.57
                                                              ========        ======
Options Exercisable
  At June 30, 1997..........................................   122,000        $ 5.78
                                                              ========        ======
  At June 30, 1998..........................................    16,000        $ 3.50
                                                              ========        ======
  AT JUNE 30, 1999..........................................   228,000        $ 1.83
                                                              ========        ======
</TABLE>

     At June 30, 1999, options to purchase 108,364 shares were available for
grant under the stock option plan.

                                       26
<PAGE>   23

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

     The following table sets forth certain information with respect to
incentive stock option grants outstanding at June 30, 1999:

<TABLE>
<CAPTION>
                                               OPTIONS OUTSTANDING
                                       ------------------------------------    OPTIONS EXERCISABLE
                                                      WEIGHTED                ----------------------
                                                       AVERAGE     WEIGHTED                 WEIGHTED
              RANGE OF                                REMAINING    AVERAGE                  AVERAGE
              EXERCISE                   NUMBER      CONTRACTUAL   EXERCISE     NUMBER      EXERCISE
               PRICES                  OUTSTANDING      LIFE        PRICE     EXERCISABLE    PRICE
              --------                 -----------   -----------   --------   -----------   --------
<S>                                    <C>           <C>           <C>        <C>           <C>
$ .88 to $1.19.......................    161,500      9.5 years     $0.93        --          $--
$1.81 to $2.25.......................    386,000      8.5 years      1.83       228,000       1.83
                                         -------      ---------     -----       -------      -----
$1.81 to $3.50.......................    547,500      8.8 years     $1.57       228,000      $1.83
                                         =======      =========     =====       =======      =====
</TABLE>

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

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

<TABLE>
<CAPTION>
                                                                  June 30,
                                                   --------------------------------------
                                                      1999          1998          1997
                                                   -----------   -----------   ----------
<S>                                                <C>           <C>           <C>
Net income (loss):
  As reported....................................  $(1,387,665)  $(1,219,222)   $(761,812)
  Pro forma......................................   (1,537,665)   (1,322,397)    (888,768)
Net income (loss) per share:
  As reported, Basic and diluted.................       $(0.31)       $(0.27)      $(0.17)
  Pro forma, Basic and diluted...................        (0.34)        (0.29)       (0.20)
Weighted average assumptions:
  Expected stock price volatility................        100.0%        100.0%          --
  Risk-free interest rate........................          4.6%          6.3%          --
  Expected option lives..........................    2.2 YEARS     2.3 years           --
  Estimated fair value of options granted........        $0.52         $1.06           --
</TABLE>

                                       27
<PAGE>   24
THE SANDS REGENT
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (continued)
 ................................................................................

NOTE 6 -- FEDERAL INCOME TAXES

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

<TABLE>
<CAPTION>
                                                        1999       1998         1997
                                                      --------   ---------   ----------
<S>                                                   <C>        <C>         <C>
Current.............................................  $ 68,776   $ 834,421   $1,089,616
Deferred............................................   492,781    (199,540)    (590,688)
                                                      --------   ---------   ----------
                                                      $561,557   $ 634,881   $  498,928
                                                      ========   =========   ==========
</TABLE>

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

<TABLE>
<CAPTION>
                                                              1999      1998      1997
                                                              -----     -----     -----
<S>                                                           <C>       <C>       <C>
Federal statutory tax rate..................................  (35.0)%   (35.0)%   (35.0)%
Surtax exemption............................................    1.0       1.0       1.0
Tax effect of tax-free interest income......................   (0.1)     (0.2)     (3.0)
General business credits....................................   (1.7)     (2.0)     (2.3)
Other.......................................................    7.0       2.0      (0.3)
                                                              -----     -----     -----
                                                              (28.8)%   (34.2)%   (39.6)%
                                                              =====     =====     =====
</TABLE>

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

<TABLE>
<CAPTION>
                                                                 1999           1998
                                                              -----------    -----------
<S>                                                           <C>            <C>
Deferred tax assets:
     License acquisition costs..............................  $        --    $ 1,419,009
     Pre-opening costs......................................           --         43,046
     Net operating loss & credit carryforwards..............      356,463             --
     Alternative minimum tax credit.........................    1,620,127      1,670,777
     Accrued expenses.......................................       72,930        147,993
     Deferred gain..........................................      410,094             --
     Other..................................................       30,979         38,650
                                                              -----------    -----------
                                                                2,490,593      3,319,475
                                                              -----------    -----------
  Deferred tax liabilities:
     Property and equipment.................................   (2,756,470)    (2,859,429)
     Prepaid expenses.......................................     (394,015)      (455,725)
     Other..................................................       (9,298)       (21,110)
                                                              -----------    -----------
                                                               (3,159,783)    (3,336,264)
                                                              -----------    -----------
       Net deferred federal income tax liability............  $  (669,190)   $   (16,789)
                                                              ===========    ===========
</TABLE>

     The Company has a March 31 tax year-end. The Company has a net operating
loss carryforward of $1.1 million and a credit carryforward of $64,937 which can
be used to offset future tax liabilities. Such net operating loss and credit
carryforwards expire in 2019.

                                       28
<PAGE>   25

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

NOTE 7 -- EARNINGS PER SHARE

     Earnings Per Share are calculated in accordance with Financial Accounting
Standards ("SFAS") No. 128 -- "Earnings Per Share" which was issued by the
Financial Accounting Standards Board and became effective for periods ending
after December 15, 1997. 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, while diluted earnings per share reflects
the additional dilution for all potentially dilutive securities, such as stock
options. For each of the years ended June 30, 1999, 1998 and 1997, there were no
outstanding convertible securities that would result in dilution of basic
earnings per common share.

NOTE 8 -- CONTINGENCIES

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

NOTE 9 -- CONDENSED QUARTERLY RESULTS (UNAUDITED)

<TABLE>
<CAPTION>
                                              FIRST        SECOND         THIRD        FOURTH
                                             QUARTER       QUARTER       QUARTER       QUARTER
                                           -----------   -----------   -----------   -----------
<S>                                        <C>           <C>           <C>           <C>
1999
  OPERATING REVENUES.....................  $14,143,149   $13,208,098   $ 7,366,115   $ 8,817,680
  INCOME (LOSS) FROM OPERATIONS..........     (303,288)     (314,842)     (297,962)      873,726
  NET INCOME (LOSS)......................     (482,580)     (619,870)     (377,510)       92,295
  NET INCOME (LOSS) PER SHARE:
     BASIC...............................       $(0.11)       $(0.14)       $(0.08)        $0.02
     DILUTED.............................       $(0.11)       $(0.14)       $(0.08)        $0.02

1998
  Operating revenues.....................  $15,341,466   $13,510,048   $14,316,046   $16,043,670
  Income (loss) from operations..........      479,429    (1,436,957)      (48,833)    1,239,593
  Net income (loss)......................       28,509    (1,254,550)     (378,923)      385,742
  Net income (loss) per share:
     Basic...............................        $0.01        $(0.28)       $(0.08)        $0.09
     Diluted.............................        $0.01        $(0.28)       $(0.08)        $0.09
</TABLE>

     In December 1998, the Company sold its 100% interest in subsidiaries which
owned and operated the Copa Casino. The Condensed Quarterly Results included the
operating results of the Copa Casino through the fiscal 1999 second quarter.

                                       29
<PAGE>   26

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

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

     We have audited the accompanying consolidated balance sheets of The Sands
Regent and subsidiaries as of June 30, 1999 and 1998, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended June 30, 1999. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

     We conducted our audits in accordance with generally accepted auditing
standards. 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, 1999 and 1998, and the results of their operations
and their cash flows for each of the three years in the period ended June 30,
1999 in conformity with generally accepted accounting principles.

/s/ DELOITTE & TOUCHE LLP
Deloitte & Touche LLP
Reno, Nevada
August 6, 1999

                                       30
<PAGE>   27

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

 CORPORATE OFFICERS
Katherene Latham
  Chairman of the Board

Pete Cladianos, Jr.
  Vice Chairman of the Board

Ferenc B. Szony
  President and Chief Executive Officer

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

Patrick Bassney
  Vice President/General Manager,
  Sands Regency

Pete Cladianos III
  Secretary

 BOARD OF DIRECTORS
Katherene Latham(1)
  Chairman of the Board

Pete Cladianos, Jr.(1)
  Vice Chairman of the Board

Ferenc B. Szony
  President and Chief Executive Officer

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

Pete Cladianos III(1)
  Secretary

Jon N. Bengtson

Louis J. Phillips

Larry Tuntland

 PUBLIC ACCOUNTANTS
Deloitte & Touche LLP
  Reno, Nevada

 SECURITIES COUNSEL
Latham & Watkins
  Costa Mesa, California

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

------------
(1) Standing for election to the Board of Directors at the November 1, 1999
    Annual Meeting.

 FORM 10-K REPORT

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

                                       31