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: December 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
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 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
December 31, 1996 according to the records of the registrant's registrar and
transfer agent, was 9,040,000.
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LS CAPITAL CORPORATION AND SUBSIDIARIES
QUARTER ENDED DECEMBER 31, 1996
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INDEX
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PART I. FINANCIAL INFORMATION Page
Item 1. Financial Statements
Condensed consolidated financial statements of
Lone Star Casino Corporation and Subsidiaries:
Balance sheets at December 31, 1996 and June 30, 1996 3
Statements of operations for the three
months ended December 31, 1996 and 1995 4
Statements of operations for the six
months ended December 31, 1996 and 1995 5
Statements of cash flow for the six
months ended December 31, 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 2. Changes in securities 9
Item 6. Reports on From 8-K 9
SIGNATURES 10
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<PAGE>
PART 1.
FINANCIAL INFORMATION
Item 1.
Financial Statements
LS Capital Corporation and Subsidiaries
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
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<CAPTION>
December 31, June 30,
1996 1996
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ASSETS
Current assets:
Cash and cash equivalents $ 37,000 $ 139,000
Receivable - affiliated party, net 249,000 249,000
Receivable - unaffiliated parties, net 674,000 391,000
Prepaid expenses and other 23,000 25,000
Total current assets 983,000 804,000
Property and equipment, net 1,800,000 1,929,000
Other assets:
Organization costs, net 24,000 29,000
Other non-current assets 5,000 47,000
29,000 76,000
$ 2,812,000 $ 2,809,000
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of notes payable 1,565,000 1,558,000
Notes payable to affiliates 117,000 397,000
Accounts payable and accrued expenses 2,240,000 2,677,000
Redemption payable - redeemable
preferred stock 540,000 540,000
Total current liabilities 4,462,000 5,172,000
Stockholders' equity:
Common stock 90,000 17,000
Additional paid-in capital 23,883,000 23,141,000
Note receivable from stock sales (93,000)
Accumulated deficit (25,530,000) (25,521,000)
(1,650,000) (2,363,000)
Commitments, contingencies and other matters
$ 2,812,000 2,809,000
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements
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LS Capital Corporation and Subsidiaries
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
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<CAPTION>
Three Months Ended
December 31
1996 1995
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OPERATING REVENUES
Gaming $ - $ 967,000
Food, beverage, etc. - 104,000
- 1,071,000
OPERATING EXPENSES
Gaming 1,000 915,000
Food, beverage, etc. 31,000 75,000
General and administrative 263,000 554,000
Depreciation and amortization 69,000 142,000
364,000 1,686,000
OPERATING LOSS (364,000) (615,000)
OTHER INCOME AND EXPENSE
Interest expense, net (173,000) (66,000)
Gain on sale of properties 233,000
Other, net - (8,000)
60,000 (74,000)
INCOME (LOSS) BEFORE DIVIDENDS ON
PREFERRED STOCK (304,000) (689,000)
Dividends on preferred stock 9,000
NET INCOME (LOSS) $ (304,000) $ (698,000)
NET LOSS PER COMMON SHARE (0.05) (0.69)
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 6,360,000 1,012,000
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements
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LS Capital Corporation and Subsidiaries
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
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<CAPTION>
Six Months Ended
December 31
1996 1995
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OPERATING REVENUES
Gaming $ 224,000 $ 1,569,000
Food, beverage, etc. 16,000 276,000
240,000 1,845,000
OPERATING EXPENSES
Gaming 41,000 1,882,000
Food, beverage, etc. 81,000 102,000
General and administrative 579,000 1,443,000
Depreciation and amortization 142,000 288,000
843,000 3,715,000
OPERATING LOSS (603,000) (1,870,000)
OTHER INCOME AND EXPENSE
Interest expense, net (233,000) (124,000)
Gain on transfer of partnership interest
to creditor 590,000
Gain on sale of properties 233,000
Other, net 2,000 (13,000)
592,000 (137,000)
INCOME (LOSS) BEFORE DIVIDENDS ON
PREFERRED STOCK (11,000) (2,007,000)
Dividends on preferred stock 18,000
NET INCOME (LOSS) $ (11,000) $ (2,025,000)
NET LOSS PER COMMON SHARE $ (0.00) $ (2.02)
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 4,064,000 1,002,000
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements
<PAGE>
LS Capital Corporation and Subsidiaries
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
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<CAPTION>
Six Months Ended
December 31
1996 1995
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CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (11,000) $ (2,025,000)
Adjustments:
Depreciation and amortization 141,000 264,000
Reduction in accrued interest
arising from gain on transfer
of partnership interest to
creditor (590,000)
Other 85,000 53,000
NET CASH USED BY OPERATING ACTIVITIES (375,000) (1,708,000)
CASH FLOWS OF INVESTING ACTIVITIES
Residual payments from sale of board
game rights (121,000)
Collection of note receivable 595,000
Collection of receivable from sale
of securities 102,000
Capital expenditures - net (12,000) (92,000)
Increase in deposits and other assets (217,000) 1,118,000
Cash (used) provided by investing
activities (248,000) 1,621,000
CASH FLOWS FROM FINANCING ACTIVITIES
Repayments of notes payable (462,000)
Repayment of notes payable to affiliates (200,000)
Proceeds from issuance of common stock,
net 721,000 381,000
Decrease in capital lease obligations, net (35,000)
Cash provided by financing activities 521,000 (116,000)
DECREASE IN CASH AND CASH EQUIVALENTS (102,000) (203,000)
CASH AND CASH EQUIVALENTS
Beginning of period 139,000 337,000
End of period $ 37,000 $ 134,000
SUPPLEMENTAL CASH FLOW INFORMATION
Dividends on preferred stock $ 18,000
Common stock issued for:
Prepaid legal and other services $ 215,000
Reduction in accounts payable 138,000
</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 DECEMBER 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, 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 six months ended December 31,
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 October 1, 1996 to December 31, 1996, the Company
has issued 500,000 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 $.19
with the Company receiving a note receivable having an unpaid balance of
approximately $93,000 as of December 31, 1996.
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 5, 1996 in the lawsuit by the minority
partner of Papone's Palace challenging the Company's authority to execute the
restructuring agreement. The Company is involved in discussions with the
creditor in an effort to forestall the foreclosure.
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. On November 4, 1996, the Company agreed to issue 500,000 shares of common
stock to three foreign nationals pursuant to the exemption provided by
Regulation S, in consideration of the transfer of mining claims and precious
metal extraction technology to the Company's newly formed subsidiary, Griffin
Gold Group, Inc.
7. 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 ($40,000 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
$215,000 during the quarter ended December 31, 1996.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Significant Events
During the quarter ended December 31, 1996, the Company adopted a significant
change in its corporate direction. It has decided to focus its efforts on
developing precious metals mining prospects, with each project undertaken in
a separate corporate subsidiary. Currently, the Company has two
majority-owned precious metals/mining subsidiaries, Griffin Gold Group, Inc.
and Desert Minerals, Inc. and both have received assignments of mining claims
and non-exclusive licenses to use proprietary mineral extractiion 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 hired a consultant to manage such activity and
maximize value for its shareholders. The Company has not received the report
from the consultant but such report which may include converison to 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 December 31, 1996, the Company has a working capital deficiency of
$3,479,000 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 repayment schedule. The creditor notified the Company in
December, 1996 that foreclosure had been posted on Papone's Palace due to a
default under terms of the restructuring. 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 ability to execute the restructuring agreement.
The Company is involved in discussions with the creditor in an effort to
forestall the foreclosure.
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 December 31, 1996 and 1995
The Company incurred a net loss of $304,000 or $.05 a share, as compared to
$698,000 or $.69 per share for the comparable period in the prior year.
Gaming revenues declined $1,071,000 in the 1996 quarter compared to the 1995
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
$1,322,000 in the 1996 quarter compared to the 1995 quarter primarily due to
the closing of Papone's Palace as well as the Las Vegas aadministrative office
in the 1995 quarter.
Gain on sale of properties increased $233,000 in the 1996 quarter compared to
the 1995 quarter primarily due to the sale of the Company's rights to market
and manufacture football and other board games in the 1996 quarter.
Six Months Ended December 31, 1996 and 1995
The Company incurred a net loss of $11,000 or $.00 a share, as compared to
$2,025,000 or $2.02 per share for the comparable period in the prior year.
Gaming revenues declined $1,345,000 in the 1996 quarter compared to the 1995
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
$2,872,000 in the 1996 quarter compared to the 1995 quarter primarily due to
the closing of Papone's Palace as well as the Las Vegas administrative office
in the 1995 quarter.
Gain on sale of properties increased $233,000 in the 1996 quarter compared to
the 1995 quarter primarily due to the sale of the Company's rights to market
and manufacture football and other board games in the 1996 quarter. 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 1996 six months period.
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
Between October 1, 1996 and October 8, 1996, the Company sold a total of
5,633,796 shares of the Company's common stock to certain officers and
directors of the Company (and their assignees) in exchange for the
cancellation of certain amounts totaling $265,520 owed by the Company to such
officers and directors. The shares were sold pursuant to authority given to
the Board of Directors of the Company by the stockholders of the Company at
the Company's Special Meeting of Stockholders held on June 17, 1996.
In December, 1996, the Company issued a total of 132,697 shares of the
Company's common stock to certain persons who had previously purchased shares
from the Company in a private placement. There was some uncertainty as to
whether or not the Company had an obligation to register with the U.S.
Securities and Exchange Commission the shares sold in the private placements.
The 132,697 shares were issued in exchange for a release from all recipients
of such shares of all claims that such recipients had or might have against
the Company for its failure to so register the shares originally purchased.
The 132,697 shares were issued pursuant to the exemption provided for by
Regulation D under the Securities Act of 1933, as amended.
ITEM 6. REPORTS ON FORM 8-K
The Registrant filed a report on Form 8-K dated December 17, 1996 reporting
on the issuance of 300,00 and 500,000 shares under the exemption provided by
Regulation S.
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: February 12, 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 QUARTERLY PERIOD ENDED DECEMBER 31, 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-END> DEC-31-1996
<CASH> 37000
<SECURITIES> 0
<RECEIVABLES> 923000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 983000
<PP&E> 2156000
<DEPRECIATION> 356000
<TOTAL-ASSETS> 2812000
<CURRENT-LIABILITIES> 4462000
<BONDS> 0
0
<COMMON> 90000
<OTHER-SE> (1740000)
<TOTAL-LIABILITY-AND-EQUITY>
2812000
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 364000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 173000
<INCOME-PRETAX> (304000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (304000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (304000)
<EPS-PRIMARY> (.05)
<EPS-DILUTED> (.05)
</TABLE>
