UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly report pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended: September 30, 1996
or
[ ] Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from _______ to _________
Commission file number: 0-21566
LS CAPITAL CORPORATION
f/k/a "Lone Star Casino Corporation"
(Exact name of registrant as specified in its charter)
Delaware 84-1219819
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
15915 Katy Freeway, Suite 250, Houston, Texas 77094
(Address of principal executive officer) (Zip Code)
Lone Star Casino Corporation
One Riverway, Suite 2550
Houston, Texas 77056
(Former name, address and fiscal year, if changed since last report)
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 __ No X
APPLICABLE ONLY TO CORPORATE ISSUERS
The number of shares of common stock, $0.01 par value, outstanding
as of October 31, 1996 according to the records of the
registrant's registrar and transfer agent, was 7,944,919.
<PAGE>
LS CAPITAL CORPORATION AND SUBSIDIARIES
QUARTER ENDED SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
INDEX
<S> <C> <C>
PART I. FINANCIAL INFORMATION Page
Item 1. Financial Statements
Condensed consolidated financial statements of
LS Capital Corporation and Subsidiaries:
Balance sheets at September 30, 1996 and June 30,
1996 3
Statements of income for the three months
ended September 30, 1996 and 1995 5
Statements of cash flow for the three months
ended September 30, 1996 and 1995 6
Notes to condensed consolidated financial statements 7
Item 2. Management's discussion and analysis of financial
condition and results of operations 8
PART II. OTHER INFORMATION
Item 6. Reports on Form 8-K 10
SIGNATURES 10
2
<PAGE>
</TABLE>
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
LS Capital Corporation and Subsidiaries
UNAUDITED CONDENSED CONSOLIDATED
BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, June 30,
1996 1996
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $26,000 $139,000
Receivable from affiliated party, net 249,000 249,000
Receivable from unaffiliated
parties, net 339,000 391,000
Prepaid expenses and other 23,000 25,000
Total current assets 637,000 804,000
Property and equipment, net 1,865,000 1,929,000
Other assets:
Organization costs, net 28,000 29,000
Other non-current assets 9,000 47,000
37,000 76,000
$2,539,000 $2,809,000
</TABLE>
3
<PAGE>
LS Capital Corporation and Subsidiaries
UNAUDITED CONDENSED CONSOLIDATED
BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, June 30,
1996 1996
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of notes payable $1,565,000 $1,558,000
Notes payable to affiliates 265,000 397,000
Accounts payable and accrued
expenses 2,204,000 2,677,000
Redemption payable - redeemable
preferred stock 540,000 540,000
Total current liabilities 4,574,000 5,172,000
Stockholders' equity:
Common stock 20,000 17,000
Additional paid-in capital 23,288,000 23,141,000
Note receivable from stock sales (115,000)
Accumulated deficit (25,228,000) (25,521,000)
(2,035,000) (2,363,000)
Commitments, contingencies and
other matters
$2,539,000 $2,809,000
</TABLE>
See accompanying notes to unaudited condensed consolidated
financial statements
4
<PAGE>
LS Capital Corporation and Subsidiaries
UNAUDITED CONDENSED CONSOLIDATED
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended
September 30
1996 1995
<S> <C> <C>
OPERATING REVENUES
Gaming $224,000 $602,000
Food, beverage, etc. 16,000 172,000
240,000 774,000
OPERATING EXPENSES
Gaming 40,000 928,000
Food , beverage, etc. 50,000 65,000
General and administrative 316,000 889,000
Depreciation and amortization 73,000 145,000
479,000 2,027,000
OPERATING LOSS (239,000) (1,253,000)
OTHER INCOME AND EXPENSE
Interest expense, net (60,000) (58,000)
Gain on transfer of
partnership interest to
creditor 590,000
Other, net 2,000 (6,000)
532,000 (64,000)
INCOME (LOSS) BEFORE
DIVIDENDS ON
PREFERRED STOCK 293,000 (1,317,000)
Dividends on preferred stock 33,000
NET INCOME (LOSS) $293,000 ($1,350,000)
NET (INCOME) LOSS PER
COMMON SHARE $0.17 ($1.35)
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 1,770,000 997,000
</TABLE>
See accompanying notes to unaudited condensed consolidated
financial statements
5
<PAGE>
LS Capital Corporation and Subsidiaries
UNAUDITED CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended
September 30
1996 1995
<S> <C> <C>
NET CASH USED BY OPERATING
ACTIVITIES ($106,000) $1,485,000)
CASH FLOWS OF INVESTING ACTIVITIES
Collection of note receivable 579,000
Capital expenditures - net (37,000)
Increase in deposits and
other assets (42,000) 1,030,000
Cash (used) provided by
investing activities (42,000) 1,572,000
CASH FLOWS FROM FINANCING ACTIVITIES
Repayments of notes payable (547,000)
Proceeds from issuance of
common stock, net 35,000 345,000
Decrease in capital lease
obligations, net (35,000)
Cash provided by financing
activities 35,000 (237,000)
DECREASE IN CASH AND CASH
EQUIVALENTS (113,000) (150,000)
CASH AND CASH EQUIVALENTS
Beginning of period 139,000 337,000
End of period $26,000 $187,000
SUPPLEMENTAL CASH FLOW INFORMATION
Dividends on preferred stock 9,000
</TABLE>
See accompanying notes to unaudited condensed consolidated
financial statements
6
<PAGE>
LS Capital Corporation and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
THREE MONTHS ENDED SEPTEMBER 30, 1996
1. The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with generally accepted
accounting principles for interim financial information. The
financial statements contained herein should be read in
conjunction with the audited consolidated financial statements and
accompanying notes to the consolidated financial statements for
the year ended June 30, 1996, included in the Company's Annual
Report on Form 10-K. Accordingly, footnote disclosure which would
substantially duplicate the disclosure in the audited consolidated
financial statements has been omitted.
In the opinion of management, the accompanying unaudited
condensed consolidated financial statements contain all adjustments
necessary for a fair statement of the results for the unaudited three
months ended September 30, 1996 and 1995. The results of operations
for an interim period are not necessarily indicative of the results
to be expected for a full year.
2. Certain reclassifications have been made to prior period
financial statements to conform with current period presentations.
3. During the period from July 1, 1996 to September 30, 1996, the
Company has issued 71,000 shares of its common stock outside the
United States pursuant to Regulation S, an exemption from federal
registration of securities. The shares were sold at a gross price
per share of $.50 with the Company receiving a note receivable having
an unpaid balance of $114,500 as of September 30, 1996 and net cash
proceeds of $35,500.
4. Under the terms of a restructuring of the Company's Secured
Convertible Senior Debenture effective August 5, 1996, the Company
transferred a partnership interest to the creditor valued at
$590,000 (carried on the books at $0) and recorded a gain during the
three months ended September 30, 1996, with a corresponding reduction
in accrued interest. In addition, under the terms of the
restructuring, the interest rate was reduced to 20% per annum from
the default rate of 46%.
5. On October 1, 1996, under a plan approved by stockholders in
the annual meeting held on June 17, 1996, the Company authorized the
issuance of 6,068,796 shares of common stock to the Company's three
officers and directors to satisfy $289,000 in various debts.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
MATERIAL CHANGES IN FINANCIAL CONDITION
At September 30, 1996, the Company has a working capital deficiency
of $3,937,000 compared to a deficit of $3,430,000 at September 30,
1995. The increase in the deficiency was primarily due to the
redemption payable on redeemable preferred stock classified as a
current liability.
The Company's Secured Convertible Senior Debenture was restructured
on August 5, 1996. The related agreement sets forth, among other
things, certain required payments of approximately $129,000 in the
fall of 1996. As of November 14, 1996, the Company did not have
sufficient funds to pay this balance. Such payment is comprised of:
(i) interest on the restructured balance of $1,133,000 at the rate
of 20% and (ii) repayment of principal of $50,000. Under the
terms of the restructuring, the Company transferred a 7% interest in
a land and building partnership interest in Fowler, California valued
at $590,000 (carried on the books at $0) and recorded a gain of
$590,000 with a corresponding reduction in accrued interest.
The 24.5% minority owner of the Company's remaining casino property
located in Colorado has challenged the authority of the Company to
execute the restructuring agreement. The Company is attempting to
obtain a declaratory judgment to allow the restructuring to
proceed. If such declaratory judgment is not obtained within the
permitted time limits, the Company may face default and the holder
may pursue collection of the restructured loan balance including
default interest and expense advances of $800,000, with credit being
given for assignment of the interest in the Card Club, if the
assignment has occurred. If no events of default have occurred
during the two-year period ending August 5, 1998, the holder will
forgive the accrued default interest and expenses advances of
$800,000 reduced by the credit of $590,000 described above. The
debenture is secured by certain deeds of trust and a pledge
agreement.
Management believes that it can obtain the funds necessary to meet
its working capital needs for the remainder of fiscal 1997 primarily
through the sale of common stock and from the sale of other
non-revenue producing assets.
8
Material Changes in Results of Operations
Three Months Ended September 30, 1996 and 1995
The Company had incurred a net loss of $356,000 or $.21 a share, as
compared to $1,317,000 or $1.35 per share for the comparable
period in the prior year. Gaming revenues declined to $240,000 in
the 1996 quarter compared to $774,000 in the 1995 quarter. The
decrease was primarily attributable to the absence of revenues of
$548,00 from the Company's Tinian casino which was permanently closed
in December, 1995. The Company also temporarily closed the Papone's
casino on September 30, 1996 at the end of the summer season in order
to conserve resources.
General and administrative expenses totaled $316,000 during the
quarter ended September 30, 1996, as compared with $ 889,000 for the
comparable prior year quarter. The decrease is due to decreases in
payroll expenses, rent and corporate travel. In October, 1995, the
Company closed its Las Vegas office which resulted in the reduction
of corporate staff by 75% and payroll by 90%. Similar savings were
achieved in occupancy and other corporate expenses.
9
PART II. OTHER INFORMATION
ITEM 6. REPORTS ON FORM 8-K
The Registrant filed a report on Form 8-K dated September
8, 1996, reporting on the following:
1) Name change and reverse stock split
2) Discontinuance of operations at Tinian casino
3) Debt restructuring of its Secured Convertible
Senior Debenture
4) Engagement of Malone & Bailey, PLLC,
independent certified public accountants, as
auditors for the year ended June 30, 1996
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this Report to be signed on its behalf
by the undersigned thereunto duly authorized.
LS CAPITAL CORPORATION
(Registrant)
By: /S/ Paul J. Montle
Chairman, Chief Executive Officer and Chief
Financial Officer
Dated: November 14, 1996
10
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<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS
SUMMARY INFORMATION EXTRACTED FROM PART I
OF FORM 10-Q FOR THE QUARTERLY PERIOD ENDED
SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 26,000
<SECURITIES> 0
<RECEIVABLES> 1,388,000
<ALLOWANCES> 800,000
<INVENTORY> 0
<CURRENT-ASSETS> 637,000
<PP&E> 2,156,000
<DEPRECIATION> 291,000
<TOTAL-ASSETS> 2,539,000
<CURRENT-LIABILITIES> 4,574,000
<BONDS> 0
0
0
<COMMON> 20,000
<OTHER-SE> (2,055,000)
<TOTAL-LIABILITY-AND-EQUITY> 2,539,000
<SALES> 240,000
<TOTAL-REVENUES> 240,000
<CGS> 0
<TOTAL-COSTS> 90,000
<OTHER-EXPENSES> 389,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 60,000
<INCOME-PRETAX> 293,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 293,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 293,000
<EPS-PRIMARY> 0.17
<EPS-DILUTED> 0.17
</TABLE>
