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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D. C. 20549

FORM 10-Q

For the quarterly period ended December 31, 2004

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

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THE SANDS REGENT

FORM 10-Q

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PART I FINANCIAL INFORMATION

Item 1. Financial Statements

THE SANDS REGENT

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (unaudited)

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

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THE SANDS REGENT

CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)

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

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THE SANDS REGENT

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

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

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THE SANDS REGENT

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

NOTE 1 - BASIS OF PRESENTATION

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

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

NOTE 2 - EARNINGS PER SHARE

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

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THE SANDS REGENT

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

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

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

NOTE 3 - BUSINESS SEGMENTS

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

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THE SANDS REGENT

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

NOTE 4- ADOPTION OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENT

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

NOTE 5 - STOCK OPTION AND STOCK INCENTIVE PLANS

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

NOTE 6 - ADDITIONAL FINANCING

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

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THE SANDS REGENT

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

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

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

share.

NOTE 7 - RAIL CITY CASINO ACQUISITION

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

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

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

goodwill and intangible assets to be deductible for tax purposes.

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THE SANDS REGENT

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

NOTE 8 - INTANGIBLES AND GOODWILL

Intangible Balances

Amortization of Intangibles

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

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

NOTE 9 - RECENTLY SECURED CREDIT FACILITIES

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

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THE SANDS REGENT

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

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

the unused credit facility balance.

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

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

NOTE 10 - INSURANCE SETTLEMENT

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

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

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

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

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

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

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

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THE SANDS REGENT

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

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

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

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

spa.

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

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

Critical Accounting Policies and Estimates

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

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

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

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

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THE SANDS REGENT

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

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

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

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

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

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

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THE SANDS REGENT

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

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

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

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