UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C., 20549
FORM 10-KSB
Mark One)
X
--- Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended December 31, 2000 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 No. 1-4385
DUNES HOTELS AND CASINOS INC.
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(Exact name of registrant as specified in its charter)
NEW YORK 11-1687244
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
46735 County Rd. 32B,
P.O. Box 130, Davis, California 95617
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (530) 753-4890
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Securities Registered Pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
NONE NONE
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Securities Registered Pursuant to Section 12(g) of the Act:
Series B, $7.50 Cumulative
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Common Stock, $.50 par value Preferred Stock, $.50 par value
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(Title of class) (Title of class)
Check 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
---- ----
Check if there is no disclosure of delinquent filers pursuant to Item 405
of Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. (___)
State issuer's revenues for its most recent fiscal year: $2,929,000
The aggregate market value of the voting and non-voting common equity held
by non-affiliates of the Registrant computed by reference to the price at March
30, 2001 ($1.03 share) was approximately $680,179. See "Item 5. Market for
Registrant's Common Equity and Related Matters".
The number of shares of common stock outstanding as of March 30, 2001 was
4,666,777.
Documents Incorporated by Reference: Not Applicable
Transitional Small Business Disclosure Format: Yes; No X
--- ---
PART I
ITEM 1. DESCRIPTION OF BUSINESS
--------------------------------
Dunes Hotels and Casinos Inc. was incorporated in New York in 1956. In
this report the term "the Company" refers to Dunes Hotels and Casinos Inc.,
individually, or with its wholly-owned subsidiaries, Continental California
Corporation (Continental), M & R Corporation (MRC) and MRC's subsidiary M & R
Investment Company, Inc. (MRI) and MRI's subsidiaries SHF Acquisition
Corporation (SHF) and South Lake Acquisition Corporation (South Lake).
The Company, through its subsidiaries, operates in two principal business
segments: real estate (development and sale of residential lots and rental of
agricultural land), and agriculture (drying and storing rice). See Note 12 of
Notes to Consolidated Financial Statements for information relating to industry
segments and class of services.
The Company's real estate segment primarily develops and sells completed
residential lots at The Fairways at Rancho Murieta, CA primarily to builders of
custom homes and to the general public located in and around the greater
Sacramento, California area.
The agricultural segment dries harvested rice over a two-month period
(approximately September 15 to November 15) and stores, for a fee, the dried
rice until it is removed, normally within the following year as the storage
charges are paid for a twelve month period. In addition, the Company stores rice
for one customer under a contract which expires in August 2001. This contract
accounts for approximately 50% of the storage capacity and 50% of the storage
revenue. If the Company were to lose this storage customer, fail to obtain
drying contracts for the coming year, or acres planted to rice are reduced due
to market conditions, or if the crop yield is low, it would have a material
adverse effect on the Company's agricultural segment.
RECENT DEVELOPMENTS
On October 31, 2000, the Company commenced a tender offer for all of its
Common Stock at a purchase price of $1.00 per share and for all of its Preferred
Stock at a purchase price of $30.00 per share. The tender offer for the Common
Stock expired on February 15, 2001 and the tender offer for the Preferred Stock
expired on March 16, 2001. As a result of the tender offer, the Dunes acquired
427,563 shares of Common Stock (representing 8.4% of the outstanding Common
Stock) and 1,075 shares of Preferred Stock (representing 11.2% of the Preferred
Stock). The tendered shares will be cancelled and as a result, Steve K. Miller,
indirectly through General Financial Services, Inc. and GFS Acquisition Company,
Inc., will own 85.8% of the Common Stock and 1.4% of the Preferred Stock.
As of March 30, 2001, shareholders who claim to have lost their stock
certificates have submitted letters of transmittal for 82 shares of Preferred
Stock and 18,100 shares of Common Stock. The Company has agreed to accept such
tendered shares if the shareholders satisfy the transfer agent's requirement for
delivery of a lost stock affidavit and the payment of a transfer service fee.
These shares are not included in the above numbers or percentages.
2
REAL ESTATE SEGMENT:
The Fairways
The Company, through SHF, developed approximately 50 acres of real
property as a residential planned unit development known as "The Fairways" in
Rancho Murieta, California. Rancho Murieta is a 3,500- acre master planned unit
development located approximately 25 miles from Sacramento, California. Rancho
Murieta consists primarily of single-family homes, town houses, commercial
property and two 18-hole championship golf courses, including country club
facilities. The Fairways, located within the boundaries of one of the golf
courses at Rancho Murieta, was subdivided into 110 single-family estate lots. As
of March 23, 2001, 2 lots remain unsold.
The Company does not expect to realize a gain on the sale of the remaining
lots as the existing cost basis approximates net sale proceeds. To facilitate
sales on certain lots, the Company planned to build a privacy wall on those
lots, however, the wall was not approved by the architectural review committee.
In connection with its development of The Fairways, SHF was required to
construct certain improvements that benefited not only The Fairways, but other
properties that lay outside of the boundaries of The Fairways (the Benefited
Properties). The net cost of the improvements to the Benefited Properties was
$1,140,900 and SHF expects to be reimbursed for these costs if the Benefited
Properties are developed. SHF's right to reimbursement will expire in September
2015. The Company is unable to predict what amount, if any, will be received as
reimbursement. The rights to reimbursement are personal to SHF and do not run
with The Fairway's property unless assigned by SHF.
Sam Hamburg Farm
MRI owns approximately 150 acres of agricultural property called Sam
Hamburg Farm (Hamburg Farm) in Merced County, California. MRI's 150 acres are
operated by SHF. Of the 150 acres, 40 acres contain an airstrip and shop area,
which is the focus of continuing attempts at chemical clean-up. The remaining
110 acres are leased to one tenant at an annual aggregate rental of
approximately $24,000. The current lease commenced January 2000 for a period of
two years.
The Company was advised in 1991 of possible contamination of 40 acres at
Sam Hamburg Farm of approximately 5,000 cubic yards of contaminated soil. The
Company has disposed of 1,000 cubic yards of contaminated soil to date. The
Company, through its chemical and toxic clean-up consultants, has been working
with the California State Environmental Protection Agency, in seeking alternate
means to the disposal in toxic dump sites of the chemical and toxic-laden soil.
Because of ongoing testing, the State has not imposed a disposal date upon
the Company. Cost of disposal of the remaining soil is estimated at $125 to $200
per cubic yard or approximately $500,000 to $800,000. However, if on-site
remediation can be achieved, it is estimated the cost should be no more
3
than $170,000. The Company is unable to predict when the ongoing testing will be
completed or what the outcome of these tests will be. Accordingly, it is
reasonably possible the estimates will change materially in the near term.
AGRICULTURAL SEGMENT:
Rice Storage And Drying Facilities
Since 1990, SHF has owned a rice storage facility (the "Storage Facility")
located in Yolo County, California. The Storage Facility generally stores rice,
for a fee and can store approximately 700,000 cwt. of grain.
In 1997, the Company entered into a financing lease agreement for its
drying facility which is adjacent to the Storage Facility. The lease is for five
years commencing March 1998, the monthly rental is $25,122 and the Company can
buy the drying facility for $1 at the end of the lease. The lease is
collateralized by the drying facility, a deed of trust on certain parcels of
property including the parcel on which the Storage Facility is located and the
guarantees of MRI and the Company. Before the Guarantors are liable for any
deficiency, the leasing company must first proceed against the drying facility
and the additional collateral.
Prior to May 2000, the Company stored wheat principally for one customer, Adams
Grain Co. ("Adams") under a contract which expires May 2002 ("Adams Contract").
In May 2000, the Company negotiated an end to the Adams Contract. The terms of
ending the storage agreement, effective May 18, 2000 require the Company to only
store rice at its storage facility and if the Company stores any grain other
than rice, Adams, retains a first right of refusal to store commodities under
the Adams Contract. These conditions will remain in effect until May 31, 2002
(the original expiration date of the Adams Contract).
On April 26, 2000, the Company entered into an agreement with Pacific
International Rice Mills, Inc. (PIRMI) to store approximately 350,000 cwt. of
dry paddy rice for the period commencing September 1, 2000, to August 31, 2001,
in the east warehouse. The gross revenue is approximately $140,000. As of July
26, 2000, the filling of the east warehouse was completed and during September
2000 the Company received payment for 50% of the storage revenue under the terms
of the agreement.
In addition, on May 31, 2000, the Company entered into another agreement with
PIRMI to dry and store wet paddy rice from the 2000 crop. The agreement provides
for a minimum of 400,000 cwt. of wet paddy rice to be delivered. Gross drying
revenue will be determined by the moisture content of the wet paddy rice
delivered and the storage revenue will be calculated per dry cwt. During
September 2000, the Company began drying operations and as of December 31, 2000,
realized gross drying revenue of approximately $214,000 net of freight rebate.
During 2000, the Company installed equipment and field related structures at the
drying facility at a cost of approximately $120,000. This equipment, which will
allow the Company to clean the wet paddy rice prior to drying and elevator
modifications, is projected to increase the Company's efficiency and flow rates.
If the Company were to lose its drying and storage customer, it would have a
material adverse effect on the Company's agricultural segment.
4
COMPETITION
Real Estate Segment:
The real estate investment and development business is highly competitive.
The Company competes for real estate investments with investors of all types,
including domestic and foreign corporations, financial institutions, other real
estate investment companies and individuals, many of which have substantially
greater resources than the Company. In addition, the Company's properties are
subject to local competitors from the surrounding areas. The Company does not
consider its real estate business to be seasonal in nature.
With respect to the residential real estate, the Company competes with
numerous other developers and residential properties in the greater Sacramento
area of California, ranging from regional and national firms to local companies,
many of which have substantially greater resources than the Company. In the
greater Sacramento area, the Company's residential lots compete on the basis of,
among other things, location, price and quality of amenities, such as the golf
course and country club facilities at Rancho Murieta.
With respect to the Company's agricultural real estate, the Company
competes for tenants with other regional or local agricultural properties in the
area of California where the Company's property is located. Leasing property to
prospective tenants is generally determined on the basis of, among other things,
lease rates and quality of soil. The Company's leases of agricultural property
are generally for a period of 2 years.
Agricultural Segment:
With respect to the Company's rice drying and storage operations, the
Company competes with other rice drying and storage companies in Northern
California. The rice drying operation is seasonal and runs from approximately
September 15 to November 15. The storage facility, depending on the demand and
shipment of rice from storage, operates on a year around basis. The drying and
storage operations are impacted by the number of acres grown, the yield per
acre, weather conditions, trucking expense and government programs. The storage
facility is located on the southern edge of the California rice growing region.
If there is a significant change in any of the above factors, it could have a
material adverse effect on the rice drying and storage revenues. Because the
Company stores rice for principally one customer, the loss of that customer
could have a material adverse effect on the rice drying and storage operation.
SALES AND MARKETING
The Company employs a sales consultant for the sale of its residential
lots at the Fairways, although sales by independent real estate brokers are also
encouraged. The residential lots are marketed primarily by means of media
advertising, customer referrals and realtor contacts. Selling prices are set
based on the local market conditions and competitive factors. The agricultural
properties are marketed to farmers in the surrounding area where the
agricultural property is located. The rice drying and storage operation is
marketed to principally one customer but the Company is attempting to obtain
additional customers.
5
REGULATION
The Company must comply with various federal, state and local zoning,
building, pollution, environmental, health, and advertising ordinances, rules
and regulations, including regulations relating to specific building materials
to be used, building design, minimum elevations of properties and emissions from
the rice drying and storage facilities.
EMPLOYEES
At March 23, 2001, the Company had 4 employees. None of the Company's
employees are covered by collective bargaining agreements. The Company believes
its employee relations to be satisfactory.
ITEM 2. DESCRIPTION OF PROPERTY
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REAL ESTATE SEGMENT:
The Fairways
The Fairways is comprised of approximately 50 acres of land which has been
developed into 110 single family estate lots of which 2 remain unsold as of
March 23, 2001. It is located in Rancho Murieta, California, adjacent to Highway
16, approximately 25 miles southeast of Sacramento. The land is encumbered by
bonds in the approximate amount of $4,500, which is the pro rata share of a
bonded indebtedness incurred that enabled the Rancho Murieta Community Services
District to acquire the water and sewer facilities that serve the community of
Rancho Murieta, which includes The Fairways. The bonded indebtedness will be
assumed, pro rata, by the individual lot buyers.
Sam Hamburg Farm
Sam Hamburg Farm consists of approximately 150 acres remaining from an
original 4,600 acres of agricultural land. The remaining land is located in the
most southwesterly corner of Merced County, California approximately two miles
east of Interstate Highway 5. It is approximately ten miles south of the city of
Los Banos, California. The Company leases 110 acres to one tenant, who grows
various crops. The terms of the leases are usually two crop years on a cash rent
basis. See "Item 1. Business - Real Estate Segment - Sam Hamburg Farm".
AGRICULTURAL SEGMENT:
Rice Storage and Drying Facility
The storage and drying facilities are located in Yolo County, California,
approximately 15 miles west of the city of Sacramento. The storage facility can
store approximately 700,000 cwt. of rice. The drying facility can dry
approximately 17,600 cwt. of rice in a 24 hour period. The drying facility dries
enough rice to fill approximately one-half of the storage facility. See "Item 1.
Business -- Agricultural Segment -- Rice Storage and Drying Facilities."
6
EXECUTIVE OFFICES:
The Company's executive office is located in a building in Davis,
California adjacent to the rice drying and storage facility. The executive
offices are approximately 1,000 square feet and the Company believes that the
executive office is suitable for its needs.
ITEM 3. LEGAL PROCEEDINGS
--------------------------
See "Note 10.--Legal Proceedings" to the Company's consolidated financial
statements included elsewhere in this report.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
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No matter was submitted during the fourth quarter of the fiscal year
covered by this report to a vote of security holders, through the solicitation
of proxies or otherwise.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
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The principal United States market in which the Company's common stock is
traded is the over-the-counter market. The Company's symbol for its common stock
is "DUNE". There is no established public trading market for the Company's
Series B preferred stock. Neither the Company's common stock nor the Company's
preferred stock is listed for trading on an exchange.
The following table sets forth for the periods indicated the range of the
high and low bid quotations for the Company's common stock as quoted on the OTC
Bulletin Board. The reported bid quotations reflect inter-dealer prices, without
retail markup, markdown or commissions, and may not necessarily represent actual
transactions.
2000 HIGH LOW
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1st Quarter $1.31 $0.75
2nd Quarter $0.75 $0.59
3rd Quarter $0.75 $0.62
4th Quarter $0.88 $0.50
1999 HIGH LOW
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1st Quarter $0.25 $0.19
2nd Quarter $0.83 $0.21
3rd Quarter $0.89 $0.50
4th Quarter $0.78 $0.68
At March 30, 2001, the Company's transfer agent reported that there were
approximately 1,466 holders of record of the Company's common stock, and
approximately 511 holders of record of the Company's Series B $7.50 cumulative,
voting and non-convertible preferred stock.
Dividends on the Company's common stock have not been paid since the
second quarter of 1979. Dividends on the Company's Series B preferred stock have
not been paid since the first quarter of 1982.
7
The Company is in arrears on dividends on the preferred stock in the amount
of approximately $1,389,000 as of December 31, 2000. This number includes
accrued dividends on the 1,075 shares of preferred stock acquired by the Company
in its tender offer. The Company has no present intention to pay dividends on
either its common or preferred shares in the near future.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATION
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The Consolidated Financial Statements and Notes thereto are an integral
part of this report, including this Item 6, and are incorporated herein by this
reference and should be read in conjunction herewith.
Certain information included herein contains statements that are
forward-looking, such as anticipated liquidity requirements for the coming
fiscal year, anticipated sources of liquidity for the coming fiscal year, the
impact of anticipated asset sales, and potential changes in control of the
Company. Such forward-looking information involves important risks and
uncertainties that could significantly affect the Company's financial condition
and future results of operations, and accordingly, such future financial
condition and results of operations may differ from those expressed in any
forward-looking statements made herein. These risks and uncertainties include,
but are not limited to, those risks relating to actual costs necessary to
clean-up certain real property chemical contamination, real estate market
conditions and general economic conditions, the abilities of certain third
parties to obtain financing and otherwise perform under real estate purchase
agreements, and the outcome of certain litigation and other risks. The Company
cautions readers not to place undue reliance on any such forward-looking
statements, and, such statements speak only as of the date made.
OVERVIEW
Real Estate
The Fairways consist of the remaining portion of approximately 50 acres of
developed residential land in Rancho Murieta, Sacramento County, California.
Rancho Murieta is a 3,500-acre master planned unit development community located
approximately 25 miles from Sacramento. The development consists primarily of
single-family homes, town houses, commercial property and two 18-hole
championship golf courses and country club facilities. The 50 acres are located
within the boundaries of one of the golf courses. The property was subdivided
into 110 single-family estate lots. As of March 23, 2001, 2 lots are in escrow
pending closing which will complete the sale of all of the lots. The Company
does not expect to realize a gain on the sale of the remaining lots as the
existing cost basis approximates net sale proceeds.
Agricultural
The Company operates a rice drying and storage facility. The drying
facility is financed by a 5- year lease which commenced in March 1998. At the
end of the lease, the Company will have the option to obtain title to the drying
facility for $1.00.
OPERATING RESULTS
Net loss for the year ended December 31, 2000, increased by approximately
$1,045,000 when compared with the year ended December 31,1999. The major items
contributing to the loss increase were the following:
8
(1) A decrease in profit from the sale of real estate. During 1999, 2.16
acres of industrial property in Las Vegas, NV was sold for $846,800;
and
(2) An increase in corporate expense.
These items were partially offset by a decrease in interest expense.
2000 vs. 1999
Real estate
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Real estate revenues and profits decreased during 2000. In 1999, 2.16
acres of industrial property in Las Vegas, NV were sold for $846,800. Sales at
The Fairways increased during 2000 as there were 30 lot sales, compared to 6 lot
sales in 1999, however, there was no gain on these sales as the existing cost
basis approximates net sales proceeds.
Agricultural
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Rice drying and storage losses in 2000 decreased by approximately $61,000
when compared with 1999. For the year ended December 31, 2000, drying and
storage revenue was $342,000 compared to $168,000 for the prior year. The
increase is primarily due to rice drying during the current year. The storage
revenue increase will be reflected during the next nine months of 2001, as the
storage revenue will be realized as earned. During 1999, there was no storage
revenue.
General
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Selling, administrative and general expenses in total increased
approximately $342,000. The major contributors to the increase were legal fees
($193,000); officers salary ($76,000); fees relating to the tender offer
($64,000); accounting fees ($42,000); and officers travel ($36,000). These
increases were offset by decreases in directors consulting fees ($48,000) and
director fees ($21,000).
Interest income increased due to additional notes receivable from lot
sales at The Fairways. Interest expense decreased as a result of payments made
during the year on the rice dryer.
LIQUIDITY AND CAPITAL RESOURCES
During the year ended December 31, 2000, cash, cash equivalents and
marketable securities increased by $1,062,000 from $3,601,000 at December 31,
1999 to $4,663,000 at December 31, 2000. The most significant source of cash in
2000 was $1,392,000 provided by operations. The most significant uses of cash in
2000 consisted of payments of $226,000 on long-term debt, purchase of property
and equipment of $148,000 and investment in marketable securities of $100,000.
As discussed in Item 1.--Description of Business--Recent Developments", on
March 16, 2001, the Company completed its tender offer for shares of the Common
Stock and Preferred Stock. As a result of the tender offer, the Company paid
$459,813 to the former holders of the Common Stock and Preferred Stock, which
amount was paid from the Company's cash and cash equivalents.
The Company believes that its primary requirements for liquidity in the
coming fiscal year will be to fund the final expenses on the remaining two lots
at The Fairways, which include, among other
9
things, association dues, water and sewer fees and property taxes; to fund the
required payments due on the grain dryer financing; to fund costs that may be
incurred relating to the toxic clean-up at Sam Hamburg Farm; and to fund general
and administrative expenses.
The Company believes that sources of required liquidity will be cash
generated from the rice drying and storage facilities and the collection of
notes receivable resulting from sales at The Fairways. Based on known
commitments, the Company believes that the sources of cash described and the
cash available at December 31, 2000, will be adequate to fund known liquidity
requirements in 2001. However, if the sources of required liquidity and the cash
available at December 31, 2000 prove to be insufficient to cover the Company's
primary liquidity requirements, it will be necessary to sell some of the
Company's non-income producing assets.
ITEM 7. FINANCIAL STATEMENTS
-----------------------------
The Consolidated Financial Statements of Dunes Hotels and Casinos Inc.
are located at pages F-1 to F-21 attached to the end of this annual report.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
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None
10
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
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The By-laws of the Company provide that the number of directors
constituting the entire board shall be five. Directors are elected at each
annual meeting of shareholders to hold office until the next annual meeting and
until a successor has been elected and qualified. On April 14, 2000, the Company
held its annual meeting of shareholders. At the annual meeting, GFS and GFS
Acquisition nominated four persons to fill the board seats that were up for
election at the annual meeting. The shareholders of the Company elected the
nominees proposed by GFS. Immediately following the annual meeting, the board of
directors met and, in accordance with the provisions of the Company's bylaws,
elected three additional directors to fill the three vacancies on the board of
directors. Two of the directors have subsequently resigned.
Pursuant to a Securities and Exchange Commission consent decree, the
Company has maintained an Audit Committee of the Board of Directors (Audit
Committee) since 1978, a majority of which are independent directors.
Identified herein are all directors and executive officers of the
Company. The information set forth as to each Director and Executive Officer has
been furnished by such person.
Steve K. Miller, 51, was elected a director and President of the
Company in April 2000. Mr. Miller has been employed by General Financial
Services, Inc. since 1988 and as President since 1995. He earlier served as
president and has continually served as Chairman of the Board of Directors
since its founding. General Financial Services is primarily engaged in the
investment and redevelopment of distressed real estate assets. He also owns
several companies operated in conjunction with General Financial engaged in
real estate investment, agriculture, hotel ownership and aviation. Prior to
founding General Financial, Mr. Miller owned and operated John Deere
agricultural equipment dealerships. Mr. Miller received his B.A. in
Accounting and Finance from Southwest Oklahoma State University.
D. Cary Peaden, 45, was elected a Director, Secretary and Treasurer of
the Company in April 2000. Mr. Peaden has been employed by General Financial
Services, Inc. since 1989 and as Vice President for the last five years. Mr.
Peaden is currently employed as assistant to the President of Rich-Mix
Products, Inc., which is unaffiliated with General Financial Services. Mr.
Peaden attended and studied business administration at Wichita State
University.
James R. Herfurth, 58, was elected a Director of the Company in April
2000. Mr. Herfurth has practiced law in California since 1977. He is a
member of the Board of Directors of Valley Solar Systems, Inc., a corporation
doing business in energy conservation, and is the president and a director of
FCW, Inc., a corporation engaged in the purchase of consumer loans. Mr.
Herfurth owns and operates commercial, industrial and residential
properties. He is a graduate of the College of the Sequoias and Humphreys
College of Law.
James G. Steckart, 51, was elected a Director of the Company in April
2000. Since January 1999, Mr. Steckart has been the President of PXC, LLC, a
Washington State based financial services company. Prior to joining PXC, Mr.
Steckart served as Chief Executive Officer and President of Home Choice,
Inc., Dallas, Texas, a publicly traded home furnishings and electronics
leasing company from May 1998 to January 1999 and Chief Operating Officer
from February 1998 to January 1999. From
11
1996 to October 1997, he was the President of Alameda Management Company, a
business engaged in the development, management and ownership of inn-type
motels. Mr. Steckart was employed by Advantage Companies, Inc., a publicly
traded franchisee of Rent-A-Center, first as Vice President of Operations
from 1991 to 1993 and then as President from 1993 to 1996.
Paul H. Viets, 67, was elected a Director of the Company in April 2000. Mr.
Viets is Chairman of the Board of Directors of Commerce Bank of Independence,
Kansas. Prior to that he served as Chairman, President and Director of Citizens
National Bank which he and his partners sold to Commerce Bankshares, Inc., St.
Louis, Missouri. Mr. Viets is also a partner in Vico Rentals, L.C., a real
estate development company unrelated to General Financial. Mr. Viets is a
business graduate of the University of Kansas.
There is no family relationship between any directors or executive officers
of the Company. No director holds a directorship in any other company with a
class of securities registered pursuant to Section 12 of the Exchange Act or
subject to the requirements of Section 15(d) of such Act or any company
registered as an investment company under the Investment Company Act of 1940, as
amended.
Compliance with Section 16(a) of the Exchange Act. Based solely upon a
review of the Commission's Forms 3, 4 and 5 received by the Company during the
last fiscal year and written representations solicited by the Company, no
Officer, Director, beneficial owner of more than 10% of any class of the
Company's equity securities or any other person subject to Section 16 of the
Exchange Act failed to file on a timely basis as disclosed in the above forms,
reports required by Section 16(a) of the Exchange Act during the year ended
December 31, 2000, except as follows: (1) the initial Form 3's for Paul Viets,
James Steckart and James Herfurth were each filed one day late and the initial
Form 3's for Fadi Mashnouk, Thomas Steele and Cary Peaden were each filed two
days late (each of these forms reported that the reporting person did not own
any shares of common or preferred stock in the Company) and (2) the Form 5 for
General Financial Services, Inc. and Mr. Steve Miller for the year ended
December 31, 2000, reporting the acquisition of 120 shares of preferred stock
was filed one day late. On April 6, 2001, General Financial Services, Inc., GFS
Acquisition Company, Inc. and Mr. Miller amended their Form 5 to report the
acquisition of 18,000 shares that had not previously been reported on Form 4.
12
ITEM 10. EXECUTIVE COMPENSATION
--------------------------------
The following table sets forth the annual compensation paid to the
Company's President for each of the last three fiscal years. No executive
officer of the Company received compensation in excess of $100,000 for the 3
years ended December 31, 2000.
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
-------------------
(a) (b) (c) (d) (e) (i)
Other annual All other
Name and prin- compensation compensation
cipal position Year Salary($) Bonus($) ($) ($)(1)
-------------- ---- --------- -------- --- ------------
Steve K. Miller, 2000(2) $71,381 -- -- $11,067
President
Edward Pasquale,
President 2000(3) -- -- -- $22,267
1999 -- -- -- $62,568
1998 -- -- -- $36,862
------------------
(1) All other compensation for Mr. Miller consists of the following:
Directors fees $10,667
Consulting fees 400
---
$11,067
======
All other compensation for Mr. Pasquale consists of the following:
Year Ended December 31,
-----------------------
1998 1999 2000
----- ---- ----
Directors fees $15,000 $15,000 $4,333
Audit Committee fees 12,000 12,000 3,467
Consulting fees 9,862 35,568 14,467
------ ------ -------
$36,862 $62,568 $22,267
====== ====== ======
(2) Mr. Miller was elected president of the Company on April 14, 2000.
(3) Mr. Pasquale was president of the Company from December 1997 to April
14, 2000.
Compensation of Directors
The Company pays each director an annual fee of $15,000 payable monthly.
In addition to their regular directors fees, board members and audit committee
members are paid $200 per half-day and $400 per full day for special projects
considered to be outside the scope of their duties as board and audit committee
members. In addition, they receive a travel fee of $300 for each meeting
attended.
13
Messrs. Herfurth, Steckart, and Viets are all member of the Company's
Audit Committee. For services rendered as Audit Committee members and
consultants during the fiscal year 2000, Messrs. Herfurth, Steckart, and Viets
were paid $17,500, $400, and $400 respectively.
The Company does not have a plan, pursuant to which cash or non-cash
compensation is paid or distributed, or is proposed to be paid or distributed in
the future. The Company does not have any pension or other benefit plans.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
------------------------------------------------------------------------
The table shown below contains certain information as of March 30, 2001
with respect to (1) any person (including any "group" as that term is used in
Section 13(d)(3) of the Exchange Act), who is known to the Company to be
beneficial owner (as that term is defined in rules and regulations of the
Commission under the federal securities laws) of more than 5% of the Company's
common stock, (2) each director and each executive officer named in the summary
compensation table and (3) certain information with respect to the Company's
common stock beneficially owned (as that term is defined in rules and
regulations of the Commission under the federal security laws) by all directors,
and executive officers of the Company as a group.
Name and Address of Amount and Nature of Percent of Common
Beneficial Owner (1) Beneficial Ownership (1) Stock Outstanding
--------------------------------------------------------------------------------
GFS Financial Services, Inc.(2) 4,003,309 85.8%
8441 E. 32nd Street N
Wichita, KS 67226
Steve K. Miller(3) 4,003,309 85.8%
James R. Herfurth -- --
James G. Steckart -- --
Paul H. Viets -- --
D. Cary Peaden 3,100 *
All Directors and Officers
as a Group (5 Persons) 4,006,409 85.8%
------------------------
* less than 1%
(1) In furnishing this information, the Company is relying upon the contents of
statements filed with the Commission pursuant to Section 13(d) and Section
13(g) of the Exchange Act.
(2) Consists of 3,000,000 shares owned directly by General Financial Services,
Inc. and 1,003,309 shares owned indirectly through its wholly owned
subsidiary GFS Acquisition Company, Inc. Mr. Miller is the sole
stockholder, sole director and the president of
14
General Financial Services, Inc. and as a result may be deemed to
be the beneficial owner of the shares owned directly and indirectly
by General Financial Services, Inc.
The following table sets forth, as of March 30, 2001, the number and
percentage of shares of the Company's Series B preferred stock which are
beneficially owned, directly or indirectly, by (1) any person (including any
"group" as that term is used in Section 13(d)(3) of the Exchange Act), who is
known to the Company to be beneficial owner (as that term is defined in rules
and regulations of the Commission under the federal securities laws) of more
than 5% of the Company's Preferred Stock, (2) each director and each executive
officer named in the summary compensation table and (3) certain information with
respect to the Company's Preferred Stock beneficially owned (as that term is
defined in rules and regulations of the Commission under the federal security
laws) by all directors, and executive officers of the Company as a group.
Name and Address of Amount and Nature of Percent of Common
Beneficial Owner (1) Beneficial Ownership (1) Stock Outstanding
--------------------------------------------------------------------------------
USI Corp(2) 2,399 28.1%
1040 Lawrence Court
Wichita, KS 67206
Empire & Company 1,973 23.1%
c/o Transpacific Corp.
328A Exchange Place Station
Jersey City, NJ 07303
Steve K. Miller(3) 120 1.4%
James R. Herfurth -- --
James G. Steckart -- --
Paul H. Viets -- --
D. Cary Peaden -- --
All Directors and Officers
as a Group (5 Persons) 120 1.4%
------------------------
(1) In furnishing this information, the Company is relying upon the contents
of statements filed with the Commission pursuant to Section 13(d) and
Section 13(g) of the Exchange Act.
(2) USI Corp claims that it owns or has rights to approximately 3,000 shares
of preferred stock. Pursuant to an order by the United States District
Court for Kansas, USI Corp has agreed not to transfer these shares. See
Note 10 to the Consolidated Financial Statements of the Company included
elsewhere in this report.
(3) Consists of 120 shares owned by General Financial Services, Inc.
Mr. Miller is the sole stockholder, sole director and the president of
General Financial Services, Inc. and as a result may be deemed to be the
beneficial owner of the shares owned by General Financial Services, Inc.
15
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
--------------------------------------------------------
None.
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
-----------------------------------------
The following documents are filed as part of this report
a. Financial Statements PAGE
----
Dunes Hotels and Casinos Inc. and Subsidiaries
Consolidated Financial Statements:
Independent Accountants' Report of Baird, Kurtz & Dobson F-1
Independent Auditors' Report of Piercy, Bowler, Taylor and Kern F-2
Balance Sheet as December 31, 2000 F-3
Statements of Operations, two years ended December 31, 2000 F-5
Statements of Changes in Shareholders' Equity, two years ended
December 31, 2000 F-6
Statements of Cash Flows, two years ended December 31, 2000 F-7
Notes to Financial Statements, two years ended
December 31, 2000 F-9
b. Exhibits
3.1 Restated Certificate of Incorporation of Dunes Hotels and
Casinos Inc. dated June 17, 1982 (incorporated by reference to
Dunes Hotels and Casinos Inc. Annual Report on Form 10-K (file
no. 1-4385) for the year ended December 31, 1994, Part IV, Item
14(a)(3), Exhibit 3.01).
3.2 Certificate of Amendment of Restated Certificate of
Incorporation of Dunes Hotels and Casinos Inc. dated December
19, 1984 (incorporated by reference to Dunes Hotels and Casinos
Inc. Annual Report on Form 10-K (file no. 1-4385) for the year
ended December 31, 1994, Part IV, Item 14(a)(3), Exhibit 3.02).
3.3 Revised By-laws of Dunes Hotels and Casinos Inc. dated
February 3, 2000 (incorporated by reference to Dunes Hotels and
Casinos Inc. Annual Report on Form 10-K (file no. 1-4385) for
the year ended December 31, 1999, Part IV, Item 14(a)(3),
Exhibit 3.03).
3.4 Amendent to By-laws adopted June 18, 1997.
16
4.1 Specimen Certificate for the Common Stock of Dunes Hotels and
Casinos Inc. (incorporated by reference to Dunes Hotels and
Casinos Inc. Annual Report on Form 10-K (file no. 1-4385) for
the year ended December 31, 1994, Part IV, Item 14(a)(3),
Exhibit 4.01).
4.2 Specimen Certificate for the Preferred Stock of Dunes Hotels
and Casinos Inc. (incorporated by reference to Dunes Hotels and
Casinos Inc. Annual Report on Form 10-K (file no. 1-4385) for
the year ended December 31, 1994, Part IV, Item 14(a)(3),
Exhibit 4.02).
10.1 Reimbursement Agreement dated September 20, 1995, by and between
Rancho Murieta Community Services District and SHF Acquisition
Corporation regarding the amount of the reimbursement due SHF for
excess work done at The Fairways at Rancho Murieta that will
benefit other properties within the boundaries of Rancho Murieta
(incorporated by reference to Dunes Hotels and Casinos Inc.
Annual Report on Form 10-K (file no. 1-4385) for the year ended
December 31, 1995, Part IV, Item 14(a)(3), Exhibit 10.24).
10.2 Master Equipment Lease dated April 3, 1997, between ICON
Financial Corp. and SHF Acquisition Corporation (incorporated by
reference to Dunes Hotels and Casinos Inc. Quarterly Report on
Form 10-Q for the quarter ended June 30, 1997, Part II, Item 6,
Exhibit 10.02).
10.3 Letter Agreement dated May 31, 2000 and signed May 31, 2000
between SHF Acquisition, a wholly-owned subsidiary of the Dunes
Hotels & Casinos Inc. and Pacific International Rice Mills
(incorporated herein by reference to Dunes Hotels and Casinos Inc.
Quarterly Report on Form 10-QSB (file no. 1-4385) for the period
ended June 30, 2000, Part II, Item 6(a), Exhibit 10.1)
10.4 Letter Agreement dated April 26, 2000 and signed April 26, 2000
between SHF Acquisition, a wholly-owned subsidiary of the Dunes
Hotels & Casinos Inc. and Pacific International Rice Mills
(incorporated herein by reference to Dunes Hotels and Casinos Inc.
Quarterly Report on Form 10-QSB (file no. 1-4385) for the period
ended June 30, 2000, Part II, Item 6(a), Exhibit 10.2)
21.1 Subsidiaries of Registrant.
(b) Reports on Form 8-K
None
17
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
DUNES HOTELS AND CASINOS INC. DUNES HOTELS AND CASINOS INC.
By /s/ Steve K. Miller By /s/ Marvin P. Johnson
------------------------------ -------------------------------------
Steve K. Miller Marvin P. Johnson
President Principal Financial and Accounting
(Principal Executive Officer) Officer
Dated April 2, 2001
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
Signature Title Date
/s/ James R. Herfurth April 2, 2001
---------------------------------
James R. Herfurth Director
/s/ Steve K. Miller April 2, 2001
---------------------------------
Steve K. Miller Director
/s/ D. Cary Peaden April 2, 2001
---------------------------------
D. Cary Peaden Director
/s/ James G. Steckart April 2, 2001
---------------------------------
James G. Steckart Director
/s/ Paul H. Viets April 2, 2001
---------------------------------
Paul H. Viets Director
18
INDEPENDENT ACCOUNTANTS' REPORT
----------------------------
Board of Directors and Shareholders
Dunes Hotels and Casinos Inc.
Davis, California
We have audited the accompanying consolidated balance sheet of Dunes Hotels and
Casinos Inc. and Subsidiaries as of December 31, 2000, and the related
consolidated statements of operations, changes in shareholders' equity and cash
flows for the year ended December 31, 2000. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Dunes Hotels and
Casinos Inc. and Subsidiaries as of December 31, 2000, and the results of its
operations and its cash flows for the year then ended, in conformity with
generally accepted accounting principles.
/s/ Baird, Kurtz and Dobson
Wichita, Kansas
February 20, 2001, except for notes 4, 9, 10 and 14 as to which the date is
March 30, 2001.
F-1
INDEPENDENT AUDITORS' REPORT
----------------------------
Board of Directors and Shareholders
Dunes Hotels and Casinos Inc.
Davis, California
We have audited the accompanying consolidated statements of operations,
shareholders' equity and cash flows of Dunes Hotels and Casinos Inc. and
Subsidiaries for the year ended December 31, 1999. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the results of operations and cash flows for
the year ended December 31, 1999, of Dunes Hotels and Casinos Inc. and
Subsidiaries in conformity with generally accepted accounting principles.
/s/ Piercy, Bowler, Taylor & Kern
Las Vegas, Nevada
January 28, 2000
F-2
DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 2000
(Dollars in thousands)
ASSETS
Cash and cash equivalents $ 4,241
Marketable securities 422
Receivables
Trade 37
Real estate sales 526
Inventory of real estate held for sale 1,126
Prepaid expenses 56
Property and equipmenless accumulated depreciation
and amortization of $862 3,134
Other assets 4
----------
$ 9,546
==========
(continued)
F-3
DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (CONTINUED)
DECEMBER 31, 2000
(Dollars in thousands)
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable $ 143
Accrued expenses 478
Deferred income 159
Long-term debt and capital lease obligation 589
Accrued preferred stock dividends in arrears 1,389
----------
2,758
----------
Shareholders' equity
Preferred stock - authorized 10,750,000
shares ($.50 par); issued 10,512 shares
Series B $7.50 cumulative preferred
stock, outstanding 9,610 shares, aggregate
liquidation value $2,589, including
dividends in arrears 5
Common stock - authorized 25,000,000 shares ($.50 par);
issued 7,799,780 shares, outstanding 5,094,340 shares 3,900
Capital in excess of par 25,881
Deficit (20,960)
----------
8,826
Treasury stock at cost; Preferred - Series B, 902 shares
Common 2,705,440 shares (2,038)
----------
Total shareholders' equity 6,788
----------
$ 9,546
==========
See notes to consolidated financial statements
F-4
DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 2000 AND 1999
(Dollars in thousands, except per share)
2000 1999
------------ ------------
Revenues
Sales of real estate $ 2,474 $ 2,108
Rental income, agricultural properties 57 51
Drying and storage revenues 342 168
Miscellaneous income, net 56 67
------------ ------------
2,929 2,394
------------ ------------
Cost and expenses
Cost of real estate sold 2,550 1,120
Cost and expenses of rental income 4 4
Cost of drying and storage revenues 405 292
Selling, administrative and general
Corporate 1,027 685
Real estate operations 172 225
Depreciation 132 132
------------ ------------
4,290 2,458
------------ ------------
Loss before other credits (charges) and income (1,361) (64)
taxes
Other credits (charges)
Interest and dividend income 266 248
Interest expense (80) (178)
Gain / (loss) on marketable securities, net 44 (90)
------------ ------------
230 (20)
------------ ------------
Loss before income taxes (1,131) (84)
Income taxes 5 7
------------ ------------
Net loss $ (1,136)$ (91)
============ ============
Weighted average number of shares outstanding 5,311,893 6,375,096
Basic and diluted loss per common share $ (0.23)$ (0.03)
============ ============
See notes to consolidated financial statements
F-5
DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 2000 AND 1999
(Dollars in thousands)
Preferred stock Common stock Preferred Common
issued (1) issued Capital treasury stock treasury stock Total
------------- ---------------- in -------------- --------------- share-
Par Par excess holders'
Shares Value Shares Value of par Deficit Shares Cost Shares Cost equity
------ ------ --------- ------ --------- ---------- ------ ------- --------- -------- ----------
Balance, January 1, 1999 10,512 $5 7,799,780 $3,900 $25,881 ($19,589) 902 ($70) 1,424,684 ($1,930) $8,197
Accrued dividends, preferred stock (72) (72)
Net loss (91) (91)
------ ------ --------- ------- --------- ---------- ------ ------ --------- -------- ----------
Balance, December 31, 1999 10,512 5 7,799,780 3,900 25,881 (19,752) 902 (70) 1,424,684 (1,930) 8,034
Accrued dividends, preferred stock (72) (72)
Acquisition of treasury stock
through foreclosure (38) (38)
Net loss (1,136) 1,280,756 (1,136)
------ ------ --------- ------- --------- ---------- ------ ------ --------- -------- ----------
Balance, December 31, 2000 10,512 $5 7,799,780 $3,900 $25,881 ($20,960) 902 ($70) 2,705,440 ($1,968) $6,788
====== ====== ========= ======= ========= ========== ====== ====== ========= ======== ==========
(1) Series B, $7.50 dividend, voting and non-convertible
(liquidation value, $125 per share)
See notes to consolidated financial statements
F-6
DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2000 AND 1999
(Dollars in thousands)
2000 1999
------------ ------------
Cash flows from operating activities:
Net loss $ (1,136)$ (91)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation 132 132
(Gain) loss on marketable securities (44) 90
(Gain) loss on disposition of assets 11
(Increase) decrease in operating assets:
Receivables (198) 45
Inventory, real estate held for sale 2,334 490
Prepaid expenses 55 4
Other (1)
Increase (decrease) in operating liabilities:
Accounts payable 91 27
Accrued expenses and income taxes (14)
Deferred credits and other 159
Former minority interest (320)
------------ ------------
Net cash provided by operating activities 1,392 374
------------ ------------
Cash flows from investing activities
Investment in marketable securities (100)
Proceeds from sale of marketable securities 460
Proceeds from disposition of assets 500
Purchase of property and equipment (148) (22)
------------ ------------
Net cash provided by (used in) investing activities (248) 938
------------ ------------
(continued)
F-7
DUNES HOTELS AND CASINOS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED DECEMBER 31, 2000 AND 1999
(Dollars in thousands)
2000 1999
------------ ------------
Cash flows from financing activities:
Payments on short-term debt $ $ (49)
Payments on long-term debt (226) (1,060)
------------ ------------
Net cash used in financing activities (226) (1,109)
------------ ------------
Increase in cash and cash equivalents 918 203
Cash and cash equivalents, beginning of year 3,323 3,120
------------ ------------
Cash and cash equivalents, end of year $ 4,241 $ 3,323
============ ============
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Income taxes $ 5 $ 7
============ ============
Interest $ 80 $ 189
============ ============
Supplemental schedules of non-cash investing and
financing activities:
Dividends accrued but unpaid $ 72 $ 72
============ ============
Stock acquired from foreclosure $ 38 $
============ ============
See notes to consolidated financial statements
F-8
DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000 AND 1999
1. Summary of significant accounting policies:
Consolidation:
The accompanying consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries Continental California Corporation
(Continental), M & R Corporation (MRC) and MRC's subsidiary, M & R Investment
Company, Inc. (MRI) and MRI's subsidiaries SHF Acquisition Corporation (SHF) and
South Lake Acquisition Corporation (South Lake), after elimination of all
material intercompany balances and transactions.
Description of business:
The Company operates in two principal business segments: real estate
(development and sale of residential lots and rental of agricultural land) and
agricultural (rice drying and storage).
The Company's real estate segment sells completed residential lots primarily
to builders of custom homes and to the general public in and around the greater
Sacramento, California, area. The agricultural properties are leased to farmers
in the area where the agricultural properties are located. Accordingly, the
Company's operations in this segment could be affected by material adverse
changes in economic conditions in the area.
The agricultural segment dries harvested rice over a two-month period
(approximately September 15 to November 15) and stores, for a fee, the dried
rice until it is removed, normally within the following year. The Company stores
rice principally for one customer under a contract which expires in August 2001.
This contract accounts for approximately 50% of the storage capacity and 50% of
the storage revenue. If the Company were to lose this storage customer, fail to
obtain drying contracts for the coming year, or crop yields are low, it would
have a material adverse affect on the Company's agricultural segment.
Property and equipment and depreciation and amortization:
Property and equipment are stated at cost. Depreciation and amortization are
calculated using the straightline method over the estimated useful lives of the
assets.
Loss per share:
Loss per common share has been computed using the weighted average number of
shares outstanding during the year: 5,311,893 and 6,375,096 for the years ended
December 31, 2000 and 1999, respectively. Dividends on nonconvertible preferred
stock - Series B have been deducted from income or added to the loss applicable
to common shares. (See Note 3).
F-9
DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000 AND 1999
Income Taxes:
Deferred tax liabilities and assets are recognized for the tax effects of
differences between the financial statement and tax basis of assets and
liabilities. A valuation allowance is established to reduce deferred tax assets
if it is more likely than not that a deferred tax asset will not be realized.
Cash equivalents:
The Company considers all highly liquid cash investments purchased with an
original maturity of three months or less to be cash equivalents. At December
31, 2000 and 1999, cash equivalents consisted of money market accounts and
commercial paper.
Marketable securities:
The Company's investments in marketable securities are accounted for as
trading securities. Accordingly, gains or losses related to the Company's
investments in marketable securities, which have not been material, are included
in operations. These investments consist of preferred stock of $322,000 and a
municipal bond of $100,000.
Environmental expenditures:
Expenditures that relate to current operations are expensed or capitalized as
appropriate. Expenditures that relate to an existing condition caused by past
operations and which do not contribute to future revenues are expensed.
Liabilities are recorded when remedial efforts are probable and the costs can be
reasonably estimated.
Inventory of real estate held for development and sale:
Real estate held for development and sale is stated at the lower of cost or
net realizable value. Costs include primarily acquisition costs and improvements
costs. Costs are allocated to individual properties using the method appropriate
in the circumstances. For purposes of the statement of cash flows, sales and
purchases of real estate held for development and sale are classified as
operating activities, because the real estate is, in substance, inventory.
Use of estimates:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Reclassifications:
Certain reclassifications have been made to the 1999 financial statements
to conform to the 2000 presentation. The reclassifications had no effect on the
results of operations.
F-10
DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000 AND 1999
2. Fair value of financial instruments:
The following methods and assumptions were used by the Company in estimating
its fair value and disclosures for financial instruments.
Cash, cash equivalents and marketable securities:
The carrying amount approximates fair value of cash, cash equivalents and
marketable securities. For marketable securities, fair values are estimated
based on quoted market prices as of December 31, 2000.
Notes receivable:
These notes are collateralized by the real property sold. Management believes
the fair value of real estate notes receivable approximates their carrying value
based on their outstanding balances, their respective interest rates and
comparable sales in the area, of the real property.
In the event these notes were not collected, and the Company were unable to
recover or sell the collateral property, the maximum losses sustained would be
equal to the aggregate value of the notes.
Long-term debt and capital lease obligation:
The fair value of the capital lease obligation is based on current rates at
which the Company could borrow funds.
The fair values of the Company's significant financial instruments at
December 31, 2000 approximate their carrying amounts.
3. Loss per common share:
Loss per common share has been computed by dividing the income, net (loss),
less the accrued dividends applicable to the cumulative Series B Preferred
Shares, for each of the two years ended December 31, 2000, and 1999, by the
weighted number of shares outstanding (5,311,893) as of December 31, 2000, and
(6,375,096) as of December 31, 1999. Dividends on the Company's Series B
Preferred have not been paid since the first quarter of 1982. The Company is in
arrears on such dividends in the amount of approximately $1,389,000 as of
December 31, 2000. The Company has no present intention to pay dividends on
either its common or preferred shares.
The following data show the amounts used in computing loss per share and the
effect on loss and the weighted average number of shares of dilutive potential
common stock.
F-11
DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000 AND 1999
(Dollars in thousands, except per share)
Year Ended December 31,
2000 1999
---- ----
Loss from operations $(1,136) $(91)
Less: preferred dividends (72) (72)
---- ----
Loss to common stockholders used
in basic and diluted loss per
common share $(1,208) $(163)
======== ======
Weighted average number of common shares
used in basic and diluted loss per
common share 5,311,893 6,375,096
========= =========
Basic and diluted loss per common share $(0.23) $(0.03)
======= =======
4. Inventory of real estate held for development and sale (Dollars in
thousands):
The Fairways (a) $ 940
Sam Hamburg Farm (b) 146
Other 40
--------
$ 1,126
========
(a) The Company, through SHF, developed 50 acres of residential land located
at Rancho Murieta, California as a residential planned unit development
known as "The Fairways". Rancho Murieta is a 3,500- acre master planned
unit development located approximately 25 miles from Sacramento,
California. The land is encumbered by bonds in the approximate amount of
$4,500. Rancho Murieta consists primarily of single family homes, town
houses, commercial property and two 18-hole championship golf courses,
including country club facilities. The Fairways, located within the
boundaries of one of the golf courses located at Rancho Murieta, was
subdivided into 110 single-family estate lots. As of March 23, 2001, 2
lots remain unsold.
In connection with its development of The Fairways, SHF was required to
construct certain improvements that benefited not only The Fairways, but
other properties that lay outside of the boundaries of The Fairways (the
Benefited Properties). The net cost of the improvements to the Benefited
Properties was $1,140,900. SHF expects to be reimbursed for these costs as
the Benefited Properties are developed. SHF's right to reimbursement will
expire in September 2015 and the Company is unable to predict what amount,
if any, will be received as reimbursement. The rights to reimbursement are
personal to SHF and do not run with The Fairway's property unless assigned
by SHF.
(b) Sam Hamburg Farm consists of approximately 150 acres of agricultural
property. Of the 150 acres, 40 acres contain an airstrip and shop areas
which are the focus of continuing attempts at chemical clean-up. See Note
9(b) for a detailed discussion concerning the removal of the toxic waste.
The remaining 110 acres are leased to one tenant at an annual aggregate
rental of approximately $24,000 expiring in 2001.
F-12
DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000 AND 1999
5. Property and equipment and accumulated depreciation and amortization
(Dollars in thousands):
Land and land improvements $ 159
Building and improvements 3,731
Machinery and equipment 106
-------
3,996
Less accumulated depreciation and amortization ( 862)
-------
$3,134
======
6. Long-term notes receivable (Dollars in thousands):
Real estate
Various real estate notes, collateralized by deeds of trust
with interest ranging from 8% to 10% $ 526
=======
7. Long-term debt and capital lease obligations (Dollars in thousands):
Long-term debt and capital lease obligations at December 31, 2000,
consists of the following:
Capital lease obligation (a) $ 578
Other (b) 11
--------
$ 589
========
Maturities of long-term debt are as follows:
(Dollars in thousands)
----------------------
Capital
Long term debt Lease Obligation Total
-------------- ---------------- -----
2001 $ 3 $250 $253
2002 4 278 282
2003 4 50 54
--- ---- ----
$11 $578 $589
== === ===
(a) The Company has a financing lease agreement for its drying facility for
five years commencing March 1998 with a monthly rental of $25,121. The
Company can buy the drying facility for $1 at the end of the lease. The
lease is collateralized by the drying facility, a deed of trust on
certain parcels of property, including the parcel on which the storage
facility is located and the guarantees of MRI and the Company. Before
the guarantors are liable for any deficiency, the leasing company must
first proceed against the drying facility and the additional collateral.
F-13
DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000 AND 1999
(b) Other long-term debt consists of an unsecured note payable in annual
installments of $5,000, including interest.
8. Preferred Stock:
The Company is authorized to issue 10,750,000 share of $0.50 par value
preferred shares. The Company gave authority to its Board of Directors to issue
such preferred shares in one or more series, and to fix the number of shares in
each series, and all designations, relative rights preferences and limitations
of the shares issued in each series. As of December 31, 2000, the Board of
Directors has not exercised the authority granted, and no such preferred shares
have been issued except for the 10,512 shares of Series B, $7.50 cumulative
preferred of which 902 shares are held as treasury stock. Dividends on the
Company's Series B preferred stock have not been paid since the first quarter of
1982. The Company is in arrears on such dividends as of December 31, 2000, in
the amount of approximately $1,389,000.
9. Contingencies:
(a) At December 31, 2000, the Company has a net operating loss carry forward
(NOL) of approximately $53,298,000. The Board of Directors believes that
this NOL is subject to severe limits under the Internal Revenue Code and as
a result, the Board of Directors believes there is substantial doubt as to
whether the NOL has any value to the Company. If there has been an
ownership change for purposes of Section 382 of the Internal Revenue Code
of 1986, as amended (the Code), then there is a limitation on the amount of
income that can be offset by NOL carryovers. In general, an ownership
change occurs when a major shareholder of a loss corporation increases
their ownership by more than 50%, which is tested over a three-year period.
Depending on the interpretation of the IRS, an effective change in control
may have occurred as early as January 4, 2000, upon the order vesting
voting control with GFS.
(b) SHF was advised in 1991 of the possible contamination of 40 acres at Sam
Hamburg Farm of approximately 5,000 cubic yards of soil. The Company,
through its chemical and toxic clean-up consultants, has been working with
the California State Environmental Protection Agency, in seeking alternate
means to the disposal in toxic dump sites of chemical and toxics-laden
soil.
Because of ongoing testing, the State has not imposed a disposal date upon
the Company. The Company has disposed of a 1,000 cubic yards of soil to
date. Cost of disposal of the remaining soil is estimated at $125 to $200
per cubic yard or approximately $500,000 to $800,000, of which $472,000 has
been accrued. However, if on-site remediation can be achieved, it is
estimated the cost will be no more than $170,000. The Company is unable to
predict when the ongoing testing will be complete or what the outcome of
these tests will be. Accordingly, it is reasonably possible the estimates
will change materially in the near term as the testing and remediation work
continues.
F-14
DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000 AND 1999
(c) The Company estimates the carrying value of the lots at the Fairways real
estate development approximates their fair value. It is reasonably
possible the amounts ultimately realized could differ materially in the
near term from amounts recorded in the financial statements.
(d) See Note 10 below regarding legal proceedings that may have a material
adverse affect on the Company.
(e) The Company had been notified that the California FTB is examining its
1995 tax return. The FTB is questioning the Company's reporting of
approximately $7,700,000 of income as being exempt from the 9.3%
California tax. On September 13, 2000, the FTB requested, and the
Company granted, a six month extension of the period in which the FTB
could make an assessment related to the 1995 tax return. On March 13,
2001, the extension expired without any additional action being taken by
the FTB.
10. Legal Proceedings.
FDIC Litigation/Change of Control
---------------------------------
John B. Anderson (Anderson), the former Chairman of the Board of Directors of
the Company, and through ownership of Cedar Development Co. ("Cedar"), was the
controlling shareholder and President of Baby Grand Corp. (BGC) and J.B.A.
Investments, Inc. (Anderson Entities), which collectively owned approximately
4,280,756 shares or 67.2% of the Company's common stock. Of those shares (i)
3,000,000 shares (the FDIC Pledged Shares) were pledged as collateral to secure
certain obligations owing to the FDIC described below, and (ii) 1,280,756 shares
(the BGC Pledged Shares) were pledged as collateral in favor of a subsidiary of
the Company.
The Federal Deposit Insurance Corporation ("FDIC") brought an action captioned,
Federal Deposit Insurance Corporation, et al. v. John B. Anderson et al., United
States District Court, District of Nevada, Case No. CV-S-95-00679-PMP (LRL), on
July 14, 1995. Anderson, Edith Anderson (Anderson's wife), Cedar, J.A Inc. (JA),
J.B.A. Investments Inc, (JBA) (collectively, the Anderson Parties) are
defendants in this litigation (the Anderson Litigation). This matter is more
fully described in the Company's Form 10-K for the year ended December 31, 1997,
see "Item 3. Legal Proceedings - Federal Deposit Insurance Corporation, et al.
v. John B. Anderson, et al." The FDIC reduced its claims to a Consent Judgment
dated September 12, 1995 (the "Judgement").
In June 1999, the FDIC sold a portion of its Judgement, together with the
underlying security owned by the Anderson Parties to General Financial Services,
Inc. (GFS). Included in the sale were the FDIC Pledged Shares. GFS attempted to
exercise its rights under the Judgement and transfer ownership of the FDIC
Pledged Shares to it, but the Company intervened on behalf of Anderson, and
seized the Pledged Shares. The Company in turn filed on July 6, 1999, a
Complaint in Interpleader in Superior Court of California (the "California
Action"). The jurisdiction of the action was removed and transferred on
September 20, 1999 to the United States District Court for the District of
Nevada as DUNES HOTELS AND CASINOS INC. v. J.B.A. INVESTMENTS, INC. et al. Case
No. CV-S-99-1470-PMP (RJJ) (the "Nevada Action"). GFS and its subsidiary GFS
F-15
DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000 AND 1999
Acquisition Company, Inc. filed a counter-claim alleging among other things,
damages from the previous Company management for filing the California Action,
seizing the FDIC Pledged Shares, interfering with the lawful transfer of the
FDIC Pledged Shares and refusing to grant shareholder demands for an immediate
shareholder meeting to elect directors. A more detailed discussion is described
in the Company's Form 10-KSB for the fiscal year ended December 31, 1999.
On January 5, 2000, the U.S. District Court in Nevada ordered that the Company
hold a shareholders' meeting on or before April 14, 2000, and that GFS was
entitled to vote the FDIC Pledged Shares at that meeting. In addition to its
interest in the FDIC Pledged Shares, GFS has reported that through its
subsidiary GFS Acquisition Company, Inc., it owned 883,922 shares of the
Company's common stock acquired in the open market during 1999 and the first
quarter of 2000, or approximately a total of 17.4% of the then outstanding
stock.
Since 1998, the BGC Pledged Shares have been under the jurisdiction of the U.S.
Bankruptcy Court in Las Vegas, Nevada, where BGC filed a petition under Chapter
7 of the Bankruptcy Code. On February 22, 2000, the Company's motion in
Bankruptcy Court for relief from the automatic stay was granted to allow it to
foreclose on the BGC Pledged Shares. On March 3, 2000, the Company foreclosed on
the BGC Pledged Shares and placed them in the treasury. Placing the BGC Pledged
Shares into treasury had the effect of increasing GFS's voting percentage to
75.6% of the outstanding stock (GFS Shares).
On Friday, April 14, 2000, an Annual Meeting (the "Meeting") of the Shareholders
of the Company was held at 10:00 a.m. in Sacramento, CA. The purpose of the
Meeting was the election of the Board of Directors of the Company. Upon
completion of the ballot counting, it was determined that the nominees of GFS
and its subsidiary GFS Acquisition, Inc. received a plurality of the votes and
were duly elected. See the Company's Current Report on Form 8-K dated April 14,
2000 and filed with the Securities and Exchange Commission on May 3, 2000.
Immediately following the annual Meeting, the board of directors met and, in
accordance with the provisions of the Company's bylaws, elected three additional
directors to fill the three vacancies on the board of directors. For more
information regarding the names, ages and business experience for at least the
past five years of the new directors, see the Company's Current Report on Form
8-K dated April 14, 2000 and filed with the Securities and Exchange Commission
on May 3, 2000.
Pursuant to a Consent and Undertaking entered into with the Securities and
Exchange Commission on October 13, 1977, the SEC asserts that the board of
directors must have at least three directors satisfactory to the Commission (the
"Independent Directors"). The Company has sought confirmation from the staff of
the Commission that they do not object to Messrs. Herfurth, Steckart and Viets
being designated the Independent Directors for purposes of the Consent and
Undertaking. The staff has not responded to date. If the staff were to object to
any of the above individuals being designated an Independent Director, then the
board of directors will, without further shareholder approval elect another
director, submit that director to the staff to replace any director that was
objected to by the staff.
F-16
DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000 AND 1999
The new board of directors elected Mr. Miller president of the Company. Mr. Cary
Peaden was elected secretary-treasurer of the Company. Mr. Marvin Johnson has
been retained as the chief accounting officer of the Company.
The Nevada Action and the GFS counterclaim have been dismissed without
prejudice. In January 2001, GFS foreclosed on the FDIC Pledged Shares and
acquired direct ownership of the shares. The Dunes has no further involvement in
the litigation involving the Anderson Entities.
Injunctive Action regarding Tender Offer
----------------------------------------
On April 3, 2000, JBA, GFS and GFS Acquisition filed an action against the USI
Corp., Barney Kreutzer and Thomas Honton (collectively the "USI Group") in the
U.S. District Court for the District of Kansas alleging, among other things,
violations of the Williams Act, ss.ss.13(d), 14(d) and 14(e) of the Securities
Exchange Act of 1934, 15 U.S.C. 78a et seq. ("Williams Act"). The case is
captioned J.B.A. Investments, Inc., et al. v. USI Corp, et al., Case No 00127
WEB (D. Kan. 2000). The plaintiffs allege that the USI Group conducted a tender
offer for the Company's Series B Preferred Stock in violation of the Williams
Act. Upon information believed to be reliable, USI Group was able to purchase
approximately 3000 shares of the Company's non-convertible preferred stock,
Series B ("Series B Preferred"). The plaintiffs further allege that USI Group
failed to file any of the necessary reports required under the Williams Act,
failed to make material disclosures to the former Series B Preferred
shareholders and engaged in fraudulent practices in conjunction with the alleged
tender offer. The plaintiffs seek a preliminary and permanent injunction
prohibiting the USI Group from completing the tender offer, recission of the
Series B Preferred purchases by the USI Group and damages.
The USI Group and the plaintiffs have consented to an order halting any further
purchases of Series B Preferred by the USI Group, allowing the Company to
instruct its transfer agent to stop the transfer of such shares to USI Group and
precluding the USI Group from transferring or otherwise disposing the acquired
Series B Preferred.
The USI Group filed a motion to dismiss the plaintiffs' action. Plaintiffs
opposed that motion. By order dated February 21, 2001, the court denied the USI
Group's motion to dismiss.
On August 3, 2000, the court entered an agreed order joining the Company as a
plaintiff in the action.
On March 9, 2001, the USI Group filed several counterclaims against plaintiffs,
including the Company. The claims being made against the Company include: (1)
violations of Section 13e-3 and Section 13e-4 of the Securities Exchange Act of
1934 in conjunction with the Company's tender offer for all of the Common Stock
and Series B Preferred; (2) breach of contact relating to the USI Group's Series
B Preferred; and (3) injunctive relief relating to the foregoing. The
counterclaim also includes separate derivative claims for relief asserted on
behalf of the Company, and claims against plaintiffs other than the Company. The
plaintiffs, including the Company, have not yet responded to the counterclaim.
The Company intends to vigorously defend all of the claims made against it.
F-17
DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000 AND 1999
On March 9, 2001, the USI Group filed its answer to plaintiffs' claims.
Discovery is ongoing with regard to the claims brought by plaintiffs and the
counterclaims brought by the USI Group.
While management believes in the merits of the action against the USI Group,
there can be no assurance as to the outcome of the action and ultimate ownership
of the contested Series B Preferred or as to the outcome of the claims against
the Company.
11. Income Taxes:
The Company and its subsidiaries file a consolidated federal income tax
return.
Deferred tax assets (liabilities) are comprised of the following at
December 31, 2000
(Dollars in thousands):
Marketable securities valuation allowance $ 11
Real estate allowances 53
Loss carryforwards 18,096
Other 2
-------
Gross deferred tax assets 18,162
Deferred tax asset valuation allowance (18,162)
-------
Net deferred tax assets $ 0
=========
A reconciliation of the changes in deferred tax assets valuation allowance
is as follows (Dollars in thousands):
Valuation allowance for unrealized loss on marketable
securities $ (15)
Current year loss carryforwards 829
Valuation allowance on real estate (427)
Expiration of NOL (811)
---------
Change in deferred tax asset valuation allowance (424)
Deferred tax assets valuation allowance, beginning of year 18,586
---------
Deferred tax assets valuation allowance, end of year $ 18,162
=========
A reconciliation of the federal statutory tax rate to the effective tax rate for
2000 and 1999, is as follows:
Percentage of pre-tax income
2000 1999
------- ---------
Federal statutory rate (34%) (34%)
Non-deductible items:
Valuation adjustments 34% 26%
F-18
DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000 AND 1999
Other 0% 8%
-------- -------
0% 0%
The Company has the following net operating loss carryovers available for income
tax reporting purposes:
Year of expiration (Dollars in thousands
------------------
2001 9,890
2003 20,156
2004 1,889
2005 1,891
2006 3,542
2007 803
2008 2,408
2009 595
2010 3,298
2011 1,791
2012 2,767
2018 1,241
2019 589
2020 2,438
------
53,298
======
As more fully described in Note 9(a) and 10, a change in ownership of the
Company may have or could have taken place as early as January 4, 2000. If such
a change in ownership has taken place, it would materially reduce the amount of
income that could be offset by net operating losses each year; and if there is
no continuity of business after an ownership change, the net operating losses
could be eliminated. Net operating losses, to the extent not used in any given
taxable year, may be carried forward and added to the limitation of subsequent
years.
12. Segment information:
As discussed in Note 1, the Company operates in two principal business segments:
real estate investments (development and sale of residential lots and rental of
agricultural land), and agricultural (drying and storing rice).
F-19
DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000 AND 1999
Following is a summary of segment information for 2000 and 1999:
2000 1999
---- ----
Net revenues from unaffiliated customers:
Real estate:
Sale of real estate $ 2,474 $ 2,108
Land rent 57 51
Rice drying and storage revenue 342 168
--------- -------
$ 2,873 $ 2,327
========= =======
Rice drying and storage depreciation $132 $132
==== ====
Income (loss) from operations:
Real estate $ (139) $ 877
Rice drying and storage (195) (256)
---------- --------
(334) 621
Corporate operating expense (1,027) (685)
Other income / (loss) 230 (20)
Income taxes (5) (7)
---------- --------
Net loss, as reported in the
accompanying consolidated statements of operations ($ 1,136) ($ 91)
======= ===
2000
----
Identifiable assets
Real estate $ 1,652
Rice drying and storage 3,231
General corporate assets 4,663
---------
Total assets, as reported in the accompanying
consolidated balance sheet $ 9,546
=========
Rice drying and storage fixed asset additions $148
====
13. Significant estimates and concentrations:
Generally accepted accounting principles require disclosure of certain
significant estimates and current vulnerabilities due to certain concentrations.
Those matters include the following:
Major customer:
The company derives substantially all of its storage income from one
customer. The storage contract with this customer expires in 2001.
F-20
DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000 AND 1999
14. Subsequent events:
On October 31, 2000, the Company commenced a tender offer for all of its
Common Stock at a purchase price of $1.00 per share and for all of its Preferred
Stock at a purchase price of $30.00 per share. The tender offer for the Common
Stock expired on February 15, 2001 and the tender offer for the Preferred Stock
expired on March 16, 2001. As a result of the tender offer, the Dunes acquired
427,563 shares of Common Stock (representing 8.4% of the outstanding Common
Stock) and 1,075 shares of Preferred Stock (representing 11.2% of the Preferred
Stock). The tendered shares will be cancelled and as a result, Steve K. Miller,
indirectly through General Financial Services, Inc. and GFS Acquisition Company,
Inc., will own 85.8% of the Common Stock and 1.4% of the Preferred Stock.
As of March 30, 2001, shareholders who claim to have lost their stock
certificates have submitted letters of transmittal for 82 shares of Preferred
Stock and 18,100 shares of Common Stock. The Company has agreed to accept such
tendered shares if the shareholders satisfy the transfer agent's requirement for
delivery of a lost stock affidavit and the payment of a transfer service fee.
These shares are not included in the above numbers or percentages
F-21