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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D. C. 20549

FORM 10-Q

For the quarterly period ended March 31, 2005

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 May 12, 2005, the registrant had outstanding 6,973,766 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

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. 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 June 30, 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 March 31, 2005, the results of its operations for the three and nine months ended March 31, 2004 and 2005, and its cash flows for the nine months ended March 31, 2004 and 2005 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. Additionally, 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 nine months ended March 31, 2004 and 2005, the dilutive effect of the Company's stock options, convertible debt, and outstanding warrants have been used in determining dilutive earnings per share.

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

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THE SANDS REGENT

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

In the three and nine months ended March 31, 2005, all outstanding convertible debt and warrants were “in-the-money”, exercisable or convertible for less than the weighted average market price for these periods. As such, the convertible debt and warrants were considered in the calculation for dilution. Additionally, all stock options outstanding during the periods were used in the dilution calculation, with exception of 35,000 option shares, which were antidilutive. In the three and nine months ended March 31, 2004, all outstanding dilutive instruments were “in-the-money” and were considered in determining dilutive shares.

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 - 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”(“SFAS 123(R)”), replacing SFAS No. 123, “Accounting for Stock-Based Compensation”, and superseding Accounting Principles 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 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.

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THE SANDS REGENT

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

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 APB 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 - INTANGIBLES AND GOODWILL

Intangible Balances

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THE SANDS REGENT

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Amortization of Intangibles

The expense associated with the amortization of intangibles was $-0- and $154,000 for the three months ended March 31, 2004 and 2005, respectively. The amortization expense was $-0- and $463,000 for the nine months ended March 31, 2004 and 2005, respectively. The Company intends to purchase the land at Rail City that is subject to the under-market land lease. The annual amortization expense assuming the under-market lease would continue to be amortized for the current and succeeding fiscal years is expected to be as follows:

(Dollars in thousands)

Goodwill Changes and Balances by Segment

NOTE 7 - PENDING ACQUISITION OF THE DEPOT CASINO AND RED HAWK SPORTS BAR IN DAYTON, NEVADA.

On February 28, 2005, the Company announced entering into a definitive agreement to purchase two privately held casino properties in Dayton, Nevada, the Depot Casino and the Red Hawk Sports Bar. The acquisition is subject to final due diligence and regulatory approvals. The acquisition is expected to close in the first quarter of fiscal 2006. Under the agreement, the purchase price of approximately $10.6 million plus working capital, will consist of approximately $9.9 million in cash plus approximately $700,000 in shares of Company common stock. The final purchase price will be based on a twelve-month financial performance of the Dayton properties in accordance with the purchase agreement.

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THE SANDS REGENT

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

NOTE 8 - BANK 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 $17,000,000 at March 31, 2005. The balance of the revolving credit facility was $15,500,000 at June 30, 2004 and $4,000,000 at March 31, 2005. The revolving 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 March 31, 2005 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 March 31, 2005 was 5.82%. The Company also pays a .5% commitment fee on the unused credit facility balance.

In conjunction with the pending acquisition of the Dayton, Nevada casinos (see Note 7), the Company is seeking amendments to the terms and amounts of its existing credit facilities. It is anticipated the new financing, if approved, would be in place by the first quarter of fiscal 2006 expected closing date of the transaction.

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 March 31, 2005. 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 9 - 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.

On October 7, 2004, Mr. 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 9.59%. Mr. Belding is prohibited by agreement from holding more than 9.9% of the Company's common shares outstanding.

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THE SANDS REGENT

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

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 10 - INSURANCE SETTLEMENT

In the year ended June 30, 2003, the Company incurred $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 the 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

The Sands Regent and its subsidiaries (the “Company”, “we”, “our”, or “us”) operate three facilities in Nevada. The Sands Regency Casino Hotel (the “Sands”) in downtown Reno, the Gold Ranch Casino and RV Resort (“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 581 slot machines, 19 table games, keno, bingo, live poker, and a sportsbook operated by a third-party. Additionally, the Sands has a Just for Laughs’ comedy club, a cabaret lounge, and a health spa.

Gold Ranch’s gaming options include 241 slot machines, a California lottery station on Gold Ranch’s property, which straddles the Nevada/California border, and a sportsbook operated by a third-party. 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 sportsbook operated by a third-party, a 24-hour family-style restaurant and a bar. Consolidated financial results for the periods ended March 31, 2005, include the results for Rail City, whereas the consolidated financial results for the periods ended March 31, 2004, do not.

On February 28, 2005, the Company announced entering into a definitive agreement to purchase two privately held casino properties in Dayton, Nevada, the Depot Casino and the Red Hawk Sports Bar. For more information, refer to Note 7.

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 Nine Months ended March 31, 2005, and 2004

CONSOLIDATED RESULTS. For the quarter ended March 31, 2005, the Company’s consolidated net revenues increased from $13.2 million to $18.4 million, or 39.9%, from the quarter ended March 31, 2004. On a by-property basis, the net revenues decreased 9.9% for the Sands and 2.7% for Gold Ranch. The reason for the consolidated net revenue increase for the quarter was Rail City’s $6.2 million revenues contribution in this fiscal year. Rail City was not owned by the Company until May 2004. For the nine months ended March 31, 2005, consolidated net revenues increased from $41.8 million to $59.7 million, or 42.6%, from the nine months ended March 31, 2004. This increase was attributable to Rail City's $18.5 million net revenues for the period. Net revenues for the comparable nine month periods decreased 3.7% for the Sands and increased 1.7% for Gold Ranch.

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THE SANDS REGENT

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

Consolidated income from operations was $802,000 for the quarter ended, and $5.3 million for the nine months ended, March 31, 2005, compared to $145,000 and $2.1 million for the respective quarter and nine month period of the prior year. The increase was again attributable to Rail City, which had $1.7 million and $4.7 million income from operations for the three and nine months ended March 31, 2005, Rail City’s first three full quarterly reporting periods under the Company.

The Company’s consolidated net income was $259,000, or $.04 per share ($.03 diluted), for the three months ended, and $2.4 million, or $.38 per share ($.35 diluted), for the nine months ended, March 31, 2005. This compares to $30,000, or $.01 per share (basic and diluted), and $5.4 million, or $1.06 per share ($1.01 diluted), for the respective three and nine month periods of the prior year. The prior year results had $4.4 million of non-operating gains in the nine month period ended March 31, 2004, which represented proceeds from final settlement of the Company’s 1998 sale of the Copa Casino in Gulfport, Mississippi. For a more complete discussion of this event, refer to the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2004.

SANDS REGENCY HOTEL AND CASINO. The following table highlights the Sands’ sources of revenues and expenses for the: