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: MARCH 31, 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
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.)
ONE RIVERWAY, SUITE 2550, HOUSTON, TEXAS 77056
(Address of principal executive officer) (Zip Code)
(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 [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
The number of shares of common stock, $0.01 par value, outstanding as
of May 10, 1996 according to the records of the registrant's registrar and
transfer agent, was 42,332,094.
<PAGE>
LONE STAR CASINO CORPORATION AND SUBSIDIARIES
QUARTER ENDED MARCH 31, 1996
INDEX
PART I. FINANCIAL INFORMATION Page
Item 1. Financial Statements
Condensed consolidated financial statements of
Lone Star Casino Corporation and Subsidiaries:
Balance sheets at March 31, 1996 and June 30, 1995 ............ 3
Statements of operations for the three
months ended March 31, 1996 and March 31, 1995 ................ 4
Statements of operations for the nine
months ended March 31, 1996 and March 31, 1995 ................ 5
Statements of cash flow for the nine
months ended March 31, 1996 and March 31, 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 From 8-K ........................................... 10
SIGNATURES ............................................................. 10
2
<PAGE>
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Lone Star Casino Corporation and Subsidiaries
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, June 30,
1996 1995
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ................................................................. 218,000 337,000
Investments in marketable equity securities ............................................... 81,000 148,000
Receivables - unaffiliated parties, net ................................................... 185,000 856,000
Prepaid expenses and other ................................................................ 207,000 334,000
----------- -----------
Total current assets ........................................................ 691,000 1,675,000
Property and equipment, net .................................................................. 2,493,000 3,538,000
Other assets:
Receivable - affiliated party, net ........................................................ 254,000 249,000
Organization costs, net ................................................................... 169,000 400,000
Property held for sale .................................................................... -- 906,000
Other non-current assets .................................................................. 131,000 471,000
----------- -----------
554,000 2,026,000
----------- -----------
3,738,000 7,239,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of capital lease obligations ........................................... 239,000 239,000
Current maturities of notes payable ....................................................... 1,180,000 1,597,000
Notes payable to affiliates ............................................................... 243,000 250,000
Accounts payable and accrued expenses ..................................................... 2,745,000 3,320,000
----------- -----------
Total current liabilities ................................................... 4,407,000 5,406,000
Long-term notes payable, less current
maturates ................................................................................. 230,000 230,000
Minority interest ............................................................................ 203,000 203,000
Redeemable convertible preferred stock ....................................................... 577,000 759,000
Stockholders' equity:
Common stock .............................................................................. 323,000 241,000
Additional paid-in capital ................................................................ 21,923,000 21,194,000
Accumulated deficit ....................................................................... (23,925,000) (20,794,000)
----------- -----------
(1,679,000) 641,000
----------- -----------
3,738,000 7,239,000
=========== ===========
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements
3
<PAGE>
Lone Star Casino Corporation and Subsidiaries
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31
-----------------------------------------
1996 1995
----------- -----------
<S> <C> <C>
OPERATING REVENUES
Gaming .............................................................. 71,000 222,000
Hotel ............................................................... -- 570,000
Food and beverage ................................................... 5,000 35,000
----------- -----------
76,000 827,000
OPERATING EXPENSES
Gaming .............................................................. 135,000 153,000
Hotel ............................................................... -- 615,000
Food and beverage ................................................... 77,000 32,000
General and administrative .......................................... 339,000 1,421,000
Depreciation and amortization ....................................... 134,000 101,000
----------- -----------
685,000 2,322,000
----------- -----------
OPERATING LOSS ......................................................... (609,000) (1,495,000)
OTHER INCOME AND EXPENSE
Interest expense, net ............................................... (26,000) (37,000)
Site development costs .............................................. -- (488,000)
Loss on sale of Biloxi .............................................. -- (1,741,000)
Writedown of Tinian facilities ...................................... (601,000) --
Other, net .......................................................... 98,000 (122,000)
----------- -----------
(529,000) (2,388,000)
LOSS BEFORE DIVIDENDS ON
PREFERRED STOCK ..................................................... (1,138,000) (3,883,000)
Dividends on preferred stock ........................................... 9,000 9,000
----------- -----------
NET LOSS ............................................................... (1,147,000) (3,892,000)
=========== ===========
NET LOSS PER COMMON SHARE .............................................. $ (0.04) $ (0.22)
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING ......................................................... 26,762,000 18,020,000
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements
4
<PAGE>
Lone Star Casino Corporation and Subsidiaries
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED MARCH 31
-----------------------------------------
1996 1995
----------- -----------
<S> <C> <C>
OPERATING REVENUES
Gaming .............................................................. 1,639,000 859,000
Hotel ............................................................... -- 570,000
Food and beverage ................................................... 282,000 284,000
----------- -----------
1,921,000 1,713,000
OPERATING EXPENSES
Gaming .............................................................. 2,016,000 649,000
Hotel ............................................................... -- 615,000
Food and beverage ................................................... 179,000 282,000
General and administrative .......................................... 1,783,000 4,016,000
Depreciation and amortization ....................................... 422,000 301,000
----------- -----------
4,400,000 5,863,000
----------- -----------
OPERATING LOSS ......................................................... (2,479,000) (4,150,000)
OTHER INCOME AND EXPENSE
Interest expense, net ............................................... (150,000) (266,000)
Site development costs .............................................. -- (488,000)
Loss on sale of Biloxi .............................................. -- (1,741,000)
Writedown of Tinian facilities ...................................... (601,000) --
Other, net .......................................................... 85,000 65,000
----------- -----------
(666,000) (2,430,000)
----------- -----------
LOSS BEFORE DIVIDENDS ON
PREFERRED STOCK ..................................................... (3,145,000) (6,580,000)
Dividends on preferred stock ........................................... 27,000 75,000
----------- -----------
NET LOSS ............................................................... (3,172,000) (6,655,000)
=========== ===========
NET LOSS PER COMMON SHARE .............................................. $ (0.12) $ (0.42)
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING ......................................................... 25,453,000 15,979,000
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements
5
<PAGE>
Lone Star Casino Corporation and Subsidiaries
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED MARCH 31
----------------------------------
1996 1995
---------- ----------
<S> <C> <C>
NET CASH USED BY OPERATING ACTIVITIES .............................................. (1,861,000) (3,556,000)
CASH FLOWS OF INVESTING ACTIVITIES
Issuance of notes receivable .................................................... -- (790,000)
Increase in organizational costs ................................................ 46,000 (322,000)
Collection of notes receivable .................................................. 671,000 --
Capital expenditures - net ...................................................... (99,000) (92,000)
Other ........................................................................... 1,105,000 (996,000)
---------- ----------
Cash (used) provided by investing activities ...................... 1,723,000 (2,200,000)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable ..................................................... -- 1,879,000
Repayments of notes payable ..................................................... (424,000) (1,127,000)
Proceeds from issuance of common stock,
net .......................................................................... 443,000 2,759,000
Decrease in capital lease obligations, net ...................................... -- (283,000)
---------- ----------
Cash provided by financing activities ............................. 19,000 3,228,000
---------- ----------
DECREASE IN CASH AND CASH EQUIVALENTS .............................................. (119,000) (2,528,000)
CASH AND CASH EQUIVALENTS
Beginning of period ............................................................. 337,000 2,691,000
---------- ----------
End of period ................................................................... 218,000 163,000
========== ==========
SUPPLEMENTAL CASH FLOW INFORMATION
Dividends on preferred stock .................................................... 27,000 75,000
Land sold through assumption of note payable .................................... 3,526,000
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements
6
LONE STAR CASINO CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 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 fiscal year ended June 30, 1995, 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 nine months ended March 31,
1996 and March 31, 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 nine months ended March 31 1996, the holders of the Series
1994-1 Redeemable Convertible Preferred Stock elected to convert 20 shares
of preferred stock into the Company's Common Stock as provided in the
agreement. Each share of preferred stock is convertible into $10,000 of
common stock at the rate of 78% of the current trading price. As a result
of the conversion, the Company issued 454,840 shares of common stock in
exchange for 20 shares of preferred stock. There are currently 60 remaining
shares of preferred stock subject to conversion rights.
4. During the period from July 1, 1995 to March 31, 1996, the Company has
issued 1,495,000 shares of its common stock outside the United States
pursuant to Regulation S, an exemption from federal registration of
securities. The share were sold at gross prices per share ranging from $
.08 to $.45 and generated net proceeds to the Company of approximately
$423,000.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
MATERIAL CHANGES IN FINANCIAL CONDITION
At March 31, 1996, the Company has a working capital deficiency of $3,716,000
compared to a deficit of $3,731,000 at March 31, 1995. During the nine months
ended March 31 1996, short-term debt of approximately $400,000 was retired as a
result of the sale of the Company's barges. The decrease in current liabilities
was somewhat offset by the need to utilize cash reserves to fund operating and
development activities during the nine month period.
During October, 1995, the holder of a $1,000,000 debenture issued by the Company
in the second quarter of fiscal 1995 advanced an additional $50,000 as working
capital to the Company's Colorado casino. The Company is currently involved in
negotiations with the holder of the debenture with a view to resolving the
situation, which may take the form of the transfer of certain of the Company's
assets to such holder in exchange for the surrender of, or a reduction in the
amount owing on, the debenture. The Company is not now able to predict the
outcome of these negotiations.
During the period from July 1, 1995 to March 31, 1995, the Company issued
1,495,000 shares of its common stock outside the United States at gross prices
per share of $.08 to $.45 and generated net proceeds to the Company of
approximately $423,000.
The principal sources of revenues for the Company have come from the Company's
indirect 75.5% interest in "Papone's Palace", a 6,000 square foot limited stakes
casino in Central City, Colorado, and the Company's indirect 100% interest in
"Lone Star Casino", a 5,000 square foot, two-story casino on the island of
Tinian, the Commonwealth of the Northern Marianas Islands. The Company owns its
interest in Papone's Palace through Papone's Palace Acquisition Corporation and
its interest in Lone Star Casino through Pacific American Casinos, Inc. As of
March 31, 1996, neither casino was operating.
Since its acquisition in June, 1993, Papone's Palace has failed to operate at a
profit and had experienced continuing losses. In late 1995, the Company took
steps to reduce the costs and expenses relating to Papone's Palace. As a result
of these steps, the losses of Papone's Palace were curtailed, and the facility
began to operate on a break-even basis, cash wise. However, the weather in
Central City, Colorado and surrounding areas has been especially severe this
winter season, and the volume of patrons to Papone's Palace declined
significantly in January, 1996. Management believes that this decline resulted
from the perception created by the severe weather that travel to Central City
had become precarious. In view of the decline in the number of patrons,
management decided to close Papone's Palace originally from February 1, 1996 to
May 1, 1996, at which time more favorable weather is expected to alleviate the
circumstances leading to the decline in patronage. The Company expects to reopen
Papone's Palace on or about June 1, 1996. Management expects to recommence
operations at Papone's Palace in June 1996, and is aware that a matter of
practice, a number of other casinos close on a seasonal basis regardless of the
severity of the weather.
On December 18, 1995, the Company closed its Lone Star Casino on Tinian. The
Company closed this casino because of an expected seasonal decline in the number
of patrons and in order to complete construction work and a refinancing of the
casino and to permit management personnel to return to the United States for the
holidays. The casino was expected to reopen on January 5, 1996. However, the
casino's license to operate expired on December 31, 1995, and the Company was
not able to negotiate an extension of the license by the time of its expiration.
Although the Company is currently involved in negotiations with the Tinian
Casino Gaming Control Commission with a view to reactivating the casino's
permit, the staunch position that this commission has taken (especially with
regard to fees to be paid by the Company) is causing the Company to consider not
reopening the Tinian Casino. A decision by the Company to reopen or not reopen
may be made itn the near future.
8
Other than as described above, Management believes that it can obtain the funds
necessary to meet its working capital needs for the remainder of fiscal 1996
primarily through the sale of common stock and from the sale of other
non-revenue producing assets. In order for the Company to participate in the
development of future ventures, in addition to anticipated cash flows from its
Colorado operations, it will be necessary to secure debt or equity funding
sources. Management will attempt to obtain the required funds for its future
development by attracting joint venture partners, vendor financing and through
conventional debt financing. No assurance can be given that the Tinian project
will be successful, or that financing for the Company's other proposed projects
will be available or, if available, will be on terms acceptable to the Company.
To the extent that future capital resources become limited, the Company's plans
with respect to entry into new ventures as well as current development plans may
be delayed or canceled.
MATERIAL CHANGES IN RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1996 AND MARCH 31, 1995
The Company incurred a net loss of $1,147,000 or $.04 a share, as compared to
$3,892,000 or $.22 per share for the comparable period in the prior year. On
February 1, 1996, the Company closed the Central City casino in view of the
decline in the number of patrons as a result of the unusually severe weather.
Management expects no problem in recommencing operations at Papone's Palace in
June, 1996. However, there can be no assurances that the Company will not
experience some material difficulty not now foreseen in recommencing operations.
The Company's Tinian casino, which opened in April, 1995, was closed on December
18, 1995 for a variety of seasonal and operational reasons. The Company's Tinian
Casino was expected to reopen on January 5, 1996. However, the casino's permit
to operate in its current facility expired on December 31, 1995, and the Company
was not able to negotiate an extension of the permit by the time of its
expiration. Although the Company is currently engaged in negotiations with the
Tinian Casino Gaming Control Commission with a view to reactivating the casino's
permit, the staunch position that this commission has taken (especially with
regard to fees to be paid by the Company) is causing the Company to consider not
reopening the Tinian Casino. A decision by the Company to reopen or not reopen
may be made in the near future. In view of the above, The Company recorded a
writedown of its facilities and equipment of $601,000 in the three months ended
March 31 1996.
General and administrative expenses totaled $339,000 during the quarter ended
March 31, 1996, as compared with $1,421,000 for the comparable prior year
quarter. The decrease is due to decreases in legal and professional fees related
to acquisition transactions, project financing, payroll expenses 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. Assuming successful
operation of the Colorado operations, the Company believes that its financial
condition will permit pursuing other development opportunities.
NINE MONTHS ENDED MARCH 31, 1996 AND MARCH 31, 1995
The Company incurred a net loss of $3,172,000 or $.12 a share, as compared to
$6,655,000 or $.42 a share for the comparable period in the prior year. In early
1996, the Company temporarily closed Papone's Palace in view of a decline in the
number of patrons resulting from the unusually severe winter weather. The
Company expects to reopen Papone's Palace on or about June 1, 1996. The Company
expects no material difficulty in recommencing operations at Papone's Palace in
June, 1996. However, there can be no assurance that the Company will not
experience come material difficulty not now foreseen in recommencing operations.
The Company intends to operate Papone's Palace in the summer and autumn months
and close again for the winter of 1996-1997.
9
PART II. OTHER INFORMATION
ITEM 6. REPORTS ON FORM 8-K
The Registrant filed a report on Form 8-K dated February 5,
1996, reporting on the closing of Registrant's casinos in Central City, Colorado
and the Island of Tinian, the Commonwealth of the Northern Marianas Islands.
The Registrant filed a report on Form 8-K dated April 4, 1996,
amended April 18, 1996, reporting on the resignation of KPMG Peat Marwick LLP,
as the Registrant's independent accountants.
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.
LONE STAR CASINO CORPORATION
(Registrant)
By: Paul J. Montle
Chairman, Chief Executive Officer and
Chief Financial Officer
Dated: May 14, 1996
10
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM PART I OF FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 218,000
<SECURITIES> 81,000
<RECEIVABLES> 185,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 691,000
<PP&E> 3,244,000
<DEPRECIATION> 749,000
<TOTAL-ASSETS> 3,738,000
<CURRENT-LIABILITIES> 4,407,000
<BONDS> 0
577,000
0
<COMMON> 323,000
<OTHER-SE> (2,002,000)
<TOTAL-LIABILITY-AND-EQUITY> 3,738,000
<SALES> 1,921,000
<TOTAL-REVENUES> 1,921,000
<CGS> 0
<TOTAL-COSTS> 4,400,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 601,000
<INTEREST-EXPENSE> 150,000
<INCOME-PRETAX> (3,145,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,145,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,145,000)
<EPS-PRIMARY> (0.12)
<EPS-DILUTED> (0.12)
</TABLE>
