UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 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, 1997
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
(Exact name of registrant as specified in its charter)
Delaware 84-1219819
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
15915 Katy Freeway, Suite 250
Houston, Texas 77094
Address of principal executive offices, including 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 March
31, 1997 according to the records of the registrant's registrar and transfer
agent, was 10,764,000.
<PAGE>
LS CAPITAL CORPORATION AND SUBSIDIARIES
QUARTER ENDED MARCH 31, 1997
<TABLE>
<CAPTION>
INDEX
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed consolidated financial statements of
LS Capital Corporation and Subsidiaries:
Balance sheets at March 31, 1997 and June 30, 1996
Statements of operations for the three months ended March 31, 1997 and
1996
Statements of operations for the nine months ended March 31, 1997 and
1996
Statements of cash flow for the nine months ended March 31, 1997 and 1996
Notes to condensed consolidated financial statements
Item 2. Management's discussion and analysis of financial
condition and results of operations
PART II. OTHER INFORMATION
Item 2. Changes in securities
SIGNATURES
</TABLE>
<PAGE>
PART 1.
FINANCIAL INFORMATION
Item 1.
Financial Statements
LS Capital Corporation and Subsidiaries
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
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<CAPTION>
March 31, June 30,
1997 1996
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ASSETS
Current assets:
Cash and cash equivalents $ 19,000 $ 139,000
Receivables - affiliated parties, net 249,000 249,000
Receivables - unaffiliated parties, net 694,000 391,000
Prepaid expenses and other 22,000 25,000
Total current assets 984,000 804,000
Property and equipment, net 2,551,000 1,929,000
Other assets:
Receivable - affiliated party, net 38,000 38,000
Organization costs, net 21,000 29,000
Other non-current assets 21,000 9,000
80,000 76,000
$3,615,000 $ 2,809,000
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturates of notes payable 1,565,000 1,558,000
Notes payable to affiliates 141,000 397,000
Redeemable convertible preferred stock payable 540,000 540,000
Accounts payable and accrued expenses 2,493,000 2,677,000
Total current liabilities 4,739,000 5,172,000
Stockholders' equity:
Common stock 101,000 17,000
Additional paid-in capital 25,324,000 23,141,000
Receivable for stock sale (83,000) -
Accumulated deficit (26,466,000) (25,521,000)
(1,124,000) (2,363,000)
Commitments, contingencies and other matters
$ 3,615,000 $ 2,809,000
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements
<PAGE>
LS Capital Corporation and Subsidiaries
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended
March 31
1997 1996
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OPERATING REVENUES
Gaming $ - $ 71,000
Food and beverage - 5,000
Mining operations - -
- 76,000
OPERATING EXPENSES
Gaming - 135,000
Food and beverage, etc. - 77,000
Mining operations 281,000 -
General and administrative 416,000 339,000
Depreciation and amortization 68,000 134,000
765,000 685,000
OPERATING LOSS (765,000) (609,000)
OTHER INCOME AND EXPENSE
Interest expense, net (131,000) (26,000)
Writedown of Tinian facilities - (601,000)
Other, net (40,000) 98,000
(171,000) (529,000)
LOSS BEFORE DIVIDENDS ON
PREFERRED STOCK (936,000) (1,138,000)
Dividends on preferred stock - 9,000
NET LOSS $ (936,000) $(1,147,000)
NET LOSS PER COMMON SHARE (0.10) (1.07)
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 9,832,000 1,070,480
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements
<PAGE>
LS Capital Corporation and Subsidiaries
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Nine Months Ended
March 31
1997 1996
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OPERATING REVENUES
Gaming $ 224,000 $ 1,639,000
Food and beverage 16,000 282,000
Mining operations - -
240,000 1,921,000
OPERATING EXPENSES
Gaming 41,000 2,016,000
Food and beverage 21,000 179,000
Mining operations, etc. 341,000 -
General and administrative 995,000 1,783,000
Depreciation and amortization 210,000 422,000
1,608,000 4,400,000
OPERATING LOSS (1,368,000) (2,479,000)
OTHER INCOME AND EXPENSE
Interest expense, net (363,000) (150,000)
Writedown of Tinian facilities - (601,000)
Gain on transfer of partnership interest
to creditor 590,000
Gain on sale of properties 175,000
Other, net 20,000 85,000
422,000 (666,000)
LOSS BEFORE DIVIDENDS ON
PREFERRED STOCK (946,000) (3,145,000)
Dividends on preferred stock - 27,000
NET LOSS $ (946,000)$(3,172,000)
NET LOSS PER COMMON SHARE (0.16) (3.12)
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 5,959,000 1,018,120
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements
<PAGE>
LS Capital Corporation and Subsidiaries
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended
March 31
1997 1996
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NET CASH USED BY OPERATING
ACTIVITIES $ (185,000) $ (1,861,000)
CASH FLOWS OF INVESTING ACTIVITIES
Residual payments from sale of board
game rights (80,000)
Collection of notes receivable 671,000
Capital expenditures - mining operations (143,000)
Capital expenditures - other (99,000)
Increase in deposits and other assets (166,000) 1,151,000
Cash (used) provided by
investing activities (389,000) 1,723,000
CASH FLOWS FROM FINANCING ACTIVITIES
Repayments of notes payable (424,000)
Proceeds from notes payable to affiliates 82,000
Capital contribution by mining investor group 246,000
Receivable from sale of common stock (83,000)
Proceeds from issuance of common stock,
net 209,000 443,000
Cash provided by financing activities 454,000 19,000
DECREASE IN CASH AND CASH EQUIVALENTS (120,000) (119,000)
CASH AND CASH EQUIVALENTS
Beginning of period 139,000 337,000
End of period $ 19,000 $ 218,000
SUPPLEMENTAL CASH FLOW INFORMATION
Dividends on preferred stock - 27,000
Capital stock issued for:
Prepaid legal and other services 385,000
Mining operation consulting services 212,000
Reduction of accounts payable 238,000
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements
<PAGE>
LS CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1997
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, 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 nine months ended March 31,
1997 and 1996. 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 October 1, 1996 to March 31, 1997, the Company has
issued 800,000 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 an average gross price per share of $.21 with the Company
receiving cash and a note receivable having an unpaid balance of
approximately $93,000 as of March 31, 1997.
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 six months ended December 31, 1996,
with a corresponding reduction in accrued interest. During December, 1996,
the creditor notified the Company that foreclosure had been posted on
Papone's Palace due to a default under the terms of the restructuring.
The default arose in that the Company was unable to secure a declaratory
judgment within 120 days of August 6, 1996 in the lawsuit by a minority
partner of Papone's Palace challenging the Company's authority to execute the
restructuring agreement. A sheriff's sale of the collateral was scheduled
to be held on April 25, 1997. In order to forestall the sale, Papone's
Palace filed for protection under Chapter 11 of the United States Bankruptcy
Code on April 23, 1997 in the Bankruptcy Court of the District of Colorado.
Papone's Palace is presently not operating. The Company acticipates being
able to reach an agreement with the principal creditor to allow Papone's
Palace to reopen for the summer of 1998. Presently, the Chapter 11 case is
in its early stages with the statutory waiting period ongoing and no
discussions have begun with creditors. The Company anticipates no writedown
in the value of the gaming industry assets in connection with the Chapter 11
filing.
5. During October, 1996, under a plan approved by stockholders in the annual
meeting held on June 17, 1996, the Company issued 6,087,797 shares of common
stock to the Company's officers and directors to satisfy $285,000 in various
debts.
6. During November, 1996, the Company sold its rights to market and
manufacture football and other board games receiving $100,000 cash and
residual payments of $140,000 over seven months ($65,000 having been
received as of the date of this filing) plus royalties of 3-5% on future
product sales payable quarterly. The Company recorded a gain on this sale of
approximately $175,000 during the nine months ended March 31, 1997.
7. From November, 1996 through February, 1997, the Company issued 1,100,000
shares of common stock to two groups in connection with the acquisition of
gold mining claims in eastern California and precious metal extraction
technology . These claims and technology were acquired by two newly formed
subsidiaries, Griffin Gold Group, Inc. ("Griffin") and Desert Minerals, Inc.
("DMI"). In connection with Griffin acquisition, the Company agreed to issue
500,000 shares to the investor group whereby the investor group (1)
contributed gold mining claims. (2) received 50% of the outstanding common
stock of Griffin and (3) was obligated to make a cash contribution of
$500,000 to Griffin by June 30, 1997. As of March 31, 1997, the investor
group had contibuted approximately $232,000.
DMI was formed with a different investor group whereby the investor group
agreed to contribute certain mining claims in exchange for 600,000 shares of
common stock.
Valuation of each interest on the Company's books is at investor cost
(Griffin) and fair value of the claims (DMI).
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Significant Events
During the current fiscal year, the Company adopted a significant change in
its corporate direction. It decided to focus its efforts on developing
precious metals mining prospects, with each project undertaken in a separate
corporate subsidiary. Currently, the Company has one majority-owned and two
wholly-owned precious metals/mining subsidiaries, Griffin Gold Group, Inc.,
Desert Minerals, Inc. and Shoshone Mining Co., each of which has received
assignments of mining claims and non-exclusive licenses to use proprietary
mineral extraction technology. These subsidiaries are in the developmental
stage and will require minimal capital. To implement this strategy and
finance these projects, the Company intends to establish a public trading
market in the shares of each subsidiary, via an initial public offering and/or
a "spin-off" of the subsidiaries' shares to the Company's shareholders in
calendar year 1997 so they can do their own financing. As this strategy is
implemented, the Company will essentially become a holding company owning
large shareholdings in each subsidiary. The Company has hired a consultant to
evaluate the best structure to manage such activity and maximize value for
its shareholders. The Company has not received the report from the consultant
but such report may include converison to a closed-end non-diversified
investment holding company status.
As a result of the above decision, the Company also decided to dispose of all
its non-essential assets and sold the Clutch Games business for $240,000 in
November, 1996.
Material Changes in Financial Condition
At March 31, 1997, the Company has a working capital deficiency of $3,755,000
compared to a deficit of $4,368,000 at June 30, 1996. The decrease in the
deficiency was primarily due to the sale of the Company's rights to market
and manufacture football and other board games as well as the retirement of
amounts due to certain officers and directors by the issuance of common stock.
The Company's Secured Convertible Senior Debenture was restructured on 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 six months ended December 31, 1996, with a corresponding reduction in
accrued interest. The restructuring agreement sets forth, among other things,
certain required payments of approximately $129,000 in the fall of 1996. The
Company paid approximately $25,000 and began discussions as to an amended
payment schedule. The creditor notified the Company in December, 1996 that
foreclosure had been posted on Papone's Palace due to a default under the
terms of the restructuring agreement. The default arose in that the Company
was unable to secure a declaratory judgment within 120 days of August 5, 1996
in the lawsuit by the minority partner of Papone's Palace challenging the
Company's authority to execute the restructuring agreement. A sheriff's sale
of the collateral was scheduled to be held on April 25, 1997. In order to
forestall the sale, Papone's Palace filed for protection under Chapter 11 of the
United States Bankruptcy Code on April 23, 1997 in the Bankruptcy Court of
the District of Colorado. Papone's Palace is presently not operating. The
Company anticipates being able to reach an agreement with the principal
creditor to allow Papone's Palace to reopen for the summer of 1998.
Presently, the Chapter 11 case in its early stages with the statutory
waiting period ongoing and no discussions have begun with creditors. The
Company anticipates no writedown in the value of the gaming industry assets
in connection with the Chapter 11 filing.
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, from the sale of other non-revenue producing assets
and from the collection of debts due to the Company.
Material Changes in Results of Operations
Three Months Ended March 31, 1997 and 1996
The Company incurred a net loss of $936,000 or $.12 a share, as compared to
$1,147,000 or $1.07 per share for the comparable period in the prior year.
Gaming revenues declined $71,000 in the 1997 quarter compared to the 1996
quarter due to the closing of the Company's Papone's Palace casino for the
winter months on September 28, 1996. Operating expenses increased $80,000
in the 1997 quarter compared to the 1996 quarter with mining expenses of
$281,000 being reduced by lower expenses due to the closing of Papone's
Palace.
Six Months Ended March 31, 1997 and 1996
The Company incurred a net loss of $946,000 or $.16 a share, as compared to
$3,172,000 or $3.12 per share for the comparable period in the prior year.
Gaming revenues declined $1,415,000 in the 1997 quarter compared to the 1996
quarter due to the closing of the Company's Papone's Palace casino for the
winter months on September 28, 1996. Operating expenses likewise declined
$2,792,000 in the 1997 quarter compared to the 1996 quarter primarily due to
the closing of Papone's Palace.
Gain on sale of properties increased $175,000 in the nine months ended March
31,1997 compared to the 1996 period primarily due to the sale of the
Company's rights to market and manufacture football and other board games in
the 1996 quarter. In addition, the Company transferred a partnership
interest to the holder of the Company's Secured Convertible Senior Debenture
valued at $590,000 (carried on the books at $0) and recorded a corresponding
gain during the nine months ended March 31 1997.
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
On or about February 24, 1997, the Company issued 300,000 shares of the
Company's common stock to Kent E. Lovelace, Jr., a director of the Company,
and 300,000 shares to a Canadian national. These 600,000 shares were issued
in exchange for the assignment of certain mining claims to Desert Minerals,
Inc., a subsidiary of the Company. The 600,000 shares were originally issued
in reliance on the exemption provided for by Regulation D under the
Securities Act of 1933, as amended (the "Act"). However, the issuance of
300,000 shares to the Canadian national qualifies for the exemption
provided under Regulation S of the Act. The Company at the request of the
related Canadian national is now relying on the exemption provided under
Regulation S with respect to the issuance of the 300,000 shares to him due
to the advantages to him by doing so, particularly the ability to resell the
shares with less constraining restrictions.
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: Paul J. Montle
Chairman, Chief Executive Officer and
Chief Financial Officer
Dated: May 14, 1997
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM PART
I OF FORM 10-Q FOR THE NINE MONTH PERIOD ENDED MARCH 31, 1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
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<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> MAR-31-1997
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<CURRENT-ASSETS> 984000
<PP&E> 2971000
<DEPRECIATION> 420000
<TOTAL-ASSETS> 3615000
<CURRENT-LIABILITIES> 4739000
<BONDS> 0
0
<COMMON> 101000
<OTHER-SE> (1225000)
<TOTAL-LIABILITY-AND-EQUITY> 3615000
<SALES> 240000
<TOTAL-REVENUES> 240000
<CGS> 403000
<TOTAL-COSTS> 403000
<OTHER-EXPENSES> 1205000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 363000
<INCOME-PRETAX> (946000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (946000)
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<NET-INCOME> (946000)
<EPS-PRIMARY> (.16)
<EPS-DILUTED> (.16)
</TABLE>
