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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D. C. 20549

FORM 10-Q

For the quarterly period ended December 31, 2003

or

For the transition period from                      to                     

Commission file number 0-14050

THE SANDS REGENT

(exact name of registrant as specified in charter)

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

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 13, 2004, the registrant had outstanding 5,106,555 shares of its common stock, $.10 par value.

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THE SANDS REGENT AND SUBSIDIARIES

FORM 10-Q

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THE SANDS REGENT AND SUBSIDIARIES

PART I FINANCIAL INFORMATION

CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)

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

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THE SANDS REGENT AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)

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

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THE SANDS REGENT AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

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

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THE SANDS REGENT AND SUBSIDIARIES

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

THREE AND SIX MONTHS ENDED DECEMBER 31, 2003 AND 2002

NOTE 1 - BASIS OF PRESENTATION

The accompanying Consolidated Financial Statements include the accounts of The Sands Regent (the “Company”) and its wholly-owned subsidiaries: Zante, Inc. (“Zante”), a Nevada corporation, and Last Chance, Inc. (“Last Chance”), a Nevada corporation. 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”). The accounting policies followed in the preparation of the financial information herein are the same as those summarized in the Company’s 2003 Form 10-K. The Consolidated Balance Sheet at June 30, 2003, was derived from the audited financial statements at that date.

The interim consolidated financial information is unaudited and should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended June 30, 2003. In the opinion of management, all adjustments and normally recurring accruals necessary to present fairly the financial condition of the Company as of December 31, 2003, and the results of operations and cash flows for the three and six months ended December 31, 2003 and 2002 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. Reclassifications have been made to the prior year consolidated financial statements to conform to the 2003 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 earnings by the weighted average number of common shares outstanding during the period. Diluted earnings per share reflect the additional dilution for all potentially dilutive securities such as stock options. The following is a reconciliation of the number of shares (denominator) used in the basic and diluted earnings per share computations (shares in thousands):

In the three and six months ended December 31, 2003, there were no antidilutive shares, the exercise price of all vested shares exceeded the weighted average stock price for these periods. In the three months ended December 31, 2002, the effect of dilutive stock options was not presented because the Company reported a loss for the period.

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NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

THREE AND SIX MONTHS ENDED DECEMBER 31, 2003 AND 2002

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)

NOTE 4 - RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In November 2002, the FASB issued FASB Interpretation (FIN) 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, including indirect Guarantees of Indebtedness of Others. FIN 45 expands the information disclosures required by guarantors obligations under certain types of guarantees. It also requires initial recognition at fair value of a liability for such guarantees. We adopted the disclosure requirements of FIN 45 and apply liability recognition requirements to all guarantees issued or modified after June 30, 2003. The adoption of these requirements did not have a material impact on our results of operations or financial position.

In January 2003, the Financial Accounting Standards Board (FASB) issued FIN 46 (revised December 2003), Consolidation of Variable Interest Entities (VIEs). FIN 46 clarifies the application of Accounting Research Bulletin 51, Consolidated Financial Statements, and establishes standards for determining under what circumstances VIEs should be consolidated with their primary beneficiary, including those to which the usual condition for consolidation does not apply. FIN 46 also requires disclosures about unconsolidated VIEs in which the Company has a significant variable interest. The consolidation requirements of FIN 46 apply immediately to VIEs created after December 31, 2003, and apply to older entities in the first period ending after March 15, 2004. Certain disclosure requirements apply to all financial statements issued after December 31, 2003. The Company does not have Variable Interest Entities, as such, the adoption of these requirements does not have a material impact on our results of operations or financial position.

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THE SANDS REGENT AND SUBSIDIARIES

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

THREE AND SIX MONTHS ENDED DECEMBER 31, 2003 AND 2002

In December 2002, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 148, “Accounting for Stock-Based Compensation - Transition and Disclosure, an amendment of FASB Statement No. 123” to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The Company adopted the annual and interim disclosure requirements of SFAS No. 148 and it did not have a material impact on the consolidated financial statements.

In April 2003, the FASB issued SFAS 149, “Amendments of Statement 133 on Derivative Instruments and Hedging Activities.” This Statement amends SFAS 133, “Accounting for Derivative and Instruments and Hedging Activities,” and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts and or hedging activities under SFAS 133. This statement is effective for contracts entered into or modified after June 30, 2003, except as stated below and for hedging relationships designated after June 30, 2003. The provisions of this statement that relate to Statement 133 Implementation Issues that have been effective for fiscal quarters that began prior to June 15, 2003, should continue to be applied in accordance with their respective effective dates. The adoption of this statement did not have a material impact on the Company’s results of operations or financial position.

In May 2003, the FASB issued SFAS 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.” This Statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. Financial instruments that are within the scope of the statement, which previously were often classified as equity, must now be classified as liabilities. This statement is effective for financial instruments entered into or modified after May 31, 2003, and otherwise shall be effective at the beginning of the first interim period beginning after June 15, 2003. The adoption of this statement did not have a material effect on the Company’s results of operations or financial position.

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THE SANDS REGENT AND SUBSIDIARIES

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

THREE AND SIX MONTHS ENDED DECEMBER 31, 2003 AND 2002

NOTE 5 - STOCK OPTION AND STOCK INCENTIVE PLANS

The Company accounts for its stock option plan under the recognition and measurement principles of Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” and related interpretations in accounting for its plan. No stock-based compensation costs are reflected in net income, as all options granted under those plans had an exercise price equal to the market value of the underlying common stock on the date of the grant. If the Company had elected to recognize compensation cost on the fair market value at the grant dates for awards under the stock option plans, consistent with the method prescribed by Statement of Financial Accounting Standards (“SFAS No. 123”), “Accounting for Stock-Based Compensation,” as amended by SFAS No. 148 - “Accounting for Stock-based Compensation - Transition and Disclosure”, using the Black-Scholes option pricing model with management’s assumptions disclosed, net income and income per share would have been changed to the pro forma amounts indicated below:

NOTE 6 - ACQUISITION PLANS / COMMITMENT TO PURCHASE RAIL CITY CASINO

On December 8, 2003, the Company announced the signing of an agreement to purchase Rail City Casino in Sparks, Nevada, from Alliance Gaming Corporation. The expected purchase price is approximately $38.0 million, consisting of approximately $35.0 million in cash and approximately $3.0 million in subordinated debt carried by the seller. The final purchase amount will be based on the twelve-month financial performance of Rail City prior to closing of the sale expected to be in the spring of 2004, pending regulatory approval. The Company has made a $1.0 million non-refundable deposit as earnest money in the transaction.

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NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

THREE AND SIX MONTHS ENDED DECEMBER 31, 2003 AND 2002

NOTE 7 - GAIN ON NOTE RECEIVABLE - FINANCIAL AND TAX IMPLICATIONS

On November 13, 2003, the Company reached an agreement with Gulfside Casino Partnership (d/b/a the Copa Casino in Gulfport, Mississippi), regarding a final settlement of amounts owing to the Company pursuant to a non-interest bearing promissory note issued to the Company in connection with its December 1998 sale of its interest in Copa. The terms of the note required the Copa to make a monthly payment to the Company in an amount equal to the greater of $15,000 or 2% of the Copa’s gross gaming revenues (4% beginning July 2004) until paid in full. At the time of settlement, the unpaid balance of the note was $5.0 million. On November 28, 2003, the Company received a $4.0 million cash payment as final settlement under the note. The Company had not previously recognized a gain on the settlement amount due primarily to the Company’s uncertainty of the Copa’s current management’s ability to obtain long-term financing, as well as competitive, legal, financial, environmental and various other risks facing the casino. As a result, in the six months ended December 31, 2003, the Company has recognized a gain of the full settlement amount of $4.0 million plus debt service payments of $387,000 made during the period.

At the time of the Copa sale the Company’s tax basis in the Copa 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 uncollectibility. This created a deferred tax gain of $1.2 million. For tax purposes, no gain is realized on the settlement amount as all proceeds have been applied first to the deferred gain and then to the Company’s tax basis in the property. Further, a tax benefit of $348,000 has been 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 AND SUBSIDIARIES

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

THREE AND SIX MONTHS ENDED DECEMBER 31, 2003 AND 2002

The Sands Regent and its subsidiaries (the “Company”) operate the Sands Regency Casino Hotel (the “Sands”) in Downtown Reno, Nevada and the Gold Ranch Casino and RV Resort (the “Gold Ranch”) on Interstate-80 in Verdi, Nevada. The Sands has 830 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 alternatives, including 589 slot machines, 19 table games, keno, bingo, and a sportsbook operated by Leroy’s Race and Sportsbooks, a third party. Additionally, the Sands has a ‘Just for Laughs’ comedy club, a cabaret lounge, health spa, and a large outdoor pool. The Company acquired Gold Ranch on June 1, 2002. Gold Ranch’s gaming alternatives include 256 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, and an ARCO gas station and convenience store. The Company also owns a slot machine route with 14 locations in the Reno area.

On December 8, 2003, the Company announced the signing of an agreement to purchase Rail City Casino in Sparks, Nevada, from Alliance Gaming Corporation. The expected purchase price is approximately $38 million, consisting of approximately $35 million in cash and approximately $3 million in subordinated debt carried by the seller. The final purchase amount will be based on the twelve-month financial performance of Rail City prior to closing of the sale. The closing of the acquisition is subject to customary closing conditions and is expected to close in the spring of 2004, pending regulatory approval.

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- Three months and six months ended December 31, 2003, as compared to the three and six months ended December 31, 2002

CONSOLIDATED RESULTS. For the three months ended December 31, 2003, the Company’s net revenues (operating revenues less promotional allowances) increased from $12.6 million to $12.7 million, or 1.5%, from the three months ended December 31, 2002. For the six months ended December 31, 2003, net revenues increased from $28.1 million to $28.7 million, or 2.1%, from the comparable six month period of the prior year. The increase in current year revenues for both periods was due specifically to higher retail gasoline prices. Current year consolidated net revenues, excluding fuel and convenience store, declined $76,000, or .83% from the comparable quarter ended December 2002; and declined $716,000, or 3.4%, from the comparable six month period ended December 2002. Higher fuel prices, a lingering economic malaise in California, and increased competition from Native American casinos were factors in the consolidated net revenue declines.

Consolidated income from operations was $240,000 for the quarter ended December 31, 2003 compared to $45,000 for the quarter ended December 31, 2002. The increase of $195,000 was due to lower general and administrative costs, in particular, lower management salaries and bonus accruals, which decreased $306,000 for the current quarter as compared with the same quarter of 2002.

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

THREE AND SIX MONTHS ENDED DECEMBER 31, 2003 AND 2002

For the six months ended December 31, 2003, consolidated income from operations was $1.9 million, compared with $2.5 million for the comparable six months of the prior year. The decrease in consolidated income from operations was primarily attributable to increased operating expenses and the fact that the quarter ended December 31, 2002, was an exceptionally strong revenue quarter for both the Sands and Gold Ranch. The Company spent an additional $303,000 on advertising and marketing costs in the September 2003 quarter as compared to the quarter ended September 30, 2002, to achieve two goals: 1) maintain and enhance its marketing presence in the Northern California feeder market with the opening of the new Thunder Valley Casino, and 2) maintain the Sands local marketing presence to counter traffic and parking problems associated with the ongoing roadwork nearby related to the new downtown railroad trench project also known as ReTRAC. (See “Other factors affecting current and future results” later in this section.)

Net income was $4.3 million, or $.86 per share ($.81 diluted) for the three months ended December 31, 2003 and $5.4 million, or $1.08 per share ($1.02 diluted) for the six months ended December 31, 2003. These results compare to a consolidated net loss of $244,000, or $.05 per share (basic and diluted) for the three months ended December 31, 2002, and net income of $1.1 million, or $.22 ($.21 diluted) for the six months ended December 31, 2002. The large improvement was due to payments received by the Company of $4.2 million for the quarter and $4.4 million for the six month period as settlement of a previously fully reserved note receivable the Company possessed in connection with its December 1998 sale of the Copa Casino (see “Gain on previously reserved note receivable” below).

SANDS REGENCY HOTEL AND CASINO. The Sands had marginally higher net revenues in the quarter ended December 31, 2003, as compared with the quarter ended December 31, 2002; both periods having approximately $7.4 million. In the six months ended December 31, 2003, net revenues remained less than prior year, $16.5 million compared to $17.2 million. Similarly, gaming revenues were higher for the quarter, $5.0 million in 2003 versus $4.9 million in 2002, but remained less for the six month period; $10.5 million for the current year compared with $10.7 million for 2002. The decrease in net revenues for the six months ended December 31, 2003, was primarily attributable to the disruption caused by the ReTRAC project and increased competition from Native American casinos.

Lodging revenues were higher for the quarter, $1.7 million in 2003 compared to $1.6 million in 2002, and were flat year over year at $4.6 million for the six month comparison. The Sands’ average room rate was slightly greater than last year for the quarterly period, $27.35 per room sold compared with $27.24. However, the average room rate for the six month period decreased compared to prior year, $34.79 compared to $35.08. The primary reason for the lodging revenue increase in the quarter was an additional 3,800, or 6.4%, rooms sold in the quarter ended December 31, 2003, than in the comparable quarter of 2002, despite the new Thunder Valley Casino, which opened June 9, 2003. Sands management’s interactions with California patrons found their interest in coming to Reno and to the Sands remained strong, but that many had trialed the new casino and anecdotal evidence suggested many Californians had arrived in Reno with smaller than normal gaming budgets.

The Sands’ income from operations was a $59,000 loss in the quarter ended December 31, 2003, as compared to a loss of $183,000 in the quarter ended December 31, 2002. The expense margin for the Sands improved from 102.5% to 100.8% in the quarter-to-quarter comparison mainly due to changes in the Sands management structure and a smaller projected management bonus due to operational profit tracking behind established goals.

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

THREE AND SIX MONTHS ENDED DECEMBER 31, 2003 AND 2002

For the six months ended December 31, 2003, the Sands had income from operations of $1.0 million, compared to $1.6 million in the six months ended December 31, 2002. In contrast to the quarterly results, the expense margin for the six month period ended December 31, 2003 was higher than the prior year, 93.9% compared to 90.6%. The decline in income from operations was primarily due to the Sands not achieving the economies of scale associated with the heavy business volumes of the summer of 2002, increased marketing and advertising costs during the current fiscal year, and new taxes enacted by the 2003 Nevada Legislature.

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

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

THREE AND SIX MONTHS ENDED DECEMBER 31, 2003 AND 2002

GOLD RANCH CASINO AND RV RESORT. For the three months and six month periods ended December 31, 2003, Gold Ranch had net revenues of $5.4 million and $12.1 million, respectively. This reflects an increase from the $5.1 million and $11.0 million in net revenues for Gold Ranch in the respective periods of 2002.

The largest revenue component at the Gold Ranch is a high volume ARCO gas station and convenience store, and this revenue center accounted for nearly all of the revenue increases. A change in the price of gasoline can greatly influence total revenues but have a minimal impact on profitability. The average retail price of a gallon of gasoline was $1.62 for the quarter ended, and $1.72 for the six months ended, December 31, 2003. This compares with an average price of $1.42 and $1.44 for the respective three and six month periods in 2002. Despite the price increase, the gas station sold 1.8% more gallons of gasoline in the six months ended December 31, 2003 than in the six months ended December 31, 2002.

Gaming revenue for Gold Ranch is comprised of slot machine revenue and, to a lesser degree, revenue from a California Lottery station. Gaming revenue was essentially flat to last year for both the three month period, $1.4 million, and the six month period, $3.0 million. Company management feels the first quarter of the current fiscal year’s gaming results were negatively impacted by the timing of an unusually large number of jackpots and the second quarter was affected by poor weather on weekends and unusually competitive gasoline prices on the I-80 corridor in California.

Gold Ranch income from operations for the quarter ended December 31, 2003 was $359,000, a small increase from $350,000 for the quarter ended December 31, 2002. Income from operations was higher primarily due to lower management bonus accruals as the property tracked below operating targets. For the six months ended December 31, 2003, income from operations was $41,000 lower than the six months ended December 31, 2002, primarily attributable to several direct mail and other promotions, which supported incremental customer volume, but also increased costs.

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