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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D. C. 20549



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FORM 10-Q



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|x | Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
|- | ---------------------------------------------------------------------------------------



For the quarterly period ended December 31, 2004



or



| ̈ | Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
|- | ----------------------------------------------------------------------------------------



For the transition period from to



Commission file number 0-14050



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THE SANDS REGENT

(exact name of registrant as specified in charter)



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



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



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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90
days.    Yes  x    No ̈



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



On February 10, 2005, the registrant had outstanding 6,935,266 shares of its
common stock, $.10 par value.



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##### Table of Contents

THE SANDS REGENT

FORM 10-Q

TABLE OF CONTENTS



|                             |  |                                                                                       |  |         
|---------------------------- |  | ------------------------------------------------------------------------------------- |  | --------
|                             |  |                                                                                       |  | Page No.
|PART I
FINANCIAL INFORMATION |  |                                                                                      
|                             |  |                                                                                      
|Item 1.                      |  | Financial Statements                                                                  |  | 1-3     
|                             |  | Condensed Consolidated Statements of Income (unaudited)                               |  | 1       
|                             |  | Condensed Consolidated Balance Sheets (unaudited)                                     |  | 2       
|                             |  | Condensed Consolidated Statements of Cash Flows (unaudited)                           |  | 3       
|                             |  | Notes to Condensed Consolidated Financial Statements (unaudited)                      |  | 4-9     
|Item 2.                      |  | Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 10-20   
|Item 3.                      |  | Quantitative and Qualitative Disclosures About Market Risk                            |  | 21      
|Item 4.                      |  | Controls and Procedures                                                               |  | 21      
|                             | 
|PART II
OTHER INFORMATION    |  |                                                                                      
|                             |  |                                                                                      
|Item 1.                      |  | Legal Proceedings                                                                     |  | 22      
|Item 2.                      |  | Unregistered Sales of Equity Securities and Use of Proceeds                           |  | 22      
|Item 3.                      |  | Defaults Upon Senior Securities                                                       |  | 22      
|Item 4.                      |  | Submission of Matters to a Vote of Security Holders                                   |  | 22      
|Item 5.                      |  | Other Information                                                                     |  | 22      
|Item 6.                      |  | Exhibits                                                                              |  | 23      
|                             | 
|SIGNATURES                   |  | 24                                                                                   
|CERTIFICATIONS               |  |                                                                                      







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##### Table of Contents

PART I FINANCIAL INFORMATION

Item 1. Financial Statements



THE SANDS REGENT

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (unaudited)



|                                                   |  |                                 |           |   |                               |   |           |      |  |   |           |   |  |   |           |  
|-------------------------------------------------- |  | ------------------------------- | --------- | - | ----------------------------- | - | --------- | ---- |  | - | --------- | - |  | - | --------- | -
|                                                   |  | THREE MONTHS ENDED DECEMBER 31, |           |   | SIX MONTHS ENDED DECEMBER 31, |  
|(Dollars in thousands, except per share amounts)   |  | 2003                            |           |   | 2004                          |   |           | 2003 |  |   | 2004      |  
|Operating revenues                                 |  |                                 |           |   |                               |   |           |      |  |   |           |   |  |   |           |  
|Gaming                                             |  | $                               | 6,418     |   |                               | $ | 11,907    |      |  | $ | 13,448    |   |  | $ | 24,331    |  
|Lodging                                            |  |                                 | 1,835     |   |                               |   | 1,809     |      |  |   | 4,909     |   |  |   | 4,863     |  
|Food and beverage                                  |  |                                 | 1,496     |   |                               |   | 2,786     |      |  |   | 3,225     |   |  |   | 5,833     |  
|Fuel and convenience store                         |  |                                 | 3,580     |   |                               |   | 4,080     |      |  |   | 8,177     |   |  |   | 8,783     |  
|Other                                              |  |                                 | 379       |   |                               |   | 470       |      |  |   | 836       |   |  |   | 949       |  
|                                                   |  |                                 |           |   |                               |   |           |      |  |   |           |   |  |   |           |  
|Gross revenues                                     |  |                                 | 13,708    |   |                               |   | 21,052    |      |  |   | 30,595    |   |  |   | 44,759    |  
|Promotional allowances                             |  |                                 | 963       |   |                               |   | 1,695     |      |  |   | 1,930     |   |  |   | 3,527     |  
|                                                   |  |                                 |           |   |                               |   |           |      |  |   |           |   |  |   |           |  
|Net revenues                                       |  |                                 | 12,745    |   |                               |   | 19,357    |      |  |   | 28,665    |   |  |   | 41,232    |  
|                                                   |  |                                 |           |   |                               |   |           |      |  |   |           |   |  |   |           |  
|Operating expenses                                 |  |                                 |           |   |                               |   |           |      |  |   |           |   |  |   |           |  
|Gaming                                             |  |                                 | 2,877     |   |                               |   | 4,806     |      |  |   | 5,917     |   |  |   | 9,801     |  
|Lodging                                            |  |                                 | 1,001     |   |                               |   | 936       |      |  |   | 2,093     |   |  |   | 2,041     |  
|Food and beverage                                  |  |                                 | 1,016     |   |                               |   | 1,865     |      |  |   | 2,153     |   |  |   | 3,803     |  
|Fuel and convenience store                         |  |                                 | 3,414     |   |                               |   | 3,915     |      |  |   | 7,712     |   |  |   | 8,388     |  
|Other                                              |  |                                 | 139       |   |                               |   | 143       |      |  |   | 290       |   |  |   | 300       |  
|Maintenance and utilities                          |  |                                 | 986       |   |                               |   | 1,382     |      |  |   | 2,107     |   |  |   | 2,874     |  
|General and administrative                         |  |                                 | 2,086     |   |                               |   | 3,424     |      |  |   | 4,582     |   |  |   | 6,469     |  
|Depreciation and amortization                      |  |                                 | 986       |   |                               |   | 1,516     |      |  |   | 1,901     |   |  |   | 3,061     |  
|                                                   |  |                                 |           |   |                               |   |           |      |  |   |           |   |  |   |           |  
|                                                   |  |                                 | 12,505    |   |                               |   | 17,987    |      |  |   | 26,755    |   |  |   | 36,737    |  
|                                                   |  |                                 |           |   |                               |   |           |      |  |   |           |   |  |   |           |  
|Income from operations                             |  |                                 | 240       |   |                               |   | 1,370     |      |  |   | 1,910     |   |  |   | 4,495     |  
|                                                   |  |                                 |           |   |                               |   |           |      |  |   |           |   |  |   |           |  
|Other income (expense)                             |  |                                 |           |   |                               |   |           |      |  |   |           |   |  |   |           |  
|Interest expense                                   |  |                                 | (171      | ) |                               |   | (799      | )    |  |   | (389      | ) |  |   | (1,405    | )
|Collections on previously reserved note receivable |  |                                 | 4,163     |   |                               |   |          |      |  |   | 4,393     |   |  |   |          |  
|Insurance settlement                               |  |                                 |          |   |                               |   | 200       |      |  |   |          |   |  |   | 200       |  
|Other, net                                         |  |                                 | (40       | ) |                               |   | (18       | )    |  |   | (87       | ) |  |   | (64       | )
|                                                   |  |                                 |           |   |                               |   |           |      |  |   |           |   |  |   |           |  
|                                                   |  |                                 | 3,952     |   |                               |   | (617      | )    |  |   | 3,917     |   |  |   | (1,269    | )
|                                                   |  |                                 |           |   |                               |   |           |      |  |   |           |   |  |   |           |  
|Income before income taxes                         |  |                                 | 4,192     |   |                               |   | 753       |      |  |   | 5,827     |   |  |   | 3,226     |  
|Income tax benefit (provision)                     |  |                                 | 143       |   |                               |   | (255      | )    |  |   | (410      | ) |  |   | (1,088    | )
|                                                   |  |                                 |           |   |                               |   |           |      |  |   |           |   |  |   |           |  
|Net income                                         |  | $                               | 4,335     |   |                               | $ | 498       |      |  | $ | 5,417     |   |  | $ | 2,138     |  
|                                                   |  |                                 |           |   |                               |   |           |      |  |   |           |   |  |   |           |  
|Net income per share                               |  |                                 |           |   |                               |   |           |      |  |   |           |   |  |   |           |  
|Basic                                              |  | $                               | 0.86      |   |                               | $ | 0.08      |      |  | $ | 1.08      |   |  | $ | 0.36      |  
|Diluted                                            |  | $                               | 0.81      |   |                               | $ | 0.07      |      |  | $ | 1.02      |   |  | $ | 0.33      |  
|Weighted average of shares outstanding             |  |                                 |           |   |                               |   |           |      |  |   |           |   |  |   |           |  
|Basic                                              |  |                                 | 5,052,908 |   |                               |   | 6,327,852 |      |  |   | 5,017,938 |   |  |   | 5,987,204 |  
|Diluted                                            |  |                                 | 5,370,167 |   |                               |   | 6,921,535 |      |  |   | 5,318,975 |   |  |   | 6,529,771 |  



The accompanying notes are an integral
part of these unaudited condensed consolidated financial statements.



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##### Table of Contents

THE SANDS REGENT

CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)



|                                                                                                   |  |              |         |   |                  |   |         |  
|-------------------------------------------------------------------------------------------------- |  | ------------ | ------- | - | ---------------- | - | ------- | -
|(Dollars in thousands except share data)                                                           |  | JUNE 30,2004 |         |   | DECEMBER 31,2004 |  
|ASSETS                                                                                             |  |              |         |   |                  |   |         |  
|Current assets:                                                                                    |  |              |         |   |                  |   |         |  
|Cash and cash equivalents                                                                          |  | $            | 5,443   |   |                  | $ | 4,518   |  
|Accounts receivable, net                                                                           |  |              | 714     |   |                  |   | 491     |  
|Inventories                                                                                        |  |              | 775     |   |                  |   | 758     |  
|Prepaid expenses and other assets                                                                  |  |              | 2,014   |   |                  |   | 2,040   |  
|                                                                                                   |  |              |         |   |                  |   |         |  
|Total current assets                                                                               |  |              | 8,946   |   |                  |   | 7,807   |  
|                                                                                                   |  |              |         |   |                  |   |         |  
|Property and equipment:                                                                            |  |              |         |   |                  |   |         |  
|Land                                                                                               |  |              | 10,007  |   |                  |   | 10,007  |  
|Buildings and improvements                                                                         |  |              | 42,823  |   |                  |   | 43,066  |  
|Equipment, furniture and fixtures                                                                  |  |              | 24,634  |   |                  |   | 25,428  |  
|Construction in progress                                                                           |  |              | 387     |   |                  |   | 764     |  
|                                                                                                   |  |              |         |   |                  |   |         |  
|Total property and equipment                                                                       |  |              | 77,851  |   |                  |   | 79,265  |  
|Less accumulated depreciation and amortization                                                     |  |              | 37,993  |   |                  |   | 40,123  |  
|                                                                                                   |  |              |         |   |                  |   |         |  
|Property and equipment, net                                                                        |  |              | 39,858  |   |                  |   | 39,142  |  
|                                                                                                   |  |              |         |   |                  |   |         |  
|Other assets:                                                                                      |  |              |         |   |                  |   |         |  
|Goodwill                                                                                           |  |              | 28,674  |   |                  |   | 28,717  |  
|Other intangibles                                                                                  |  |              | 13,011  |   |                  |   | 12,734  |  
|Other                                                                                              |  |              | 1,104   |   |                  |   | 1,138   |  
|                                                                                                   |  |              |         |   |                  |   |         |  
|Total other assets                                                                                 |  |              | 42,789  |   |                  |   | 42,589  |  
|                                                                                                   |  |              |         |   |                  |   |         |  
|Total assets                                                                                       |  | $            | 91,593  |   |                  | $ | 89,538  |  
|                                                                                                   |  |              |         |   |                  |   |         |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                               |  |              |         |   |                  |   |         |  
|Current liabilities:                                                                               |  |              |         |   |                  |   |         |  
|Accounts payable                                                                                   |  | $            | 3,380   |   |                  | $ | 3,486   |  
|Accrued salaries, wages and benefits                                                               |  |              | 2,384   |   |                  |   | 1,943   |  
|Other accrued expenses                                                                             |  |              | 465     |   |                  |   | 315     |  
|Federal income tax payable                                                                         |  |              | 768     |   |                  |   | 368     |  
|Deferred federal income tax liability                                                              |  |              | 258     |   |                  |   | 481     |  
|Current maturities of long-term debt                                                               |  |              | 3,144   |   |                  |   | 3,397   |  
|                                                                                                   |  |              |         |   |                  |   |         |  
|Total current liabilities                                                                          |  |              | 10,399  |   |                  |   | 9,990   |  
|Long-term debt                                                                                     |  |              | 33,799  |   |                  |   | 19,810  |  
|Deferred federal income tax liability                                                              |  |              | 1,852   |   |                  |   | 2,161   |  
|                                                                                                   |  |              |         |   |                  |   |         |  
|Total liabilities                                                                                  |  |              | 46,050  |   |                  |   | 31,961  |  
|                                                                                                   |  |              |         |   |                  |   |         |  
|Common stock ($.10 par value, 20,000,000 shares authorized; 8,049,555 and 9,340,266 shares issued) |  |              | 805     |   |                  |   | 934     |  
|Additional paid-in capital                                                                         |  |              | 17,018  |   |                  |   | 26,785  |  
|Retained earnings                                                                                  |  |              | 50,078  |   |                  |   | 52,216  |  
|                                                                                                   |  |              |         |   |                  |   |         |  
|                                                                                                   |  |              | 67,901  |   |                  |   | 79,935  |  
|Treasury stock (at cost; 2,403,000 shares)                                                         |  |              | (22,358 | ) |                  |   | (22,358 | )
|                                                                                                   |  |              |         |   |                  |   |         |  
|Total stockholders equity                                                                         |  |              | 45,543  |   |                  |   | 57,577  |  
|                                                                                                   |  |              |         |   |                  |   |         |  
|Total liabilities and stockholders equity                                                         |  | $            | 91,593  |   |                  | $ | 89,538  |  
|                                                                                                   |  |              |         |   |                  |   |         |  



The accompanying notes are an integral
part of these unaudited condensed consolidated financial statements.



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##### Table of Contents

THE SANDS REGENT

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)



|                                                                                  |  |                              |        |   |      |   |         |  
|--------------------------------------------------------------------------------- |  | ---------------------------- | ------ | - | ---- | - | ------- | -
|                                                                                  |  | SIX MONTHSENDED DECEMBER 31, |       
|(Dollars in thousands)                                                            |  | 2003                         |        |   | 2004 |  
|Operating Activities                                                              |  |                              |        |   |      |   |         |  
|Net income                                                                        |  | $                            | 5,417  |   |      | $ | 2,138   |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                              |        |   |      |   |         |  
|Depreciation and amortization                                                     |  |                              | 1,901  |   |      |   | 3,061   |  
|Loss on disposal of property and equipment                                        |  |                              | 40     |   |      |   | 64      |  
|Collections on previously reserved note receivable                                |  |                              | (4,393 | ) |      |   |        |  
|Decrease in accounts receivable, net                                              |  |                              | 172    |   |      |   | 223     |  
|Decrease in inventories                                                           |  |                              | 1      |   |      |   | 17      |  
|(Increase) decrease in prepaid expenses and other current assets                  |  |                              | 30     |   |      |   | (26     | )
|(Increase) decrease in other assets                                               |  |                              | 53     |   |      |   | (137    | )
|Increase in accounts payable                                                      |  |                              | 152    |   |      |   | 302     |  
|Decrease in accrued expenses                                                      |  |                              | (586   | ) |      |   | (591    | )
|Change in federal income taxes payable                                            |  |                              | 591    |   |      |   | (243    | )
|Change in deferred federal income taxes                                           |  |                              | 225    |   |      |   | 532     |  
|                                                                                  |  |                              |        |   |      |   |         |  
|Net cash provided by operating activities                                         |  |                              | 3,603  |   |      |   | 5,340   |  
|                                                                                  |  |                              |        |   |      |   |         |  
|Investing Activities                                                              |  |                              |        |   |      |   |         |  
|Collections on previously reserved note receivable- sale of subsidiaries          |  |                              | 4,393  |   |      |   |        |  
|Investment in property and equipment                                              |  |                              | (1,162 | ) |      |   | (2,011  | )
|Deposit and other costs related to the acquisition of Rail City Casino            |  |                              | (1,111 | ) |      |   |        |  
|Payment for prior year purchases of property and equipment                        |  |                              | (181   | ) |      |   | (295    | )
|Proceeds from sale of assets                                                      |  |                              | 170    |   |      |   | 32      |  
|                                                                                  |  |                              |        |   |      |   |         |  
|Net cash provided by (used in) investing activities                               |  |                              | 2,109  |   |      |   | (2,274  | )
|                                                                                  |  |                              |        |   |      |   |         |  
|Financing Activities                                                              |  |                              |        |   |      |   |         |  
|Payments on long-term debt                                                        |  |                              | (6,538 | ) |      |   | (12,891 | )
|Amortization of debt discount                                                     |  |                              |       |   |      |   | 47      |  
|Payment of costs relative to the issuance of long-term debt                       |  |                              |       |   |      |   | (41     | )
|Issuance of Company common stock                                                  |  |                              | 268    |   |      |   | 9,562   |  
|Payment of costs relative to the issuance of common stock                         |  |                              |       |   |      |   | (668    | )
|                                                                                  |  |                              |        |   |      |   |         |  
|Net cash used in financing activities                                             |  |                              | (6,270 | ) |      |   | (3,991  | )
|                                                                                  |  |                              |        |   |      |   |         |  
|Net decrease in cash and cash equivalents                                         |  |                              | (558   | ) |      |   | (925    | )
|Cash and cash equivalents, beginning of period                                    |  |                              | 3,965  |   |      |   | 5,443   |  
|                                                                                  |  |                              |        |   |      |   |         |  
|Cash and cash equivalents, end of period                                          |  | $                            | 3,407  |   |      | $ | 4,518   |  
|                                                                                  |  |                              |        |   |      |   |         |  
|Supplemental disclosure of cash flow information                                  |  |                              |        |   |      |   |         |  
|Interest paid, net of amount capitalized                                          |  | $                            | 389    |   |      | $ | 999     |  
|Federal income taxes paid                                                         |  | $                            |       |   |      | $ | 800     |  
|Supplemental disclosure of non-cash investing and financing activities            |  |                              |        |   |      |   |         |  
|Property and equipment acquired by accounts payable                               |  | $                            | 194    |   |      | $ | 99      |  
|Debt to equity conversion                                                         |  | $                            |       |   |      | $ | 845     |  
|Disqualifying dispositions of incentive stock options                             |  | $                            |       |   |      | $ | 157     |  



The accompanying notes are an integral
part of these unaudited condensed consolidated financial statements.



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##### Table of Contents

THE SANDS REGENT

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)



NOTE 1 - BASIS OF PRESENTATION



The accompanying condensed consolidated financial statements include the accounts of The
Sands Regent (the Company) and its wholly-owned subsidiaries: Zante, Inc. (Zante), Last Chance, Inc. (Last Chance), and Plantation Investments, Inc. (Plantation). The Company and its subsidiaries are
incorporated in Nevada. Zante owns and operates the Sands Regency Casino/Hotel (Sands Regency) in downtown Reno, Nevada. Last Chance owns and operates the Gold Ranch Casino and RV Resort in Verdi, Nevada, and California Prospectors, Ltd.
(California Prospectors), a Nevada limited liability company, which operates a California lottery station. Together, Last Chance and California Prospectors are presented as Gold Ranch. On May 1, 2004, the Company acquired
100% of the common stock of Plantation (see Note 7). Plantation owns and operates the Rail City Casino (Rail City) in Sparks, Nevada.



The accounting policies followed in the preparation of the financial information herein are the same as those summarized in the Companys 2004 Annual Report on Form
10-K. The condensed consolidated balance sheet at December 31, 2004, was derived from the audited consolidated financial statements at that date. The interim condensed consolidated financial information is unaudited and should be read in conjunction
with the Companys 2004 Form 10-K. In the opinion of management, all adjustments and normally recurring accruals necessary to fairly present the financial condition of the Company as of December 31, 2004, the results of its operations for the
three and six months ended December 31, 2003 and 2004, and its cash flows for the six months ended December 31, 2003 and 2004 have been included. Interim results of operations are not necessarily indicative of the results of operations for the full
year due to seasonality and other factors. Certain prior period amounts have been reclassified to conform to the current year presentation.



NOTE 2 - EARNINGS PER SHARE



The Company reports basic earnings per share and diluted earnings per share in accordance with the provisions of Statement of Financial Accounting
Standards (SFAS) No. 128, Earnings Per Share. Basic earnings per share is computed by dividing reported net income by the weighted average number of common shares outstanding during the period. Diluted earnings per share
reflects the additional dilution for all potentially dilutive securities such as stock options. On March 25, 2004, the Company issued $1.6 million in convertible debt, which can be converted into 246,012 shares of common stock, and issued a warrant,
which can be exercised for 100,000 shares of common stock (see Note 6). Effective November 12, 2004, the Company issued an additional 1,120,000 common shares in a private placement, which included warrants to purchase an additional 336,000 shares.
For the three and six months ended December 31, 2003 and 2004, the dilutive effect of the Companys stock options have been used in determining dilutive earnings per share. For the three and six months ended December 31, 2004, the dilutive
effect of the convertible debt and the warrants also have been used in determining dilutive earnings and dilutive earnings per share.



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##### Table of Contents

THE SANDS REGENT

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)



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



|                                                                |  |                                 |  |                 |                               |   |        |       |                 |   |       |        |  |                 |  |   |        |   |                 |       |  |   |       |  
|--------------------------------------------------------------- |  | ------------------------------- |  | --------------- | ----------------------------- | - | ------ | ----- | --------------- | - | ----- | ------ |  | --------------- |  | - | ------ | - | --------------- | ----- |  | - | ----- | -
|                                                                |  | THREE MONTHS ENDED DECEMBER 31, |  |                 | SIX MONTHS ENDED DECEMBER 31, |  
|                                                                |  | 2003                            |  |                 | 2004                          |   |        | 2003  |                 |   | 2004  |       
|                                                                |  | Shares                          |  | Per ShareAmount |                               |   | Shares |       | Per ShareAmount |   |       | Shares |  | Per ShareAmount |  |   | Shares |   | Per ShareAmount |      
|Basic net income per share                                      |  | 5,053                           |  | $               | 0.86                          |   |        | 6,328 |                 | $ | 0.08  |        |  | 5,018           |  | $ | 1.08   |   |                 | 5,987 |  | $ | 0.36  |  
|Dilutive effect of stock options, convertible debt and warrants |  | 317                             |  |                 | (0.05                         | ) |        | 594   |                 |   | (0.01 | )      |  | 301             |  |   | (0.06  | ) |                 | 543   |  |   | (0.03 | )
|                                                                |  |                                 |  |                 |                               |   |        |       |                 |   |       |        |  |                 |  |   |        |   |                 |       |  |   |       |  
|Diluted net income per share                                    |  | 5,370                           |  | $               | 0.81                          |   |        | 6,922 |                 | $ | 0.07  |        |  | 5,319           |  | $ | 1.02   |   |                 | 6,530 |  | $ | 0.33  |  
|                                                                |  |                                 |  |                 |                               |   |        |       |                 |   |       |        |  |                 |  |   |        |   |                 |       |  |   |       |  



Table includes the dilutive effect of
all outstanding dilutive stock options, convertible debt and warrants with one exception. In the six months ended December 31, 2004, options to purchase 37,500 shares were not used because the exercise price exceeded average market price for the
period and using them would have resulted in an anti-dilutive effect.



NOTE
3 - BUSINESS SEGMENTS



The Company reports business segment information
based on geographic location. The following is a breakdown of relevant data by location. (Dollars in thousands)



|                                |  |                                |        |   |                              |   |        |      |  |   |        |   |  |   |        |  
|------------------------------- |  | ------------------------------ | ------ | - | ---------------------------- | - | ------ | ---- |  | - | ------ | - |  | - | ------ | -
|                                |  | THREE MONTHSENDED DECEMBER 31, |        |   | SIX MONTHSENDED DECEMBER 31, |  
|                                |  | 2003                           |        |   | 2004                         |   |        | 2003 |  |   | 2004   |  
|Net revenues                    |  |                                |        |   |                              |   |        |      |  |   |        |   |  |   |        |  
|Sands Regency Casino/Hotel      |  | $                              | 7,346  |   |                              | $ | 7,406  |      |  | $ | 16,530 |   |  | $ | 16,408 |  
|Gold Ranch Casino and RV Resort |  |                                | 5,399  |   |                              |   | 5,765  |      |  |   | 12,135 |   |  |   | 12,568 |  
|Rail City Casino                |  |                                |       |   |                              |   | 6,186  |      |  |   |       |   |  |   | 12,256 |  
|                                |  |                                |        |   |                              |   |        |      |  |   |        |   |  |   |        |  
|                                |  | $                              | 12,745 |   |                              | $ | 19,357 |      |  | $ | 28,665 |   |  | $ | 41,232 |  
|                                |  |                                |        |   |                              |   |        |      |  |   |        |   |  |   |        |  
|Income from operations          |  |                                |        |   |                              |   |        |      |  |   |        |   |  |   |        |  
|Sands Regency Casino/Hotel      |  | $                              | 194    |   |                              | $ | 89     |      |  | $ | 1,517  |   |  | $ | 1,412  |  
|Gold Ranch Casino and RV Resort |  |                                | 405    |   |                              |   | 241    |      |  |   | 1,130  |   |  |   | 921    |  
|Rail City Casino                |  |                                |       |   |                              |   | 1,588  |      |  |   |       |   |  |   | 3,037  |  
|Corporate                       |  |                                | (359   | ) |                              |   | (548   | )    |  |   | (737   | ) |  |   | (875   | )
|                                |  |                                |        |   |                              |   |        |      |  |   |        |   |  |   |        |  
|                                |  | $                              | 240    |   |                              | $ | 1,370  |      |  | $ | 1,910  |   |  | $ | 4,495  |  
|                                |  |                                |        |   |                              |   |        |      |  |   |        |   |  |   |        |  
|Depreciation and amortization   |  |                                |        |   |                              |   |        |      |  |   |        |   |  |   |        |  
|Sands Regency Casino/Hotel      |  | $                              | 864    |   |                              | $ | 882    |      |  | $ | 1,675  |   |  | $ | 1,758  |  
|Gold Ranch Casino and RV Resort |  |                                | 122    |   |                              |   | 137    |      |  |   | 226    |   |  |   | 275    |  
|Rail City Casino                |  |                                |       |   |                              |   | 522    |      |  |   |       |   |  |   | 1,009  |  
|Corporate                       |  |                                |       |   |                              |   | (25    | )    |  |   |       |   |  |   | 19     |  
|                                |  |                                |        |   |                              |   |        |      |  |   |        |   |  |   |        |  
|                                |  | $                              | 986    |   |                              | $ | 1,516  |      |  | $ | 1,901  |   |  | $ | 3,061  |  
|                                |  |                                |        |   |                              |   |        |      |  |   |        |   |  |   |        |  



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THE SANDS REGENT

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)



NOTE 4- ADOPTION OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENT



In December 2004, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 123 (revised 2004), Share-Based Payment, replacing SFAS No. 123,
Accounting for Stock-Based Compensation, and superseding Accounting Principals Board Opinion (APB) No. 25, Accounting for Stock Issued to Employees. SFAS 123(R) requires the recognition of share-based compensation
in the financial statements. SFAS 123(R) is effective as of the first interim or annual reporting period that begins after June 15, 2005 and will be adopted by the Company in its first quarter of fiscal 2006. The Company continues to evaluate its
compensation practices, as well as other available valuation models for valuing stock options. See Note 5.



NOTE 5 - STOCK OPTION AND STOCK INCENTIVE PLANS



As permitted by SFAS No. 123, the Company accounts for its stock option plans under the recognition and measurement principles of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees and related
interpretations. No stock-based compensation expense was reflected in net income, as all options granted under these plans had an exercise price equal to the market value of the underlying common stock on the date of the grant. If the Company had
elected to recognize compensation cost based on their estimated fair market value using the Black-Scholes pricing model at the grant dates, consistent with the method prescribed by SFAS No. 123, net income and earnings per share would have been as
follows:



|                                                                                                                                              |  |                                |       |   |                               |   |      |      |  |   |       |   |  |   |       |  
|--------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------ | ----- | - | ----------------------------- | - | ---- | ---- |  | - | ----- | - |  | - | ----- | -
|                                                                                                                                              |  | THREE MONTHSENDED DECEMBER 31, |       |   | SIX MONTHS ENDED DECEMBER 31, |  
|(Dollars in thousands)                                                                                                                        |  | 2003                           |       |   | 2004                          |   |      | 2003 |  |   | 2004  |  
|Net income as reported                                                                                                                        |  | $                              | 4,335 |   |                               | $ | 498  |      |  | $ | 5,417 |   |  | $ | 2,138 |  
|Total stock-based employee compensation expense determined under the fair-value method for all awards, net of the related income tax
benefits |  |                                | (28   | ) |                               |   | (33  | )    |  |   | (56   | ) |  |   | (79   | )
|                                                                                                                                              |  |                                |       |   |                               |   |      |      |  |   |       |   |  |   |       |  
|Pro forma net income                                                                                                                          |  | $                              | 4,307 |   |                               | $ | 465  |      |  | $ | 5,361 |   |  | $ | 2,059 |  
|                                                                                                                                              |  |                                |       |   |                               |   |      |      |  |   |       |   |  |   |       |  
|Basic earnings per share:                                                                                                                     |  |                                |       |   |                               |   |      |      |  |   |       |   |  |   |       |  
|As reported                                                                                                                                   |  | $                              | 0.86  |   |                               | $ | 0.08 |      |  | $ | 1.08  |   |  | $ | 0.36  |  
|Pro forma                                                                                                                                     |  |                                | 0.85  |   |                               |   | 0.07 |      |  |   | 1.07  |   |  |   | 0.34  |  
|Diluted earnings per share:                                                                                                                   |  |                                |       |   |                               |   |      |      |  |   |       |   |  |   |       |  
|As reported                                                                                                                                   |  | $                              | 0.81  |   |                               | $ | 0.07 |      |  | $ | 1.02  |   |  | $ | 0.33  |  
|Pro forma                                                                                                                                     |  |                                | 0.80  |   |                               |   | 0.07 |      |  |   | 1.01  |   |  |   | 0.32  |  



NOTE 6 - ADDITIONAL FINANCING



On March 25, 2004, the Company completed a financing arrangement by which
it issued to David R. Belding, a private investor, 500,000 shares of common stock for $5.22 per share. As part of the transaction, the Company obtained an additional $1.6 million from Mr. Belding and issued him a secured note convertible into
246,012 shares of common stock (at $6.52 per share). Also, as part of the transaction, Mr. Belding was issued a warrant to purchase up to 100,000 shares of common stock at an exercise price of $7.82 per share.



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THE SANDS REGENT

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)



On October 7, 2004, Mr. David R. Belding converted $400,000 of debt held by him into 61,349 shares of Company common stock and on December 7, 2004, Mr. Belding converted an additional $700,000 of debt into 107,362
shares of common stock. The share price for both transactions was $6.52 per share. He now holds 668,711 of the Company common shares outstanding, or 9.64%. Mr. Belding is prohibited by agreement from holding more than 9.9% of the Companys
common shares outstanding.



On November 12, 2004, the Company issued 1,120,000
shares of common stock for $8.25 per share to a group of institutional investors. These shares were issued with warrants to purchase up to 336,000 shares of common stock at an exercise price of $10.66 per share, exercisable beginning on May 12, 2005
and for a period of five years thereafter. Using the Black-Scholes valuation model, the Company has determined the valuation of the 336,000 warrants to be approximately $1.6 million, which effectively reduces the amount the institutional investors
paid for the 1,120,000 shares of Company common stock to $6.81 per

share.



NOTE 7 - RAIL CITY CASINO ACQUISITION



On May 1, 2004, the Company completed the acquisition of 100% of the outstanding common stock of Plantation Investments, Inc. d/b/a Rail City Casino, a Nevada
corporation, pursuant to a Stock Purchase Agreement, dated December 5, 2003 (the Purchase Agreement). The preliminary purchase price of $38.2 million (including acquisition costs) was calculated based on EBITDA (earnings before interest,
taxes, depreciation and amortization) for Rail City for the twelve months preceding the closing date of the acquisition as prescribed in the agreement. The cash paid in connection with the transaction came from three new loans totaling $42.9
million, which funded the entire acquisition as well as refinanced the balance of the previous bank debt, which had an outstanding balance of $2.4 million as of the closing date.



The preliminary purchase price of Rail City was allocated based on the fair market value of assets acquired net of liabilities assumed. The
Company commissioned third-party asset valuation professionals. The purchase price amount in excess of net assets acquired was allocated to goodwill. The following table summarizes the estimated fair values of the assets acquired and liabilities
assumed at the date of acquisition, May 1, 2004:



|                                    |  |   |        |  
|----------------------------------- |  | - | ------ | -
|(Dollars in thousands)              |  |   |       
|Current assets                      |  | $ | 2,701  |  
|Property, plant, and equipment, net |  |   | 6,657  |  
|Intangible assets                   |  |   | 11,800 |  
|Goodwill                            |  |   | 17,699 |  
|                                    |  |   |        |  
|Total assets acquired               |  |   | 38,857 |  
|                                    |  |   |        |  
|Current liabilities                 |  |   | (664   | )
|                                    |  |   |        |  
|Total liabilities assumed           |  |   | (664   | )
|                                    |  |   |        |  
|Net assets acquired                 |  | $ | 38,193 |  
|                                    |  |   |        |  



The Rail City transaction was
consummated using a Section 338 (h) (10) election for tax purposes. The Company anticipates all

goodwill and intangible assets to be deductible for tax
purposes.



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THE SANDS REGENT

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)



NOTE 8 - INTANGIBLES AND GOODWILL

Intangible Balances



|                                    |  |                       |        |                         |   |     |  |                       |        |                         |   |        |  |   |     |  |   |       
|----------------------------------- |  | --------------------- | ------ | ----------------------- | - | --- |  | --------------------- | ------ | ----------------------- | - | ------ |  | - | --- |  | - | ------
|                                    |  | June 30, 2004         |        | December 31, 2004      
|(Dollars in thousands)              |  | Gross Carrying Amount |        | AccumulatedAmortization |   | Net |  | Gross Carrying Amount |        | AccumulatedAmortization |   | Net   
|Finite-lived intangible assets:     |  |                       |        |                         |   |     |  |                       |        |                         |   |        |  |   |     |  |   |       
|Customer list/relationships         |  | $                     | 1,190  |                         | $ | 110 |  | $                     | 1,080  |                         | $ | 1,190  |  | $ | 410 |  | $ | 780   
|Under-market land lease             |  |                       | 448    |                         |   | 3   |  |                       | 445    |                         |   | 448    |  |   | 12  |  |   | 436   
|                                    |  |                       |        |                         |   |     |  |                       |        |                         |   |        |  |   |     |  |   |       
|                                    |  |                       | 1,638  |                         |   | 113 |  |                       | 1,525  |                         |   | 1,638  |  |   | 422 |  |   | 1,216 
|                                    |  |                       |        |                         |   |     |  |                       |        |                         |   |        |  |   |     |  |   |       
|Indefinite-lived intangible assets: |  |                       |        |                         |   |     |  |                       |        |                         |   |        |  |   |     |  |   |       
|Grandfathered gaming license        |  |                       | 7,205  |                         |   |    |  |                       | 7,205  |                         |   | 7,205  |  |   |    |  |   | 7,205 
|Trademark/trade name                |  |                       | 4,271  |                         |   |    |  |                       | 4,271  |                         |   | 4,303  |  |   |    |  |   | 4,303 
|Other                               |  |                       | 10     |                         |   |    |  |                       | 10     |                         |   | 10     |  |   |    |  |   | 10    
|                                    |  |                       |        |                         |   |     |  |                       |        |                         |   |        |  |   |     |  |   |       
|                                    |  |                       | 11,486 |                         |   |    |  |                       | 11,486 |                         |   | 11,518 |  |   |    |  |   | 11,518
|                                    |  |                       |        |                         |   |     |  |                       |        |                         |   |        |  |   |     |  |   |       
|Total                               |  | $                     | 13,124 |                         | $ | 113 |  | $                     | 13,011 |                         | $ | 13,156 |  | $ | 422 |  | $ | 12,734
|                                    |  |                       |        |                         |   |     |  |                       |        |                         |   |        |  |   |     |  |   |       



Amortization of Intangibles



The aggregate amortization expense was $-0-, and $309,000 for the six
months ended December 31, 2003 and 2004, respectively.

The annual amortization expense for the current and succeeding fiscal years is expected to be as
follows:



|                       |  |             |  |              |    
|---------------------- |  | ----------- |  | ------------ | ---
|(Dollars in thousands) |  | Fiscal year |  | Amortization
|                       |  | 2005        |  | $            | 618
|                       |  | 2006        |  |              | 285
|                       |  | 2007        |  |              | 137
|                       |  | 2008        |  |              | 71 
|                       |  | 2009        |  |              | 42 



|                                         |  |            |        |           |   |        |  |   |       
|---------------------------------------- |  | ---------- | ------ | --------- | - | ------ |  | - | ------
|Goodwill Changes and Balances by Segment |  |            |        |           |   |        |  |   |       
|(Dollars in thousands)                   |  | Gold Ranch |        | Rail City |   | Total 
|Balance at beginning of year             |  | $          | 11,018 |           | $ | 17,656 |  | $ | 28,674
|Rail City acquisition                    |  |            |       |           |   | 43     |  |   | 43    
|                                         |  |            |        |           |   |        |  |   |       
|Balance at December 31, 2004             |  | $          | 11,018 |           | $ | 17,699 |  | $ | 28,717
|                                         |  |            |        |           |   |        |  |   |       



NOTE 9 - RECENTLY SECURED CREDIT
FACILITIES



In connection with the acquisition of Rail City, the Company
executed a syndicated financing arrangement (Credit Agreement) through Wells Fargo Bank. The Credit Agreement provides for a 5-year, $20,000,000 term loan collateralized by substantially all property and equipment of Zante, Inc. and
Plantation Investments, Inc., and the furniture, fixtures, and equipment of Last Chance, Inc. Additionally, as part of the Credit Agreement, the Company secured a Wells Fargo Bank syndicated, 5-year, $22,000,000 revolving credit facility with
collateralization and terms which are substantially similar to the term loan. The balance of the term loan was $19,250,000 at June 30, 2004 and $17,750,000 at December 31, 2004. The balance of the revolving credit facility was



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THE SANDS REGENT

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)



$15,500,000 at June 30, 2004 and $5,000,000 at December 31, 2004. The credit facility requires interest-only payments and matures on May 1, 2009, with interest and any unpaid principal due and payable on that date.
The term loan assumes a 5-year amortization schedule, and matures on May 1, 2009, with interest and any unpaid principal due and payable. Both the term loan and the credit facility under the Credit Agreement have variable interest rates based on
LIBOR or the U.S. Prime Index plus an applicable margin as detailed in the Credit Agreement. The interest rate at June 30, 2004 was LIBOR plus 4% or Prime plus 2.5% and at December 31, 2004 was LIBOR plus 3% or Prime plus 1.5%. The Companys
weighted average interest rate of both loans under the Credit Agreement at June 30, 2004 was 5.36%, and at December 31, 2004 was 5.44%. The Company also pays a .5% commitment fee on

the unused credit facility balance.



Both the
term loan and revolving credit facility requires the Company to be in compliance with certain financial and other covenants, restricts future encumbrances, and limits situations where a change in control in the Company may occur. The financial
covenants include the requirement that a minimum EBITDA (earnings before interest expense, taxes, depreciation and amortization) and certain other financial ratios be maintained. The Company believes that it is in compliance with all covenants

and restrictions at December 31, 2004. For a more complete description of the credit facilities, refer to the Companys Annual Report on Form 10-K for
the year ended June 30, 2004.



NOTE 10 - INSURANCE SETTLEMENT



In the year ended June 30, 2003, the Company realized $547,000 in legal
fees and settlement costs associated with a personal injury

claim, which arose out of an April 2000 incident. The Company had maintained general liability
insurance to protect itself from

claims in excess of a contracted deductible. However, subsequent to the incident which resulted in a claim , the Company
was

informed that the insurance carrier during the period, Legion Indemnity, had become insolvent and was not expected to make any

payment to the claimant or the Company. In July 2003, the Company settled with the claimant and sought recovery of its loss

from the Companys insurance broker at the time. In October 2004, we settled with our insurance broker for $200,000, net of

attorneys fees, which amounted to less than $5,000.



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THE SANDS REGENT

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations



The Sands Regent and its subsidiaries (the Company, we,our, or us) operates three facilities in Nevada. The Sands Regency
Casino Hotel (the Sands) in downtown Reno, the Gold Ranch Casino and RV Resort (the Gold Ranch) on Interstate 80 in Verdi, and Rail City Casino (Rail City) in Sparks.



The Sands has 833 hotel rooms and 5 restaurants, including Tony Romas Famous for Ribs,
Mels the Original diner, and Arbys. It has a full selection of gaming options, including 590 slot machines, 19 table games, keno, bingo, and a sportsbook operated by Leroys Race and Sportsbooks. Additionally, the Sands has a Just
for Laughs comedy club, a cabaret lounge, and a health

spa.



Gold Ranchs gaming options include 251 slot machines, a California lottery station on Gold Ranchs property, which straddles the Nevada/California border,
and a Leroys sportsbook. Additionally, Gold Ranch has a 105-space RV park, 2 restaurants (a 24-hour family style restaurant and a Jack-in-the-Box), and an ARCO gas station and a convenience store.



On May 1, 2004, the Company acquired Rail City in Sparks. Rail City has approximately 16,600
square feet of gaming space housing 647 slots, 6 table games, keno, a CalNeva sportsbook, a 24-hour family-style restaurant and a bar. Consolidated financial results for the periods ended December 31, 2004, include the results for Rail City, whereas
the consolidated financial results for the periods ended December 31, 2003, do not.



Critical Accounting Policies and Estimates



The Company
prepares its consolidated financial statements in conformity with accounting principles generally accepted in the United States of America. Certain of the Companys policies, including the estimated lives assigned to long-lived assets, asset
impairment, goodwill and other intangibles impairment, the adequacy of our allowance for uncollectible receivables, self insurance reserves, litigation reserves, and customer rewards program liability requires that the Company apply significant
judgment in defining the appropriate assumptions for calculating financial estimates. By their nature, these judgments are subject to an inherent degree of uncertainty. The Companys judgments are based on historical experience, terms of
existing contracts, observations of trends in the industry, information provided by customers and information available from other outside sources, as appropriate. There can be no assurance that actual results will not differ from Company estimates.



Results of Operations- Comparisons of the Three Months and Six Months ended
December 31, 2004, and 2003



CONSOLIDATED RESULTS. For the quarter ended
December 31, 2004, the Companys consolidated net revenues increased from $12.7 million to $19.4 million, or 51.9%, from the quarter ended December 31, 2003. On a by-property basis, the net revenues increased 0.8% for the Sands and 6.8% for
Gold Ranch. The primary reason for the increase in the consolidated net revenues for the quarter was Rail Citys $6.2 million revenues contribution this year. Rail City was not owned by the Company until May 2004. For the six months ended
December 31, 2004, consolidated net revenues increased from $28.7 million to $41.2 million, or 43.8%, from the six months ended December 31, 2003. This increase was attributable to Rail Citys $12.3 million net revenue contribution, as net
revenues increased 1.1% for the Sands and Gold Ranch in total for the six month period.



Consolidated income from operations was $1.4 million for the quarter ended, and $4.5 million for the six months ended December 31, 2004, compared to $240,000 and $1.9 million for the respective periods of the prior year. The increase was
again attributable to Rail City, which had $1.6 million and $3.0 million income from operations for the three and six months ended December 31, 2004, Rail Citys first full quarterly reporting periods under the Company.



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##### Table of Contents

THE SANDS REGENT

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS



The Companys consolidated net income was $498,000, or $.08 per share ($.07 diluted), for the three months ended, and $2.1 million, or $.36 per share ($.33 diluted),
for the six months ended, December 31, 2004. This compares to $4.3 million, or $.86 per share ($.81 diluted), and $5.4 million, or $1.08 per share ($1.02 diluted), for the respective three and six month periods of the prior year. The prior year
results reflect non-operating gains of $4.2 and $4.4 million for the three and six month periods, respectively,

which stemmed from the Companys 1998
sale of the Copa Casino in Gulfport, Mississippi. (See Prior Year Collections of Previously Reserved Note Receivable later in this discussion.)



SANDS REGENCY HOTEL AND CASINO. The Sands had net revenues of $7.4 and $16.4 million in the three and six month periods ended December 31, 2004. This was $60,000 higher
than the $7.3 million for the three months ended December 31, 2003, but $122,000 lower than the $16.5 million for the six months ended December 31, 2003. Net revenues for all major reportable revenue centers, gaming, lodging, and, food and beverage
were all within 1% of last year for both the quarter and the six months ended December 31, 2004, with the exception of food and beverage revenues, which declined 1.9% for the quarter-to-quarter comparison due to a more aggressive promotional coupon
campaign to drive volume in the restaurants in the previous year. Gaming net revenues were noteworthy because they were $41,000 higher for the quarter-to-quarter comparison and identical to last year in the six months to-date comparison despite the
Sands leasing its keno operations to a third-party in the current fiscal year. Keno revenues decreased $82,000 and $156,000 for the three and six month periods ended December 31, 2004, as compared to the three and six months ended December 31, 2003.
After a trial period with this third-party arrangement, the Sands has now brought its keno game back in-house starting in January. The Sands introduced live poker in late December 2004 to the casino floor, which accounted for nearly $10,000 of
increased revenues in the three and six months ended December 31, 2004 as compared to the same periods of the prior year. Live poker will bring the Sands incremental revenues over the prior year for the balance of the fiscal year.



The second fiscal quarter, ending in December, is historically the slowest quarter at the
Sands, followed closely by the third fiscal quarter. Weather-related seasonality accounts for this, as the influx of winter sports enthusiasts does not offset the drop in visits made by the casual gaming tourist. Snowstorms in the Sierra Nevada
Mountains and especially the timing of the storms can hinder business substantially. Snowstorms hit this year on Thanksgiving weekend and New Years weekend, negatively impacting both, although not dramatically. The Sands had numerous
cancellations, particularly on New Years weekend, still management was pleased somewhat by the number of guests who managed to attend our New Years celebration given the size of the storm that hit in the Sierras and locally. In the
six months ended December 31, 2004 comparison, room nights sold decreased from last year by 2,700 rooms, or 2.0%. The Sands sold less rooms in the current year due to an unusually weak month of November. Despite the reduction in occupancy, lodging
revenues for both periods were flat to last year at $1.7 million and $4.6 million, respectively, as the average daily room rate has marginally increased year over year.



During the current fiscal year, the Sands has benefited from former patrons of the Sundowner Casino, which closed in December 2003, and
which is situated adjacent to the Sands. Additionally, nearly 300 of the hotel rooms and much of the convention space of another direct downtown Reno competitor, CalNeva Virginian, closed in October 2004, and the Sands has realized incremental
business levels due to this. Further, the Sands is in a position to benefit from the Downtown Reno Events Center, which is located three blocks away and opened in December 2004. We have embarked on a complete casino refurbishment project at the
Sands anticipated to cost approximately $3.0 million. Most of the work is scheduled to take place during non-peak periods and is anticipated to be completed by the Spring of 2006. The Sands casino floor had not been remodeled since 1997.



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THE SANDS REGENT

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS



Factors which moderated the downtown Reno propertys business levels in the current quarter, and perhaps beyond, included: 1) the timing of snowstorms, which also
impacted January 2005, 2) the ongoing work adjacent to the Sands on the railroad trench (ReTRAC project), 3) increased competition from Native American casinos, and 4) high fuel and energy prices.



The Sands income from operations for both the quarter and six months ended December 31,
2004 decreased $105,000 from the respective periods of the prior year. The decreases were due to a comparatively weak operating expense margin for the Sands in the quarter-to-quarter comparison. Operating expenses as a percentage of operating
revenues were 97.4% in the quarter ended December 31, 2003 and 98.8% in the quarter ended December 31, 2004. Reasons for the operating expense increase include: 1) $61,000 higher utility costs, 2) higher food costs, particularly meat products, and
3) $102,000 higher management bonus expense, as the Sands maintained its standard managerial bonus in the current year quarter. In the prior year quarter the accrual was adjusted down to 50% of standard, due to weaker than planned operating results.



The following table highlights the Sands sources of revenues and
expenses for the:



|                           |  |                                 |       |   |                               |   |       |         |  |      |      |  |   |        |   |  |         |        |   |  |      |  
|-------------------------- |  | ------------------------------- | ----- | - | ----------------------------- | - | ----- | ------- |  | ---- | ---- |  | - | ------ | - |  | ------- | ------ | - |  | ---- | -
|                           |  | THREE MONTHS ENDED DECEMBER 31, |       |   | SIX MONTHS ENDED DECEMBER 31, |  
|(dollars in thousands)     |  | 2003                            |       |   | 2004                          |   |       | PERCENT |  |      | 2003 |  |   | 2004   |   |  | PERCENT |       
|Gaming revenues            |  | $                               | 5,028 |   |                               | $ | 5,069 |         |  | 0.8  | %    |  | $ | 10,459 |   |  | $       | 10,459 |   |  | 0.0  | %
|Gaming expenses            |  | $                               | 2,320 |   |                               | $ | 2,323 |         |  | 0.1  | %    |  | $ | 4,751  |   |  | $       | 4,747  |   |  | -0.1 | %
|Expense margin             |  |                                 | 46.1  | % |                               |   | 45.8  | %       |  |      |      |  |   | 45.4   | % |  |         | 45.4   | % |  |      |  
|Lodging revenues           |  | $                               | 1,729 |   |                               | $ | 1,718 |         |  | -0.6 | %    |  | $ | 4,604  |   |  | $       | 4,565  |   |  | -0.8 | %
|Lodging expenses           |  | $                               | 960   |   |                               | $ | 894   |         |  | -6.9 | %    |  | $ | 1,994  |   |  | $       | 1,934  |   |  | -3.0 | %
|Expense margin             |  |                                 | 55.5  | % |                               |   | 52.0  | %       |  |      |      |  |   | 43.3   | % |  |         | 42.4   | % |  |      |  
|Food and beverage revenues |  | $                               | 1,118 |   |                               | $ | 1,097 |         |  | -1.9 | %    |  | $ | 2,396  |   |  | $       | 2,407  |   |  | 0.5  | %
|Food and beverage expenses |  | $                               | 741   |   |                               | $ | 784   |         |  | 5.8  | %    |  | $ | 1,591  |   |  | $       | 1,601  |   |  | 0.6  | %
|Expense margin             |  |                                 | 66.3  | % |                               |   | 71.5  | %       |  |      |      |  |   | 66.4   | % |  |         | 66.5   | % |  |      |  
|Total net revenues         |  | $                               | 7,346 |   |                               | $ | 7,406 |         |  | 0.8  | %    |  | $ | 16,530 |   |  | $       | 16,408 |   |  | -0.7 | %
|Total operating expenses   |  | $                               | 7,152 |   |                               | $ | 7,317 |         |  | 2.3  | %    |  | $ | 15,013 |   |  | $       | 14,996 |   |  | -0.1 | %
|Expense margin             |  |                                 | 97.4  | % |                               |   | 98.8  | %       |  |      |      |  |   | 90.8   | % |  |         | 91.4   | % |  |      |  
|Maintenance and utilities  |  | $                               | 809   |   |                               | $ | 882   |         |  | 9.0  | %    |  | $ | 1,753  |   |  | $       | 1,822  |   |  | 3.9  | %
|Percent of net revenues    |  |                                 | 11.0  | % |                               |   | 11.9  | %       |  |      |      |  |   | 10.6   | % |  |         | 11.1   | % |  |      |  
|General and Administrative |  | $                               | 1,334 |   |                               | $ | 1,424 |         |  | 6.7  | %    |  | $ | 2,980  |   |  | $       | 2,868  |   |  | -3.8 | %
|Percent of net revenues    |  |                                 | 18.2  | % |                               |   | 19.2  | %       |  |      |      |  |   | 18.0   | % |  |         | 17.5   | % |  |      |  



GOLD RANCH CASINO AND RV RESORT. For
the quarter ended December 31, 2004, Gold Ranch had net revenues of $5.8 million compared to $5.4 million in the quarter ended December 31, 2003. For the six months ended December 31, 2004, Gold Ranch had $12.6 million net revenues compared with
$12.1 million for the same period of the prior year. The increases in the respective periods were due to increases in the retail price of gasoline, which averaged $2.12 and $2.07 for the three and six month periods respectively in the current year
and $1.62 and $1.72 for the respective periods of the prior year.



Gasoline
gallons sold decreased 10.7% and 8.2% for both the three and six months ended December 31, 2004 versus last year, respectively, due in part to malfunctioning fuel pumps. The fuel pumps were replaced in November, 2004, which also negatively impacted
volume levels and diesel fuel pumps were added at the same time. Typically, Gold Ranch operating results track closely with gallons sold, due to the revenue gasoline patrons bring to its gaming business.



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MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS



Gaming revenue for Gold Ranch decreased from $1.4 and $3.0 million in the respective periods of the prior year to $1.3 and $2.8 million for the three and six months ended
December 31, 2004. Since there is a correlation between the shortfall of gasoline gallons sold and the decrease in gaming revenue, we believe the new fuel pumps should help remedy the situation. Management also believes that a ticketing and player
slot tracking and reward system will enhance gaming results over time and installation is anticipated to be complete by March 2005. This is the same state-of-the-art system used by the Sands and the Company is optimistic about the new cross-property
marketing opportunities.



Gold Ranchs income from operations for the
three and six months ended December 31, 2004 was $241,000 and $921,000, respectively. This represents a decrease from the $405,000 and the $1.1 million for the three and six month periods ended December 31, 2003. The declines in Gold Ranchs
income from operations resulted primarily from the lower gaming revenues. The decrease in gasoline gallons sold only marginally affects profitability. The fuel business is characterized by low gross profit margins and recently, price competition has
become more intense, particularly with our California competitors. In the current year, Gold Ranch has benefited from structural changes in casino departments that have improved the operating expense margins as detailed in the table below.
Specifically, the security function was brought in-house and a generous coupon promotion was scaled back, among other changes. Overall Gold Ranchs operating expense margins weakened in both the quarter and six month comparisons. This was due
primarily to general and administrative costs, which were $87,000 higher due to worker compensation incremental costs and $26,000 due to property and liability insurance increases. Additionally, the expense margin at the convenience store at Gold
Ranch was negatively impacted by rising wholesale gasoline prices. The competitive gasoline price environment along the Interstate-80 corridor made passing along wholesale price increases to consumers difficult. The following table highlights Gold
Ranchs sources of revenues and expenses for the:



|                                    |  |                                 |       |   |                               |   |       |         |  |       |      |  |   |        |   |  |         |        |   |  |       |  
|----------------------------------- |  | ------------------------------- | ----- | - | ----------------------------- | - | ----- | ------- |  | ----- | ---- |  | - | ------ | - |  | ------- | ------ | - |  | ----- | -
|                                    |  | THREE MONTHS ENDED DECEMBER 31, |       |   | SIX MONTHS ENDED DECEMBER 31, |  
|(dollars in thousands)              |  | 2003                            |       |   | 2004                          |   |       | PERCENT |  |       | 2003 |  |   | 2004   |   |  | PERCENT |       
|Gaming revenues                     |  | $                               | 1,390 |   |                               | $ | 1,266 |         |  | -8.9  | %    |  | $ | 2,989  |   |  | $       | 2,807  |   |  | -6.1  | %
|Gaming expenses                     |  | $                               | 557   |   |                               | $ | 471   |         |  | -15.4 | %    |  | $ | 1,166  |   |  | $       | 931    |   |  | -20.2 | %
|Expense margin                      |  |                                 | 40.1  | % |                               |   | 37.2  | %       |  |       |      |  |   | 39.0   | % |  |         | 33.2   | % |  |       |  
|Lodging revenues                    |  | $                               | 106   |   |                               | $ | 91    |         |  | -14.2 | %    |  | $ | 305    |   |  | $       | 298    |   |  | -2.3  | %
|Lodging expenses                    |  | $                               | 41    |   |                               | $ | 42    |         |  | 2.4   | %    |  | $ | 99     |   |  | $       | 107    |   |  | 8.1   | %
|Expense margin                      |  |                                 | 38.7  | % |                               |   | 46.2  | %       |  |       |      |  |   | 32.5   | % |  |         | 35.9   | % |  |       |  
|Food and beverage revenues          |  | $                               | 378   |   |                               | $ | 411   |         |  | 8.7   | %    |  | $ | 829    |   |  | $       | 872    |   |  | 5.2   | %
|Food and beverage expenses          |  | $                               | 275   |   |                               | $ | 270   |         |  | -1.8  | %    |  | $ | 562    |   |  | $       | 588    |   |  | 4.6   | %
|Expense margin                      |  |                                 | 72.8  | % |                               |   | 65.7  | %       |  |       |      |  |   | 67.8   | % |  |         | 67.4   | % |  |       |  
|Fuel and convenience store revenues |  | $                               | 3,580 |   |                               | $ | 4,080 |         |  | 14.0  | %    |  | $ | 8,177  |   |  | $       | 8,783  |   |  | 7.4   | %
|Fuel and convenience store expenses |  | $                               | 3,414 |   |                               | $ | 3,915 |         |  | 14.7  | %    |  | $ | 7,712  |   |  | $       | 8,388  |   |  | 8.8   | %
|Expense margin                      |  |                                 | 95.4  | % |                               |   | 96.0  | %       |  |       |      |  |   | 94.3   | % |  |         | 95.5   | % |  |       |  
|Total net revenues                  |  | $                               | 5,399 |   |                               | $ | 5,765 |         |  | 6.8   | %    |  | $ | 12,135 |   |  | $       | 12,568 |   |  | 3.6   | %
|Total operating expenses            |  | $                               | 4,994 |   |                               | $ | 5,524 |         |  | 10.6  | %    |  | $ | 11,005 |   |  | $       | 11,647 |   |  | 5.8   | %
|Expense margin                      |  |                                 | 92.5  | % |                               |   | 95.8  | %       |  |       |      |  |   | 90.7   | % |  |         | 92.7   | % |  |       |  
|Maintenance and utilities           |  | $                               | 177   |   |                               | $ | 173   |         |  | -2.3  | %    |  | $ | 354    |   |  | $       | 355    |   |  | 0.3   | %
|Percent of net revenues             |  |                                 | 3.3   | % |                               |   | 3.0   | %       |  |       |      |  |   | 2.9    | % |  |         | 2.8    | % |  |       |  
|General and Administrative          |  | $                               | 393   |   |                               | $ | 510   |         |  | 29.8  | %    |  | $ | 865    |   |  | $       | 991    |   |  | 14.6  | %
|Percent of net revenues             |  |                                 | 7.3   | % |                               |   | 8.8   | %       |  |       |      |  |   | 7.1    | % |  |         | 7.9    | % |  |       |  



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THE SANDS REGENT

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS



RAIL CITY CASINO. The Company acquired Rail City in May 2004. For the three and six months ended December 31, 2004, Rail City had $6.2 and $12.3 million in net revenues,
respectively. The slightly stronger net revenues of the December quarter, as compared to the September quarter, demonstrate the reversed seasonality typical of Reno area locals casinos, which are unaffected by the tourism drop in the
winter months. Gaming revenues at Rail City includes a table games and keno component, but the large majority of Rail Citys gaming revenues are from slot machines. Gaming revenues were $5.6 million for the three months ended, and $11.1 million
for the six months ended December 31, 2004. The other material revenue center is food and beverage, which had revenues of $1.3 million for the three months ended and $2.6 million for the six months ended December 31, 2004. Rail City had income from
operations of $1.6 and $3.0 million for the three and six month periods ended December 31, 2004, and operating expense margins of 74.3% and 75.2%, respectively.



The Company has determined Rail City to have considerable growth potential and has expansion plans for the existing building, which would
add capacity to all revenue centers of the facility. See Capital Resources and Liquidity later in this discussion. The following table highlights Rail Citys sources of revenues and expenses for the:



|                           |  |                                      |       |   |                                    |   |        |  
|-------------------------- |  | ------------------------------------ | ----- | - | ---------------------------------- | - | ------ | -
|(dollars in thousands)     |  | THREE MONTHS ENDED DECEMBER 31, 2004 |       |   | SIX MONTHS ENDED DECEMBER 31, 2004 |  
|Gaming revenues            |  | $                                    | 5,572 |   |                                    | $ | 11,065 |  
|Gaming expenses            |  | $                                    | 2,012 |   |                                    | $ | 4,123  |  
|Expense margin             |  |                                      | 36.1  | % |                                    |   | 37.3   | %
|Food and beverage revenues |  | $                                    | 1,278 |   |                                    | $ | 2,554  |  
|Food and beverage expenses |  | $                                    | 811   |   |                                    | $ | 1,614  |  
|Expense margin             |  |                                      | 63.5  | % |                                    |   | 63.2   | %
|Total net revenues         |  | $                                    | 6,186 |   |                                    | $ | 12,256 |  
|Total operating expenses   |  | $                                    | 4,598 |   |                                    | $ | 9,219  |  
|Expense margin             |  |                                      | 74.3  | % |                                    |   | 75.2   | %
|Maintenance and utilities  |  | $                                    | 327   |   |                                    | $ | 697    |  
|Percent of net revenues    |  |                                      | 5.3   | % |                                    |   | 5.7    | %
|General and administrative |  | $                                    | 917   |   |                                    | $ | 1,754  |  
|Percent of net revenues    |  |                                      | 14.8  | % |                                    |   | 14.3   | %



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MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS



CORPORATE COSTS. With the acquisition of a third casino property, the Company has redefined in the current year what costs are considered corporate. Corporate costs now
include the salaries and benefits of corporate officers, directors, and management, public company reporting costs, and public company related legal and accounting fees. Reclassifications of costs have been made to the prior year for comparison
purposes. Corporate operating costs, were $548,000 for the three months ended December 31, 2004, which compares to $359,000 for the three months ended December 31, 2003. For the six months ended December 31, 2004, corporate operating costs were
$875,000, which compares to $737,000 for the six months ended December 31, 2003. The increases in corporate costs for both comparison periods were primarily the result of legal and accounting fees associated with a common stock offering to private
investors and administration and legal fees associated with a new incentive stock option plan. These legal and accounting fees resulted in $102,000 higher costs for the quarter and $98,000 in higher costs for the six months ended December 31, 2004
as compared to the same periods of 2003. Additionally, the Company has a new director and directors pay has increased, resulting in approximately $20,000 of increased costs year over year. Finally, $10,000 of costs were incurred in the six
months ended December 31, 2004, which were directly attributable to internal control requirements mandated by the Sarbanes-Oxley Act of 2002. The Company anticipates the expense associated with Sarbanes-Oxley requirements, specifically
Sarbanes-Oxley section 404, will increase materially in future quarters until the Company is in compliance. The exact amount is not known, but as of the date of this report, is anticipated to exceed $500,000.



INTEREST EXPENSE. Interest expense was $799,000 in the quarter ended December 31, 2004 and
$1.4 million for the six months ended December 31, 2004. This represents an increase from the $171,000 and $389,000 for the same periods of the prior year. With the acquisition of Rail City, our long-term debt balance increased from $6.9 million at
December 31, 2003 to $23.2 million at December 31, 2004. Additionally, in the quarter ended December 31, 2004, the Company realized $252,000 of accelerated interest on the portion of its convertible debt which was converted to equity as outlined in
Note 6.



PRIOR YEAR COLLECTIONS ON PREVIOUSLY RESERVED NOTE RECEIVABLE. In
December 1998, the Company sold its interest in the Copa Casino (Copa) in Gulfport, Mississippi. At the time the sale was recorded, we reserved approximately $5.6 million of the original $8.0 million note due to collectability concerns.
In January 2003, we began receiving payments which exceeded the net amount of the receivable we had originally recorded. In the quarter ended September 30, 2003, we recognized a $230,000 gain on debt service payments received by us. This was in
addition to the $213,000 gain we realized in the fiscal year ended June 30, 2003. We settled in full our interest in the Copa on November 28, 2003, when the Company received a negotiated $4.0 million cash payment. By December 2003, the Company had
recognized $4.6 million of the $5.6 million originally reserved, with $1.0 million forgiven due to early payment.



The financial gain realized on the sale of the Copa was not subject to federal income tax, as the Companys tax basis of the original Copa note was $7.3 million. The
full value of the note, $8.0 million, and the $500,000 initial cash payment, were recorded for tax purposes without an allowance for uncollectability. This created a deferred tax gain of $1.2 million. For tax purposes, no gain is realized on the
financial gain amount as all proceeds were applied first to the deferred gain and then to the Companys tax basis in the property. Further, a tax benefit of $348,000 was recognized on the $1.0 million forgiven as terms of the settlement,
further reducing the tax provision for the six months ended December 31, 2003 and increasing the tax benefit for the three months ended December 31, 2003.



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THE SANDS REGENT

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS



Capital Resources and Liquidity



At December 31, 2004, the Companys cash and cash equivalents were $4.5 million, a decrease from $5.4 million at the beginning of the fiscal year. We had negative
working capital of $2.2 million at December 31, 2004, consistent with our policy to use any available cash not needed in operations to pay down our line of credit and minimize interest expense. At December 31, 2004, the Company had $17.0 million
available under its revolving credit facility.



Cash flow from operations
provided $5.3 million during the six-month period ended December 31, 2004, compared to $3.6 million for the corresponding period of the prior year, the increase was due to incremental cash generated by Rail City. Investing activities accounted for a
$2.3 million use of cash for the six months ended December 31, 2004, compared with $2.1 million of cash generated from investing activities in the prior year. The difference is attributable the $4.4 million received from the Copa note receivable.
See Prior Year Collections on Previously Reserved Note Receivable earlier in this discussion. Financing activities generated a net of $8.6 million from the issuance of Company stock during the six months ended December 31, 2004, of which
$8.6 million was from a November 2004 private offering to a group of institutional investors (see Note 6). Substantially all cash generated from financing and operational inflows during current and prior year comparable periods were used to reduce
the Companys line of credit.



Effective with the acquisition of Rail City
Casino in May 2004, the Company has new credit facilities and a substantially different credit structure. For a description of the long-term debt structure of the Company prior to the Rail City acquisition and after, refer to the Companys
Annual Report on Form 10-K for the year ended June 30, 2004. On May 1, 2004, immediately after the purchase of Rail City, our outstanding long-term debt increased to approximately $44.0 million. As of December 31, 2004, our long-term debt was $23.2
million through internally generated funds and the proceeds of a November 2004 equity offering.



Our bank term loan and revolving credit facility, which totaled $42.0 million when entered into in May 2004, requires the Company to be in compliance with certain financial and other covenants, restricts future
encumbrances, and limits situations where a change in control in the Company may occur. The financial covenants include the requirement that a minimum EBITDA (earnings before interest expense, taxes, depreciation and amortization) and certain other
financial ratios be maintained. The Company believes that it is in compliance with all covenants and restrictions at December 31, 2004.



On November 12, 2004, the Company completed a sale of 1,120,000 shares of its common stock to institutional investors for $8.25 per share in cash in a private placement
transaction. The Company realized the gross proceeds of $9.24 million from this transaction (see Note 6 for additional information).



In January 2005, the Company began what is anticipated to be a $3.0 million casino renovation of its Sands property. The entire casino floor and other common areas are
being refurbished into a modern deco/beach theme. Additionally, we are installing a new casino system at Gold Ranch, with an estimated cost of $1.2 million. We are also pursuing expansion opportunities at the Rail City casino. Pending the successful
acquisition of land that is currently leased by Rail City and successfully obtaining necessary licenses and permits, we are considering additional capacity to all revenue centers of the facility. The budget of this project is $8.5 million, though
the estimate is preliminary. Further, the Company continues to actively pursue other gaming opportunities in this jurisdiction and others.



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THE SANDS REGENT

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



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



Commitments and Contingencies



The following table summarizes the Companys contractual obligations as of December 31,
2004.



|                               |  |       |            |                        |   |             |  |             |            |               |   |            |  |   |          
|------------------------------ |  | ----- | ---------- | ---------------------- | - | ----------- |  | ----------- | ---------- | ------------- | - | ---------- |  | - | ---------
|                               |  |       |            | Payments due by period
|                               |  | Total |            | Less than 1 year       |   | 1 - 3 years |  | 4 - 5 years |            | After 5 years
|Long term debt                 |  | $     | 23,207,000 |                        | $ | 3,397,000   |  | $           | 13,241,000 |               | $ | 6,569,000  |  | $ |         
|Interest on long-term debt (1) |  |       | 12,072,235 |                        |   | 3,048,450   |  |             | 5,448,260  |               |   | 3,575,525  |  |   |         
|Operating leases (2)           |  |       | 4,264,583  |                        |   | 575,000     |  |             | 1,150,000  |               |   | 1,150,000  |  |   | 1,389,583
|Other (3)                      |  |       | 1,399,436  |                        |   | 188,688     |  |             | 377,376    |               |   | 377,376    |  |   | 455,996  
|                               |  |       |            |                        |   |             |  |             |            |               |   |            |  |   |          
|                               |  | $     | 40,943,254 |                        | $ | 7,209,138   |  | $           | 20,216,636 |               | $ | 11,671,901 |  | $ | 1,845,579
|                               |  |       |            |                        |   |             |  |             |            |               |   |            |  |   |          

---

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

|(2) | Represents contractual lease obligations to Prospector Gaming Enterprises (PGE) on real property in connection with the Gold Ranch acquisition agreement. Amounts reflect
a minimum base payment schedule. The lease is subject to escalation based on the property meeting certain revenue thresholds. Management does not believe these thresholds will be met without major expansion of the gaming facilities.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Represents management fees due to PGE in connection with the RV park at Gold Ranch. Future amounts payable are subject to adjustment based on changes in interest rates.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Cautionary Note Regarding Forward-looking Statements



This quarterly report on Form 10-Q includes forward-looking
statements intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. You can identify these statements by the fact that they do not relate strictly to historical
or current facts. These statements contains words such as may, will, project, might, expect, believe, anticipate, intend, could,
would, estimate, continue or pursue, or the negative or other variations thereof or comparable terminology. In particular, they include statements relating to, among other things, future
actions, strategies, future performance, and future financial results. We have based these forward-looking statements on our current expectations and projections about future events. Any forward-looking statements are made pursuant to
the Private Securities Litigation Reform Act of 1995 and, as such, speak only as of the date made. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or
otherwise.



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



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THE SANDS REGENT

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



Risks Relating to our Business



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



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



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



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



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



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



Future operations may be adversely
impacted by increased local and out-of-state competition



Although we have
always competed with regional gaming establishments for both the local and tourist market segments, this competition has intensified due to consolidation within the Reno area. Additionally, the expansion of Native American casinos in California,
Oregon, and Washington continues to have an impact on casino revenues in Nevada, with some analysts forecasting a significant negative impact on the Reno-Tahoe market.



These competitive pressures may impact our ability to continue to attract local residents and tourists, causing us to use more expansive and
more expensive promotions to compete more aggressively to maintain our market share. Additionally, Native American gaming facilities, in some instances, operate under less stringent regulatory requirements than those imposed on Nevada-licensed
casinos, which may afford them a competitive advantage in our markets.



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



Our largest sources of tourist customers originate from California and the Pacific
Northwest, including a large number who drive to Reno from the San Francisco and Sacramento metropolitan areas. Adverse winter weather conditions, particularly snowfall, may impact travel ability, making it difficult for customers to frequent our
facilities. Bad weather, coupled with the increased presence



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THE SANDS REGENT

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



of Native American casinos in the San Francisco and Sacramento areas, may redirect those patrons that would otherwise travel to Reno. Also, if the Reno area itself were
to experience prolonged adverse winter weather conditions, our results of operations and financial condition could be materially, adversely affected.



Terrorist attacks may seriously harm our business.



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



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



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



Our results of operations may be adversely affected by the actions of state and local government agencies.



The casino gaming industry is subject to extensive state and local regulation, as both State and local authorities raise a significant amount of revenue through taxes and
fees on gaming activities. The State of Nevada, as well as local government agencies, mandates we maintain various licenses, registrations, permits to operate our businesses. If we violate gaming laws or regulations, substantial fines could be
levied against us. Also, state and local governments may, from time to time, raise revenues through increases in gaming taxes. Any increases in gaming taxes or fees or the suspension, revocation, or non-renewal of any of our licenses or imposition
of substantial fines or forfeiture of assets, would have a material and adverse effect of our business, financial condition and results of operations.



Our operations can be negatively affected by the ongoing construction of the downtown Reno railroad trench project.



Work began in the Fall of 2003 on a project to build a trench through downtown Reno for the
purpose of constructing a below grade rail transport corridor and large-scale excavation is currently underway. Known as ReTRAC (Reno Transportation Railroad Access Corridor), the project has a late 2006 completion date. Previously, Union
Pacifics railroad tracks bisected the Sands parking facilities. The ReTRAC project has temporarily adversely affected the utility of nearly 300 of the Sands parking spaces, and the Company has been informed that a small number of parking
spaces will be permanently lost. Further, our pedestrian structure over the railroad tracks was demolished in the Fall of 2004.



The law requires that the Sands be given alternate parking or compensation for spaces and structures permanently or temporarily lost due to the project. In July 2003, the
Sands received compensation amounting to approximately $582,000 for its contribution to the project. The Company is amortizing $428,000 of the proceeds over the anticipated length of the project (May 2003 through November 2006). Part of the
proceeds, $154,000, represents land, specifically parking spaces, that were effectively sold to the City of Reno. The Company feels it was not adequately compensated for its contribution to the project and filed a lawsuit in January 2004.
Negotiations are continuing for a suitable replacement bridge and additional parking, and as of the date of this report, the Company is in active negotiations with ReTRAC, and reviewing its alternatives.



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THE SANDS REGENT

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



The effect of trench construction on downtown Renos business levels, and specifically the business levels of the Sands, is hard to quantify, as any potential
downside due to customer inconvenience could be somewhat offset by opportunities, such as the effect this major construction project will have on the Reno area economy. In light of these uncertainties, the Company feels this project could still have
an adverse material impact on the business levels of its downtown Reno property during the construction period.



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



We keep abreast of new generally acceptable
accounting principles and rules and regulations issued or adopted by the Financial Accounting Standards Board, the Securities and Exchange Commission, the NASDAQ and other standard setting agencies. These principles, rules and regulations often
require us to expend funds in order to meet additional requirements. As a result, our expenses could materially increase, which could adversely affect our financial results. Recently issued accounting standards affecting our financial results are
described in Note 4 to our financial statements.



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



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



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



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



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



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



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



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



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



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



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



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



Our outstanding debt before the Rail City acquisition was approximately $3.7 million. After the Rail City acquisition, our debt increased to in excess of $44 million and
is $23.2 at December 31, 2004. As a result of this increase in debt, demands on our cash resources will increase. The increased levels of debt could, among other things:



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



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



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



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



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THE SANDS REGENT

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



Item 3. Quantitative and Qualitative Disclosures About Market Risk



With the Credit Agreement executed in April 2004 in connection with the acquisition of Rail City, the Company has substantial variable interest rate debt. The Company does not use interest rate derivative instruments
to manage exposure to interest rate changes. Assuming the reducing credit facilities are fully advanced, a principal amount currently equal to $39.8 million, the Company would be subject to substantial market interest rate risks. A one percent
increase in interest rates would result in an increase in interest expense of approximately $397,500 annually.



Additionally, terms of the Companys RV park management agreement with Prospector Gaming Enterprises (PGE), referenced as (3) in the Commitments and Contingencies section of this report,
state that the Company pay monthly an amount equal to 120% of PGEs debt service on the underlying RV park note, which varies directly with changes in the Prime index. The financial impact to the Company of a full one percent increase in the
Prime index is less than $25,000 per year.



Item 4. Controls and Procedures



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



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



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



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##### Table of Contents

THE SANDS REGENT

PART II OTHER INFORMATION



Item 1. Legal Proceedings



The
Company is party to various lawsuits, which have arisen in the normal course of its business. At the time of this filing, the liability arising from unfavorable outcomes of lawsuits is not expected to have a material impact on the Companys
financial condition or financial results.



Item 2. Unregistered Sales of Equity Securities and Use of Proceeds



The Company issued 1,120,000 shares of common stock, par value $0.10, for an aggregate purchase price of $9.24 million on November 12, 2004 pursuant to
Stock Purchase Agreements entered into on November 8, 2004 with several institutional investors. In connection with the sale of the common stock, the Company also issued the investors warrants to purchase up to 336,000 shares of the Companys
common stock at an exercise price of $10.66 per share. Such shares were issued without registration in provided by Section 4(2) of the Securities Act of 1933, as amended. The proceeds from the offering were used to repay outstanding indebtedness of
the Company.



Item 3. Defaults Upon Senior Securities



None



Item 4. Submission of Matters to a Vote of Security Holders



On November 1, 2004, the Company conducted its annual meeting in Reno, Nevada, in which 2 proposals were put before the shareholders. Each proposal passed as follows:



Proposal 1



To elect a board of seven directors, each serving for a one-year term or
until their respective successors are duly elected and qualified.



|                   |  |           |  |         |  |                     |  |                 
|------------------ |  | --------- |  | ------- |  | ------------------- |  | ----------------
|Votes cast:        |  | For       |  | Against |  | Abstain or withheld |  | Broker non-votes
|Jon N. Bengtson    |  | 5,347,799 |  | 58,995  |  |                    |  |                
|Ferenc B. Szony    |  | 5,347,799 |  | 58,995  |  |                    |  |                
|Pete Cladianos III |  | 5,347,799 |  | 58,995  |  |                    |  |                
|Louis Phillips     |  | 5,387,499 |  | 19,295  |  |                    |  |                
|Larry Tuntland     |  | 5,387,499 |  | 19,295  |  |                    |  |                
|David R. Grundy    |  | 5,387,499 |  | 19,295  |  |                    |  |                
|Douglas M. Hayes   |  | 5,388,299 |  | 18,495  |  |                    |  |                



Proposal 2



To approve the 2004 Equity Incentive Plan, pursuant
to which 500,000 shares are reserved for issuance pursuant to awards that may be granted to certain employees, directors, or consultants.



|            |  |           |  |         |  |                     |  |                 
|----------- |  | --------- |  | ------- |  | ------------------- |  | ----------------
|            |  | For       |  | Against |  | Abstain or withheld |  | Broker non-votes
|Votes cast: |  | 3,231,861 |  | 168,397 |  | 2,950               |  | 2,010,707       



Item 5. Other Information



None



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THE SANDS REGENT

PART II OTHER INFORMATION



Item 6. Exhibits and Reports on Form 8-K



( a
) Exhibits



|     |  |                                                                                                                                                                                      
|---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|4.1  |  | Form of Stock Purchase Agreement (including Schedule of Investors) (incorporated by reference to Exhibit 4.1 to the Companys Current Report on Form 8-K filed on November 17,
2004).
|4.1  |  | Form of Warrant (incorporated by reference to Exhibit 4.2 to the Companys Current Report on Form 8-K filed on November 17, 2004).                                                   
|31.1 |  | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002,                                                                                  
|31.2 |  | Certification of Chief Financial and Principal Accounting Officer pursuant to Section 302 of the Sarbanes-Oxley                                                                      
|32   |  | Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                             



( b ) Reports on Form 8-K



None



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THE SANDS REGENT

SIGNATURES



Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.



|                        |  |                  |  |                                                                     
|----------------------- |  | ---------------- |  | --------------------------------------------------------------------
|                        |  | THE SANDS REGENT
|                        |  | (Registrant)    
|                        |  |                 
|Date: February 13, 2005 |  | By:              |  | /S/ Ferenc B. Szony                                                 
|                        |  |                  |  | Ferenc B. Szony, President and Chief Executive Officer              
|                        |  |                 
|                        |  | By:              |  | /S/ Robert J. Medeiros                                              
|Date: February 13, 2005 |  |                  |  | Robert J. Medeiros, Chief Financial and Principal Accounting Officer



24