UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 For the quarterly period
ended: September 30, 1997
[ ] 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 small business issuer 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)
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 ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required
to be filed by Section 12, 13 or 15(d) of the Exchange Act after the
distribution of securities under a plan confirmed by a court Yes No
APPLICABLE ONLY TO CORPORATE ISSUERS
The number of shares of common stock, $0.01 par value, outstanding as of
September 30, 1997: 12,569,790 shares
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
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LS CAPITAL CORPORATION AND SUBSIDIARIES
QUARTER ENDED SEPTEMBER 30, 1997
INDEX
PART I. FINANCIAL INFORMATION Page
Item 1. Financial Statements
Condensed consolidated financial statements of LS Capital
Corporation and Subsidiaries:
Balance sheet as of September 30, 1997 3
Statements of income for the three months
ended September 30, 1997 and 1996 4
Statements of cash flow for the three months
ended September 30, 1997 and 1996 5
Notes to condensed consolidated financial statements 6
Item 2. Management's Discussion and Analysis 7
PART II. OTHER INFORMATION
Item 1. Legal proceedings 8
Item 2. Changes in securities 8
Item 6. Exhibits and Reports on Form 8-K. 9
(a) Exhibits
(b) Reports on Form 8-K
SIGNATURE 9
2
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PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
LS Capital Corporation and Subsidiaries
Unaudited Condensed Consolidated Balance Sheet
September 30, 1997
(in thousands)
ASSETS
<TABLE>
<S> <C>
Current assets:
Cash and cash equivalents $ 15
Funds held in law firm trust accounts 73
Marketable equity securities 15
Receivable from affiliated parties, less
allowances for losses of $800,000 320
Receivable from unaffiliated parties, net 134
Prepaid expenses and other 6
-------
Total current assets 563
Property and equipment, net 1,864
Equity in gold mining ventures 301
Other assets 11
-------
$ 2,739
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Claims subject to compromise $ 2,449
Accounts payable and accrued expenses 783
Redemption payable - redeemable preferred stock 75
------
Total current liabilities 3,307
Stockholders' equity:
Common stock 125
Additional paid-in capital 25,532
Accumulated deficit (26,225)
-------
( 568)
Commitments, contingencies and other matters
$ 2,739
</TABLE>
See accompanying notes
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<PAGE>
LS Capital Corporation and Subsidiaries
Unaudited Condensed Consolidated
Statements of Income
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended
September 30
1997 1996
<S> <C> <C>
OPERATING REVENUES
Gaming $ 224
Food, beverage, etc. 16
-----
240
OPERATING EXPENSES
Gaming 40
Food, beverage, etc. 50
Equity in loss of unconsolidated mining subsidiaries $ 151
General and administrative 328 316
Depreciation and amortization 16 73
----- -----
495 479
----- -----
OPERATING LOSS (495) (239)
OTHER INCOME AND EXPENSE
Interest expense, net (137) (60)
Gain on transfer of partnership interest to creditor 590
Other, net 2
-------- -----
(137) 532
------ -----
NET INCOME (LOSS) $ (632) $ 293
======== =======
NET INCOME (LOSS) PER COMMON SHARE $(0.05) $ 0.17
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 12,370 1,770
</TABLE>
See accompanying notes
4
<PAGE>
LS Capital Corporation and Subsidiaries
Unaudited Condensed Consolidated
Statements of Cash Flows
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended
September 30
1997 1996
<S> <C> <C>
NET CASH USED BY OPERATING ACTIVITIES ($272) ($106)
CASH FLOWS OF INVESTING ACTIVITIES
Proceeds from sale of Clutch Games 65
Increase in deposits and other assets ( 42)
------- -----
Cash (used) provided by investing activities 65 ( 42)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock 35
Collection of stock subscription receivable 242
Payment of redeemable preferred redemption ( 25)
------ ------
Cash provided by financing activities 217 35
------ ------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 10 (113)
CASH AND CASH EQUIVALENTS
Beginning of period 5 139
------ -----
End of period $ 15 $ 26
===== ======
SUPPLEMENTAL CASH FLOW INFORMATION
Common stock issued for services $202
Common stock issued for gold mining ventures 10
Cancellation of investment in securities
of gold mining company (50)
Gain on transfer of investment securities
in exchange for debt reduction $590
</TABLE>
See accompanying notes
5
<PAGE>
LS Capital Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Three Months Ended September 30, 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 for
the year ended June 30, 1997 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, 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. Papone's Palace LLC was closed on September 30, 1996 and has not reopened
because of a dispute between the Company and Papone's 24.5% minority
shareholder. In April, 1997, following the failed restructuring of the repayment
terms of the principal secured creditor of Papone's, who is currently owed
$1,196,000, Papone's filed for bankruptcy under Chapter 11 of the federal
bankruptcy laws. In August, 1997, a Plan of Reorganization was filed with the
bankruptcy court followed by a Disclosure Statement in October, 1997, which
propose that the Company acquire 100% ownership and eventually repay all
creditors, including its largest secured creditor who would have to accept a
disputed receivable due from the 24.5% owner. In October, 1997, the secured
creditor filed a motion in the Bankruptcy Court to dismiss the bankruptcy citing
the perceived inability of Papone's to reorganize. In October, 1997, the court
ruled in favor of the Creditor lifting the bankruptcy stay against Papone's
property. The Company plans to vigorously appeal the Court's decision.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
SIGNIFICANT EVENTS
During fiscal 1997, 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
entity. Currently, the Company has an ownership share of three corporations
(Griffin Gold Group, Inc., Desert Minerals, Inc. and Shoshone Mining Co.),
formed to exploit certain adjacent mining claims in eastern California. Each of
these corporations has received assignments of mining claims and non-exclusive
licenses to use proprietary mineral extraction technology. These operations 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 gold mining corporation, via an initial
public offering and/or a "spin-off" of their shares to the Company's
shareholders in fiscal year 1998 so they can do their own financing with their
own shares. As this strategy is implemented, the Company will essentially become
a holding company owning large share holdings in each gold mining corporation.
The Company has retained 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 recommend conversion
to closed-end non-diversified investment holding company status.
MATERIAL CHANGES IN FINANCIAL CONDITION
At September 30, 1997, the Company has a working capital deficiency of
$2,744,000 compared to a deficit of $3,937,000 at September 30, 1996. The lower
deficiency was primarily due to the reduction in liabilities as a result of the
sale of two subsidiaries in fiscal 1997.
Papone's Palace LLC was closed on September 30, 1996 and has not reopened
because of a dispute between the Company and Papone's 24.5% minority
shareholder. In April, 1997, following the failed restructuring of the repayment
terms of the principal secured creditor of Papone's, who is currently owed
$1,196,000, Papone's filed for bankruptcy under Chapter 11 of the federal
bankruptcy laws. In August, 1997, a Plan of Reorganization was filed with the
bankruptcy court followed by a Disclosure Statement in October, 1997, which
propose that the Company acquire 100% ownership and eventually repay all
creditors, including its largest secured creditor who would have to accept a
disputed receivable due from the 24.5% owner. In October, 1997, the secured
creditor filed a motion in the Bankruptcy Court to dismiss the bankruptcy citing
the perceived inability of Papone's to reorganize. In October, 1997, the court
ruled in favor of the Creditor lifting the bankruptcy stay against Papone's
property. The Company plans to vigorously appeal the Court's decision.
In October, 1997, the Company received $250,000 from a private investor as
convertible
7
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debt, which matures in one year and bears interest at 8%. The debt is
convertible after December 1, 1997 into the Company's common stock at 70% of the
average closing bid for the previous five days. Management believes that it can
obtain the funds necessary to meet its working capital needs for the remainder
of fiscal 1998 primarily through the sale of common stock and from the sale of
other non-revenue producing assets.
MATERIAL CHANGES IN RESULTS OF OPERATIONS
Three Months Ended September 30, 1997 and 1996
The Company had incurred a net loss of $632,000 or $.05 a share, as compared to
net income of $293,000 or $0.17 per share for the comparable period in the prior
year. The change of $924,000 was attributable to 1) the decline in gaming
margins of $150,000 due to the closing of Papone's Palace in September, 1996, 2)
the gain of $590,000 on the transfer of a partnership interest to a creditor in
August, 1996 and 3) equity in loss of mining venture subsidiaries of $150,000 in
the 1997 quarter.
General and administrative expenses totaled $328,000 during the quarter ended
September 30, 1997, as compared with $316,000 for the comparable prior year
quarter.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On February 21, 1997, a judgment was entered against Papone's
Palace LLC (the "Limited Liability Company"), the indirect majority-owned
subsidiary that owns the Company's Papone's Palace casino (the "Property"). The
judgment was entered in favor of the Limited Liability Company's largest
creditor (the"Creditor") in the principal amount of $1,101,337, together with
interest and costs, and decree a foreclosure on the Property. This development
required the Limited Liability Company to file for bankruptcy protection under
Chapter 11 of the federal bankruptcy laws on April 23, 1997. However, in
October, 1997, the bankruptcy court granted a motion filed by the Creditor to
lift the bankruptcy stay against the Property. The Company plans to vigorously
appeal this decision. However, if the Company is not successful in its appeal,
the Creditor will be able to foreclose on the Property. As a result of the
foregoing matters, the future of the Property and the Company's gaming
operations can not now be determined.
ITEM 2. CHANGES IN SECURITIES
On or about August 1, 1997, the Company issued 54,400 shares
of the Company's common stock to Family Lands, L.P. in satisfaction of a
promissory note in the original principal amount of $125,000 issued by a
subsidiary of the Company in connection with the settlement of a
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lawsuit. These shares were issued in reliance on the exemption provided for by
Regulation D under the Securities Act of 1933, as amended.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The following exhibits are filed with this Quarterly Report or
are incorporated herein by reference:
Exhibit
Number Description
27 Financial Data Schedule
(b) Reports on Form 8-K
None
SIGNATURE
In accordance with the requirements of the Exchange Act, 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
Paul J. Montle
President, Chief Executive Officer
and Chief Financial Officer
Dated: November 14, 1997
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EXHIBITS INDEX
Exhibit
Number Description
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM
ITEM 1 OF FORM 10-KSB FOR THE THREE MONTHS ENDED sEPTEMBER 30, 1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<CIK> 0000897545
<NAME> LS CAPITAL CORPORATION
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 1
<CASH> 15
<SECURITIES> 15
<RECEIVABLES> 1254
<ALLOWANCES> 800
<INVENTORY> 0
<CURRENT-ASSETS> 563
<PP&E> 2216
<DEPRECIATION> 352
<TOTAL-ASSETS> 2739
<CURRENT-LIABILITIES> 3307
<BONDS> 0
0
0
<COMMON> 125
<OTHER-SE> (693)
<TOTAL-LIABILITY-AND-EQUITY> 2739
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<INCOME-PRETAX> (632)
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